An increase in the number of completed deals in Central and Eastern Europe is expected this year by 49% of private equity fund representatives, according to the ‘Deloitte Central European (CE) Private Equity (PE) Confidence Survey’. Although improved sentiment has been observed for more than a year, at the same time investors seem to remain cautious in their forecasts. ESG issues continue to gain importance, with more than half of those surveyed including them in their investment strategies.
Developed for more than 20 years, the Central Europe PE Confidence Survey index is a reflection of the sentiment of local private equity market participants. At the end of 2023, its value stood at 107 points, 24 more than six months earlier. The authors of the report note a steady increase in optimism over the last three surveyed periods, which is the third such case in the survey’s history. At the same time, the observed change has a less dynamic character than in previous years, and this, according to experts, indicates a cautious approach of investors to improving market conditions, the survey reported.
Despite this, 86% of respondents believe that the next 12 months will be a good time for investment activity. In 2024, nearly half of those surveyed plan to focus on new investments. This is almost 10 percentage points higher than a year earlier. One in three intend to focus on managing their existing portfolio of companies, while 15 per cent intend to focus on fundraising.
“Although the latest sentiment indicator reading is the highest in a year and a half, it is apparent that representatives of the Central European private equity market are more prudent than in the past. This is the result of experience from more than two decades of operating in volatile market conditions. At the same time, we expect that despite many economic challenges, private investor activity in Central and Eastern Europe should increase. This applies to both the demand and supply side, as evidenced by the percentage of over 40% of respondents continuing the sales process despite the volatile market situation,” said Partner in Deloitte’s financial advisory division, M&A Transaction Services Arkadiusz Strasz.
The distribution of responses regarding expectations of economic conditions confirms the thesis of growing optimism among investors. Indeed, 42% of those surveyed said that they expect the market situation to improve. This is almost three times as much as in the previous edition of the survey. At the same time, the percentage assuming a negative scenario fell by half. A more than twofold increase can also be seen among those expecting an increase in the availability of debt financing. This type of answer was given by 29% of respondents, it was also indicated.
When asked about market activity – the expected number of transactions in 2024, 49% of respondents said they expected more activity in this area. This is almost twice as much compared to mid-2023. This result is also more than 40 percentage points higher than in the summer of 2022, when such answers were given by 6% of respondents. Similarly, the group expressing pessimism more than doubled to 14%. Investors’ willingness to take action is influenced by, among other things, the cost of capital. According to one in three respondents, the availability of financing should increase in the coming years. This percentage is twice as high compared to the previous survey. Almost half of the respondents do not expect a change in the current conditions and one in five assume a worsening of the possibility to obtain funds for investments, according to the report.
The authors of the report highlight the further increase in the importance of ESG factors for participants in the Central European private equity market, including in the area of investment decisions. More than 50% of fund representatives confirmed that they pay particular attention to these issues in their operations. The largest increase was observed among those without an ESG-sensitive strategy but planning to change in this area, from 9% in the first half of 2023 to 23% six months later, it was reported.
When asked about climate neutrality, the majority of funds responded that they were only at the beginning of their journey towards zero carbon. The percentage of those that have so far implemented decarbonisation commitments and targets fell by 8 percentage points to 18%. At the same time, a corresponding increase was observed among funds in the process of developing their own climate targets. This is now the most numerous group of entities surveyed, accounting for 42% of all respondents.
“The growing importance of environmental, social and corporate governance factors is best evidenced by the fact that more than 90% of the surveyed entities take them into account in their operations or plan to do so in the future. At the same time, last year was a landmark year in that, for the first time ever, a company that is part of a local private equity fund was awarded the prestigious B Corporation status, representing a commitment to active ESG measures. In the near future, we can expect a dynamic growth of such entities, for which commitment to sustainability will be a key issue,” concluded Partner, leader of Sustainability & Economics Consulting CE, Deloitte Irena Pichola.
Source: Deloitte and ISBnews
