Private equity in central and eastern Europe is starting to show signs it is not immune to the impact of the sub-prime crisis, according to the C5/Squire Sanders CEE Private Equity Report,
Private equity in central and eastern Europe is starting to show signs it is not immune to the impact of the sub-prime crisis, according to the C5/Squire Sanders CEE Private Equity Report, based on a survey of more than 100 fund managers, lawyers and other industry professionals.
‘The central and eastern Europe market, relatively speaking, has been a calm port in the sub-prime storm,’ says Andrew Sandor, a corporate lawyer in Squire Sanders’ Bratislava office. ‘However, our survey indicates a squall might be brewing that will dampen private equity’s enthusiasm.’ More than half of the survey respondents said the liquidity crunch had ‘very much’ or ‘somewhat’ affected the availability of leverage.
The report also identifies the impact of cultural and personnel challenges in the market, Sandor says: ‘When investments fail in central and eastern Europe, people issues seem to be at the core.’ However, he notes that failure is driven by significantly different factors from those at play in the countries of the former Soviet Union.
Whereas more than 60 percent of respondents from member countries of the Commonwealth of Independent States point to factors such as macroeconomics, weak deal structure and lack of financial and operational control, industry members in central and eastern Europe say write-offs more frequently stem from problems such as untrustworthy partners and incompetent management.
Sandor says that finding is borne out by the fact that nearly 75 percent of respondents had to replace key management post-deal, and chief executives and chief financial officers often found themselves under fire – and eventually out of the door – in the wake of private equity investment.
Private equity work has been a mainstay for Squire Sanders in the region. In Bratislava, lawyers have represented the Slovak American Enterprise Fund and the European Bank for Reconstruction and Development-backed Slovak Post-Privatisation Fund, both in management areas such as compensation and governance audits and in investments and disposition of portfolio companies along with related shareholder agreements, loans and security arrangements.
The practice has worked for merchant banking group UniCredit CA IB in the acquisition of a minority interest in CS Cargo, a Czech company with operations in Slovakia, Hungary and Russia, and for SkyEurope Airlines in financings from Bank Austria Creditanstalt, as well as for an innovative Hungarian financial sector start up in its first and second rounds of equity and debt financing.
Founded in 1890, Squire, Sanders & Dempsey has more than 850 lawyers in 30 offices and 14 countries worldwide. It has offices in Europe in Bratislava, Brussels, Budapest, Frankfurt, London, Moscow, Prague and Warsaw, as well as associated offices in Bucharest, Dublin and Kyiv.
