Health check

Emerging economies in Central and Eastern Europe (CEE) were in danger of being overcrowded by private equity professionals this year as firms rushed to capitalise on the region's strong growth rates. However, new investor teams are finding themselves with little to do amid the credit crunch.

For instance, apart from its acquisition of Bucharest-based pharmaceutical company LaborMed earlier this year, global private equity firm Advent International has largely been waiting out the downturn, says Joanna James, managing partner for the firm's CEE activities. The firm closed its fourth Central and Eastern European fund on €1 billion in April.

Warsaw-based Enterprise Investors president Jacek Siwicki said his firm had planned three IPOs for portfolio companies that have now been suspended until at least 2009. He added that deals such as the €800 million purchase of pan-European healthcare provider Euromedic from shareholder s including Montagu Private Equity in June represented one of the few major exits involving private equity completed in 2008.

Healthcare is one of the sectors expected to see healthy returns this year, while continued demand for improvements to the region's dilapidated infrastructure will help fuel the housing and construction industries. And while growth rates of up to 20 percent per annum in some sectors are a thing of the past, the region's slower growth is still expected to outpace that of the US and Western Europe.

Poland, the Czech Republic and Romania can expect to see continued interest from private equity firms, while James says that Turkey could also be well placed to withstand the downturn as it had already restructured its banks following its own crash in 2001.

While big deals may be off the table, Siwicki believes there is still much demand for smaller investments that have an easier time being approved by banking committees. Enterprise recently closed a €100 million venture fund that will invest up to €5 million in expansion financing for smaller companies.

He adds that, in the near term, more private equity firms may look at investing in public companies, such as Enterprise Investors' purchase of 43 percent of Warsaw-listed soft drinks manufacturer Kofolo-Hoop for €143 million. “With almost 400 companies listed in Warsaw, there is quite a large number of potential targets that could be of interest,” he says.

But as many firms look to bolster their presence, Lindsay Stuart, head of London-based private equity firm Candover's new regional investment team, says some less experienced firms may get into trouble by making investments that cannot survive a recession. “These capital calamities and the resultant recession can be very difficult to get through, and you need experienced hands to really sort the wheat from the chaff.”