Despite the pandemic and global recession, 90% of private equity (PE) and venture capital (VC) funds assess their current situation as good, including a stable 66% or a promising improvement – 24%, shows from the “Barometer of the Private Equity and Venture Capital Industry” conducted by JP Weber. Most funds indicate that they plan transactions with companies operating in the region of Central and Eastern Europe, only 1/3 plan to invest in companies from Poland.
“The private equity industry is often referred to as the litmus test of the Polish economy, so we decided to check whether – and if so – to what extent the pandemic affected this industry and its portfolio companies and in what colors it sees the coming year. The results of the study prove a certain resilience. private equity funds for a pandemic “- said associate partner JP Weber Piotr Dalak, quoted in the press release.
Funds active in Poland participated in the study. “Although almost all (95%) surveyed companies indicate that the economic situation in Poland is worsening, at the same time every fifth fund (21%) expects that 2020 will end with return on investment in positive territory. Almost half (47%) expects a similar level of return on investment as in 2019, and every third respondent believes that the return will be lower than a year earlier (30.4%) “- reads the release.
However, 44% of the surveyed funds expect a reduction in budgets for new investments. “We conducted the study at a special time for the Polish economy – we started it after lifting most of the restrictions resulting from the first wave of the COVID-19 pandemic. We waited with great interest for information on the moods in the PE and VC industry in Poland, especially as it is investments that can determine However, the results allow for cautious optimism, almost half of the funds (46%) indicate that the pandemic did not affect decisions related to their activities, another 28% say they perceive this impact to a small extent. The surveyed fund expected that the impact of the pandemic on the economy would be long-term, Dalak added.
According to the study, the factors that PE and VC funds indicated as having the greatest impact on the number of investments made are: the economic situation (53%), attractive company valuations (31%) and the political situation (15%). Therefore, concerns about the industry’s situation seemed justified, especially in the context of the forecast recession in 2020. However, despite the deterioration of the economic environment, almost half of the funds (46%) indicate that the pandemic did not affect decisions related to their activities, another 28% said that it notices this impact to a small extent, while every fourth fund (25%) indicates that the crisis caused by the COVID-19 virus has a large impact on investment decisions, which, however, important next months will show the real impact of the current situation on the PE industry “- reads the press release.
The good closing of 2020, forecasted by the funds, may result from increased investment activity in the second half of the year. Almost every fourth respondent in the third quarter analyzed more projects than in the second quarter, only 7% of respondents did not plan any investments in the second half of the year. “The activity of funds may increase in the following quarters, especially considering the fact that more than half of the respondents believe that the current valuations of companies in Poland are overstated. It is worth emphasizing that almost every third fund surveyed indicated that attractive valuations have an impact on The economic slowdown caused by the pandemic and its impact on selected industries has become an opportunity for funds to achieve a higher rate of return on investment in the future “- said Piotr Kucharczyk, M&A director at JP Weber, quoted in the press release.
The surveyed PE funds indicate that the overestimation of companies is visible in the following industries: IT (69%), retail and e-commerce (62%) as well as healtcare and pharma (56%). On the other hand, VC funds indicated the following industries: gaming (90%), fintech (70%) and artificial intelligence (70%). It is probably too high valuation of companies in Poland that means that most funds indicate that they are planning transactions with companies operating in the region of Central and Eastern Europe, and only 1/3 plan to invest in companies from Poland. Investments outside the CEE region are much less popular, only every 10th respondent plans them, it was also stated.
According to JP Weber, this conclusion is confirmed by the fact that the surveyed PE funds clearly indicate that companies from the IT sector have the greatest transaction potential (68.8% of responses). rapid digitization of business activities and the boom in e-commerce. Another industry was indicated by almost every 5th surveyed fund, according to which production companies have the greatest potential (18.8%).
“We expect a transactional recovery not only in the industries that suffered heavily during the crisis, but also in those that benefited from the crisis. Despite high valuations, we expect that the IT, medicine, new technologies, but also production and automotive sectors should record an increased number of transactions. in the coming months, in line with the approach that you buy those who have a long-term growth perspective ahead of them or those who can ensure survival in uncertain times “- said Kucharczyk.
The surveyed PE funds see the impact of the pandemic in the banking industry. “Every second respondent (56%) indicates that access to debt financing in the third quarter deteriorated compared to the beginning of 2020, as many as 62% of respondents believe that this is due to the economic situation caused by COVID-19, every fourth respondent indicates that at the time of the study (Q3 2020) it was too early to assess the impact of the pandemic on the economy “- reads the press release.
“The results of the survey indicate that in the coming months the challenge may not be just to find the right investment target, but rather to structure transactions. Banks’ financial results and the tightening of lending policies as a result of the economic crisis may make some of the previously easy forms of financing more difficult to access.” We will be able to find out about it in the next reading of the study ‘Barometer Private Equity and Venture Capital in Poland’ “- summed up Dalak.
The study “PE and VC industry barometer in Poland” was conducted by JP Weber on a purposeful sample of 30 PE and VC funds based in Poland. The survey was conducted among fund managers in the period from August to October 2020. It was carried out using a mixed method of computer-assisted telephone interviews with respondents (CATI) and computer-assisted website interviews (CAWI).
JP Weber is an independent consulting company that has been comprehensively supporting decision-makers and business owners in transactions and in their daily business, financial, legal and tax challenges for almost 20 years.
