SOFIA (Bulgaria), December 21 (SeeNews) – Fundraising for private equity investment in southeastern Europe is expected to rebound in the second half of next year with focus on EU members Romania and Bulgaria, the president of the South Eastern Europe Private Equity Association (SEEPEA), Robert Luke, said.
“There’s appetite on behalf of fund managers to raise funds, but the problem is there’s no appetite on behalf of the limited partners who actually invest in the funds,” Luke told SeeNews in an interview on the sidelines of the Private Equity in Bulgaria: The Year Ahead conference (www.bulgariaprivateequity.com) held earlier this month in Sofia.
“Apart from the EBRD and EIF, which are doing fantastic jobs in trying to bridge that gap, the pension funds and life insurance companies are all very quiet at the moment, so there’ll be another six months, probably a year before there will be another fund raising,” he said.
Private equity involves the purchase of a majority or complete ownership stake of an operating company, which is either privately-held or listed on a stock exchange.
SEEPEA was established in 2005 by GED Capital Development, Romanian American Enterprise Fund, and France's Societe Generale Asset Management to represent capital investors willing to operate in Bulgaria, Romania, Moldova, Serbia, Montenegro, Macedonia and Albania.
Investment by equity funds in Southeast Europe is expected to reach 100-125 million euro ($143-$179 million) this year and rise to 150-250 million euro next year under Luke's estimates. Healthcare, services and retail remain the sectors most preferred by foreign investors in the region.
Luke, who is also managing director of Spanish private equity group GED, said the prospects for investing in private equity in Bulgaria are much better now than they were around six months ago. The economic environment is clearer, the expectations of the sellers of private equity are now more realistic and the prospects for growth are clearer.
“So we are optimistic. In 2009 private equity firms, like GED Capital Development, have concentrated on those sectors which were not affected by the crisis conditions, such as health services, energy, and those areas in which we have invested."
"Looking forward, the services sector is going to be interesting, and those related to infrastructure supplies, materials. These services will depend on Bulgaria getting the EU funds to enable it to develop the infrastructure," Luke said.
He believes a recovery of the construction sector in Bulgaria is absolutely vital, as over 30% of the country's economy was dependent on it before the crisis, and the recession was in large part caused by inadequate investment in Bulgaria.
In Romania there has been reliance on the constructions sector, too, but its economy is larger and there was more diversification across a number of sectors.
GED Capital Development is currently looking at opportunities in the two neighbouring countries.
“We have a couple of potential investments which are well advanced in analysis – it’s infrastructure in Bulgaria. In Romania we have an approved investment in the medical sector which would build up to our existing investments and also in the tourism sector. GED is particularly interested in build-up opportunities where we create a platform and buy one or two companies in the sector,” Luke explained.
In Romania renewable energy is going to be a sector of interest. Construction is obviously going to come back. I think there will be some areas of so-called distressed investment where the companies themselves are good but they perhaps have been overfinanced by banks and the banks are going to have to realize the asset and sell it to private equity.
“So I think distressed purchases are going to appear in the second half of 2010.”
GED, set up in 1996, manages a total fund volume of more than 300 million euro through its GED Eastern Fund II, GED Iberian Fund I, GED Sur, and GED Real Estate Eastern Investments vehicles. Their area of operation is southeastern Europe and the Iberian peninsula.
GED has raised 150 million euro in GED Eastern Fund II, its second fund for investments in southeast Europe, targeting mainly Romania and Bulgaria. Through its first fund, GED Eastern Fund I-RPPF, the company has invested its capital in twelve Romanian companies from various sectors of the economy.
GED has so far carried out seven acquisitions through its Eastern Fund II. Six of them are based in Romania - corporate travel agency Happy Tour, lab equipment distributor Diamedix, Rosegur, Red Projects, mobile retailer Fonomat, and energy services provider Total Energy Business, and one in Bulgaria - dairy firm Fama. GED has invested roughly 70% of the money put into the Eastern Fund II and has another 40 million euro to spend.
When comparing Bulgarian companies with Romanian ones, Luke believes transparency is lower in Bulgaria, as regulators seem to be more prone to favouring one company as opposed to another. It’s less of a problem in Romania.
But on the other hand, there’s the current political crisis in Romania and Luke does not expect things to settle down in the next six months. Overall, this means that foreign investors are going to look elsewhere to invest their money, he said.
“We have been looking for the beginnings of positive growth in Romania in the second, but with the political crisis, I think it’s going to be the third quarter. When it does happen, I think growth will be faster in Romania than in Bulgaria.”
Looking elsewhere in southeast Europe, GED Capital Development is considering options to invest in Serbia, possibly Macedonia, and Croatia.
“So far we have not seen anything which is as attractive as an investment in Romania and Bulgaria because the risks are significantly higher to invest in non-European Union countries, and the rewards are not that much higher,” Luke added.
($ = 0.6978 euro)