With more than US$500bn (€361.8bn) of leveraged buyout debt yet to find a syndication home in Europe and the US, and the likes of resident rentaquote Jon Moulton biting the hand that feeds him with more doom-mongering – the credit crisis has “sown the seeds of a very major downturn” – you had to look east to find a positive private equity record-breaker this week.
Less reliance on financial engineering looks likely to prompt further interest in the largely untapped CEE region, but for now it is the domain of emerging market investors such as Mid Europa Partners (see opposite page).
With a target of €1.5bn for a final close later this year, the new fund is more than double the size of its predecessor, also a record-breaker when it closed on €650m in January last year (and later trumped marginally by
The leap in size – and investor confidence – has been mirrored across the region. According to research by the Emerging Markets Private Equity Association, funds raised for CEE and Russia in 2006 totalled US$3.272bn, up from US$2.711bn in 2005 and significantly more than the US$406m garnered in 2003.
While much of private equity’s focus on emerging markets has been directed towards China, India and Australia, a number of the big Western firms have also been increasing their exposure to the CEE region.
Much has been made in this space of
Craig Butcher, a partner at Mid Europa, isn’t concerned about the big LBO firms muscling in on his territory, though. “This region is definitely going more mainstream and there are more people looking at these countries,” he says, “but we’re confident of remaining the leading buyout firm, specialising in a region in which we have deep local knowledge.”
Will the freeze in Western debt markets trigger further attention from private equity firms currently starved of leverage?
“We’re slightly removed from debt concerns, because we’re not so reliant on financial engineering to deliver high returns,” says Butcher. Despite this, he has seen some banks “pulling back, prices tightening and some of the heat coming out of the market”.
Whether or not the CEE region catches the West’s current debt flu, the untapped potential and uncrowded nature of the space will continue to draw firms such as Bridgepoint and Carlyle further east. Once there, they’ll take some time to settle. Until then, Mid Europa can retain its king of the private equity jungle status and continue breaking records.
By Robert Venes