Eastern promise: Why investors are turning their eyes toward the CEE's emerging deal landscape again

“After a decade of investor caution towards Central and Eastern Europe (CEE), is the recent switch to net labour inflows to the region heralding a newborn appetite from international LPs…

While CEE fundraising levels are still far from the levels seen before 2008, a fresh study by CMS shows that private equity investments reached a record high of 318 deals in emerging Europe in 2019, accounting for 16 per cent of all deal-making there.

International funds are showing an increasing appetite for large deals in the region lately, the largest deal being the EUR1.9 billion purchase of Central European Media Enterprises by PPF Group of the Czech Republic, announced in October. Private equity buyers and sellers were involved in five EUR1 billion-plus deals across the region in 2019.

Other landmark deals for the sector included the EUR1.28 billion purchase of Bulgarian Vivacom by BC Partners-backed United Group. 

On the whole, deal volumes across emerging Europe fell by 6.5 per cent last year, however, foreign investment surged with cross-border M&A increasing by 14.6 per cent, according to the CMS Emerging Europe M&A report, published earlier this week in cooperation with EMIS. 

Real estate and construction was the most active sector. “Looking at the year ahead, we believe there may be some slowdown in economic growth, but even if that is the case, we don’t see any dramatic fall in M&A activity across emerging Europe because these markets are independent and self-contained," said Helen Rodwell, CEE head of corporate at CMS Prague.

“If anything, a slower start to 2020 might even stimulate M&A activity as vendors’ minds focus on getting deals done sooner rather than later, and investors who have been waiting on the sidelines step into the fray,” she explained.

In-bound investment originating from outside the region witnessed particularly strong growth, and with regards to this, China was the largest investor by value.

By transaction numbers, the US was the clear leader in international investment, racking up no less than 122 deals. UK companies also increased their allocation to the region, (+9 per cent), as did Germany, France and Spain.

“Although overall deal numbers were a little lower this year, foreign interest in the region remains high with cross-border investment up 14.6 per cent year on year and strong inbound investment flowing from Asia, US and UK in particular, commented Rodwell. Investment from Asia into emerging Europe also increased in 2019, accounting for 15.9 per cent of overall M&A value.

Speaking of the Balkans, CMS Austria and south east Europe expert Radivoje Petrikic, says: “Strong foreign interest remains and both strategic and financial investors are attracted to the opportunities which vary from privatisations of large state enterprises in traditional sectors, to exits by private equity funds and to young innovative start-ups.”

According to Petricik, after a spike in deal activity in the CEE region in the last few years, numbers have now normalised and “seem to be at a sustainable level.” 

In terms of country focus, Ukraine seems to be the place to keep an eye on as reforms implemented under the new president Volodymyr Zelenskiy start to materialise - both transaction volume and values were up by almost a third compared to 2018. 

Abris Capital, a mid-market PE firm investing in the major countries of Central and Eastern Europe, currently has three funds under management and has completed 26 deals as well as 50 bolt on acquisitions to date in the area.


The firm focuses predominantly on Poland and Romania and has offices in Warsaw and Bucharest, but also consolidates throughout the region. It has nationals from several of the other CEE nations in its team in order to source for opportunities in the 16 different countries that make up the fragmented region.

Last year was the first year where net inflows of labour to the CEE region exceeded net outflows, something which affects Abris’s investment decisions.

“The biggest challenge nowadays is access to labour; unemployment is disappearing, business is growing. There were also a lot of job opportunities created by Brexit when banks, insurance companies, back offices and the likes are moving back. So labour is certainly a challenge,” says Pawel Gierynski, managing partner of Abris Capital. 

With investment capital of over EUR1.2 billion, Abris has obtained financial backing from global investment institutions including corporate and public pension plans, financial institutions, insurance companies and US university endowment funds.

The GP prefers to buy a majority or sole ownership position in portfolio companies, and the typical financial commitment to any single transaction varies between EUR30 to 75 million.

Another challenge right now in the view of Abris’s management, is access to the stability of energy. “Energy prices are higher in Poland than anywhere else in the EU, and the stability of energy supply in some parts is not very good. Long term we are dependent on the supply of gas from Russia; stable or not is not for me to answer, but it’s certainly a challenge,” says Gierynski.

From a bigger picture perspective Gierynski highlights decarbonisation as a key theme going forward. “Across the CEE, I don’t think there’s any government that has a clear policy for how they want to achieve it. We know this will be a significant change that will affect the region, but we can’t see the pattern yet.”

He mentions that decarbonisation will involve an investment of EUR4 billion, and for the Polish government this will have a significant impact on the economy.

Another trend - a relatively new one - is consumer spending. As GDP per capita is increasing, it’s boosting the consumer goods sector. “CEE consumers are not used to save. During communism there was nothing to save, so people are not trained to save. Now when people have more disposable income, they are spending. And disposable income is growing, spending is growing,” explains Gierynski. 

This is something which is reflected in the GP’s portfolio. With regard to the future of investments in the CEE region, Monika Nachyla, partner and head of IR and ESG at Arbis Capital takes a pragmatic stance. “Fund III’s portfolio shows all the trends. If you want to understand where the CEE region is going; look at our portfolio,” she says.

Source: Private Equity Wire, article by Karin Wasteson, https://www.privateequitywire.co.uk/premium/are-investors-turning-their-eyes-toward-the-cee-emerging-deal-landscape-again