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Private Equity: Confidence grows – but deals are challenging to close

Optimism is continuing to spread among Private Equity practitioners across Central Europe, as they look to the future with greater confidence than at any time since early 2008.

Deal levels are still below those of two or three years ago, however, and deals are taking noticeably longer than before to conclude. These are some of the points arising from the 15th edition of the Deloitte Central Europe Private Equity Confidence Survey, which has been tracking sentiment among the PE community since 2003.

According to Deloitte partner and M&A Transaction Service Leader Garret Byrne, “2009 was a tough year for Private Equity globally, including Central Europe. 2010 is looking much more positive – the recovery in stock markets and improved availability of debt has bolstered sentiment. There is a continuing belief among economists in the convergence effect that should see economies in Central Europe grow at a faster pace than in Western Europe over the medium term.”

The survey asked a sample of professional Private Equity respondents from across the region 10 key questions relating to their expectations for the next six months from April 2010.

Highlights of the findings included:

• More than 96% of respondents expect the regional economy to improve or remain stable, recovering steadily but not returning to the growth levels of 2006 – 2007;
• Nearly three-quarters (74%) of respondents expect to spend most of their time focused on pursuing new investment opportunities, a strong contrast with October 2008 when  55% claimed to be concentrating on portfolio management;
• With 65% predicting an increase in the level of M&A market activity, this is the highest proportion to do so for six-and-a-half years;
• The proportion expecting improvement in the performance of their portfolio companies has grown significantly since October 2008, from 5% then to 35% today, while burgeoning stock market performance means that the 61% predicting no change can also be perceived as an optimistic statement.

The overall conclusion of the report is that the greatest challenge of the next six to 12 months will be to convert this growing optimism into completed deals that deliver value and further fuel economic recovery across the region.

According to Garret Byrne, however, we must not lose sight of the potential for surprises that could significantly change the outlook.  “The environment is dynamic,” he said.  “Economies globally have a huge amount of debt on board, which will curtail growth.  We are also all left wondering what surprises await us, with the Greek crisis and subsequent bailout vividly illustrating the sort of impact that such an event can have.  The full impact of such challenges are yet to be measured or fully understood as to who pays and when.”

For more details please visit: www.deloitte.com/ce-private-equity-confidence