Confidence in Central Europe is stabilizing, says Deloitte survey

Private Equity investors’ confidence in Central Europe has stabilized, according to the most recent Deloitte Central European Private Equity Index, which went up from 48, an all time low in October 2008, to 138, 24 months later.

 This new value represents a two-point decline since late spring (140), when the previous edition was released, indicating that sentiment remains unchanged during 2010.

 According to Garret Byrne, Deloitte Partner and M&A Transaction Services Leader, “2010 has proven to be a year of solid stabilization and gradual recovery, following the enormously difficult period from 2008 to 2009 which saw confidence levels plummet to unprecedented lows.”

 Hein van Dam, Partner in Charge Deloitte Financial Advisory, Balkan cluster, added: “Private equity funds have substantial capital to deploy. Transactions are taking longer to craft and I would argue its less about money and more about the quality of opportunities, greater analysis of potential risk-reward and the concerns related to the macroeconomic context.”

 The survey asked a sample of Private Equity professionals from across Central Europe 10 key questions on their expectations for the next six months from October 2010.

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 Expectations over the following six months

 • A significant majority of respondents (62 percent) foresee no major change in the economy;

• With 64 percent of respondents stating that they would focus on new opportunities over the next few months, the October 2010 survey shows a decline (from 74 percent) since April. However, it is likely that the more stable conditions will enable a slowly accelerating increase in the number of deals actually being closed in the months ahead, although it is unlikely that they will reach pre-crisis levels for a considerable time.

• 74 percent of respondents expect deal sizes to remain the same (average deal sizes during 2009 were rather low – mostly worth less than 20 million Euro). This suggests that larger deals will continue to remain in the minority;

• 67 percent of respondents expect an increase in overall M&A market activity through into 2011. This is the highest level for seven years, underlining the general increase in optimism that has now held increasing sway since the low point of October 2008 when a staggering 80% foresaw further decreases in activity.

• 43 percent of respondents forecast an improvement in the performance of their portfolio companies, this metric stands at its highest level since early 2005 – significantly ahead of the boom years of 2006 and 2007;

• The percentage of private equity investors interested in buying more over the next six months has slightly decreased from 70 percent to 64 percent

• The proportion choosing market leaders is higher than ever before at 74 percent, possibly highlighting a continuation of the risk-averse character of post-crisis investment. At 26 percent, medium-sized businesses appear to have declined substantially in attractiveness since April, despite the opportunities they represent for growth (from 35% to 26 percent).

• The European Bank for Reconstruction and Development (EBRD) and the European Investment Fund (EIF) are recognized as having a key role in the region in making investment funds available.

Staff