ANALYSIS - Crisis-Hit SEE Entrepreneurs Seen Opting for Private Equity in 2009 to Combat Liquidity Drought

“As soon as the first or second quarter of next year we will see people decide to capitilse their companies to prepare for the harder times,” London-based NBGI Private Equity investment director Dimiter Gurdjilov told the 2nd Southeast Europe Financial Services Forum organised by SeeNews in Sofia earlier this week.

Thomas Higgins, managing partner of Balkan Accession Fund, agreed that after the first quarter of next year private equity deals in the region may re-emerge after the current lull when such deals have been put on hold.

“What we see is really that same transactions are being postponed for next year, and maybe, some will never happen,” Bilian Balev, a partner with Forem Consulting Bulgaria, told the forum.

“The stock markets went down for one year now, credit was still booming as recently as July, and we had in September–November the taps turned off," Kenneth Lefkowitz, managing partner of New Europe Corporate Advisory (NECA) told the forum.

Balev said that the only fresh capital available may at present come from private equity investors. “A strategic investor will prefer to wait and see,” he added.

“It’s going to take several more months for entrepreneurs to face up the reality that they need capital for some particular plans that they have and to come down to earth in terms of valuations”, Lefkowitz said.

“Some of the valuations that we are discussing with entrepreneurs now are not that different from last year’s except that last year they were laughing at us. People know where our views of fundamental value are and I think that they will come to grips faster than we think,” Gurdjilov said.

Officials at the forum were unanimous that the region will be hit by the financial and economic crisis to a lesser extent than Western Europe and will remain attractive for investment.

“Some of the projects and investments will be cut short, but not all of them. There are still profitable things to do, so there will be more activity,” Gurdjilov said.

Higgins added that well-managed companies will survive the crisis if they are focused on excellence and discipline.

Gurdjilov said that even in the current situation he is ready to pay a premium for a good management team and a good business model.

He said that he expects the entrepreneurs with weaker companies to come first to the market.

“I think that eventually evaluation may not fall dramatically for the best players in a sector,” Gurdjilov added.