East European PE outlook improves

A recovery in stock markets and improved access to credit would help bolster sentiment for private-equity (PE) transactions in central and eastern Europe this year, according to a Deloitte & Touche LLP survey.

Better access to debt made buyout firms more confident about pursuing deals, mainly in such defensive sectors as food and drink, manufacturing and healthcare industries, Deloitte said. Some 65 per cent of respondents, the highest level since 2003, expect mergers and acquisitions to increase in the region in the next six months.

Central and eastern Europe’s export-driven economies sank into recession in 2009, when the global credit crisis plunged the euro area into its worst contraction since World War II.

Deloitte’s survey, published on Tuesday, was carried out in the first months of 2010 before the Greek fiscal crisis and included more than 20 of the largest private equity firms operating in Poland, the Baltics, the Czech Republic, the Balkans and other eastern and central European countries.

“The market has become much more dynamic,” Deloitte Financial Advisory Director Dalibor Hlavac said at a press conference in Prague on Tuesday. “Private equity funds are optimistic again and they are looking for acquisition opportunities.”

While a belief among economists that the region should grow faster than western Europe has led to increased interest in doing deals, the levels of completed leveraged buyouts are “nowhere near” those of two or three years ago, according to Deloitte Partner Garret Byrne. The Czech Republic and Poland are the most active markets in the region, Byrne said in an interview after the presentation.

In particular, the Czech government expects economic growth of 1.3 per cent this year, after a 4.1 per cent contraction in 2009, on improved demand for exports, which account for about 70 per cent of gross domestic product. Sales to strategic investors continue to be the most likely exit routes. Secondary sales to private equity also may be “realistic” options, the survey showed.

Deloitte expected an increased number of initial public offerings on the Prague and Warsaw stock exchanges this year, Byrne said. The most attractive sector in the Czech Republic would be machinery, he said. Buyout firms rely on loans for about two-thirds of the price of companies they acquire.