A rebounding private equity market awaits investors in Central & Eastern Europe once stability returns to Ukraine, according to a new report.
- Consolidation opportunities and stronger political cooperation will drive investment
- Over two-thirds of survey respondents expect better returns within five years
- Average GDP per capita three times lower than Western Europe shows growth potential
A rebounding private equity market awaits investors in Central & Eastern Europe (CEE) once stability returns to Ukraine, according to a new report.
Private equity investment in CEE is poised to enter a period of strong growth, overcoming geopolitical risks and macroeconomic turbulence, according to consultancy Bain & Company.
While all respondents to a survey in the report believe the current fundraising outlook for CEE-based funds to be either “slightly worse” or “significantly worse” due to recent geopolitical and macroeconomic disruptions, including Russia’s invasion of neighbouring Ukraine, as many as 56% expect an improvement over the next three to five years.
Bain notes that private equity investment in CEE is currently averaging just 0.2% as a proportion of GDP, compared with 0.8% in Western Europe, showing the potential for a significant uplift.
Consolidation is a key trend that could drive private equity investment here. Companies in the region are, on average, smaller than their counterparts in Western Europe, indicating higher fragmentation within sectors and greater potential for deal-making, according to Bain.
The report also predicts that several other trends including nearshoring and reshoring, plus the green transition, and the emergence of local LPs, will have a positive impact on PE exposed to the regions.
Compared with three to five years ago, 66% of the survey respondents say their CEE funds’ returns are either “slightly” or “significantly” better, and over the next three to five years, while over two-thirds (67%) expect similar returns, and 33% are forecasting an improvement.
In the short-term however, headwinds remain – not least the aforementioned war in Ukraine.
But despite four of the 11 countries covered in the report – Poland, Slovakia, Hungary, and Romania – all sharing a border with Ukraine, Poland and Lithuania bordering Russia’s Kaliningrad exclave, and Estonia and Latvia, Russia proper, Putin’s invasion of his southerly neighbour is not anticipated to impact CEE as hard economically as might be expected. Of the 11 counties, trade with Russia accounts for just 3% of CEE imports and exports. They are also expected to continue expanding faster than developed Western markets with an average GDP per capita three times lower than Western Europe showing the potential for long-term uplift.
And with the war likely to prompt structural changes in the regional economies, including greater military and security spending, investment opportunities may arise in several sectors including cybersecurity and the green energy transition, not to mention the potential for long-term involvement in the postwar reconstruction of Ukraine. Most investors (66%) believe that cooperation with Ukraine will increase after the conflict, mainly benefitting the construction, industrials, and business services sectors.
Key Takeaway | Long-term trends including a greater scope for consolidation than in other regions paint a positive outlook for PE growth in CEE
