Mid Europa sets benchmark for CEE

Craig Butcher, a partner at Central and Eastern Europe-focused private equity firm Mid Europa Partners, said that its record breaking third fund, Mid Europa III, which has held a final close with €1.5bn of capital commitments, was a “sign of the maturing nature of our market”.

Fund III held a first close of just over €1bn in September after just three months of fundraising, but owing to higher than expected demand Mid Europa increased its target size from €1.25bn to €1.5bn.

Butcher pointed to the shift in the firm’s investor base, with 20 limited partners in Mid Europa’s second fund, which raised €650m in January 2006 and is now approximately 80% invested (“We wanted to make sure we have dry powder for ongoing deal flow,” said Butcher of the new fundraising), compared with more than 60 for fund three.

LPs included AGF Private Equity, AlpInvest, ATP Private Equity Partners, AP2, Auda Private Equity, AXA Private Equity, Caisse des Depots et Consignations, CAM Private Equity, Citigroup, European Investment Bank, Feri Government Investment Corporation of Singapore, Goldman Sachs Asset Management, HarbourVest, MetLife, OP Trust, Pantheon, TIAA and Unigestion.

Europe accounted for 50% of commitments and North America for 36%, with the balance coming from Asia-Pacific and the Middle East.

MVision acted as placement agent for the fundraising, with Kirkland & Ellis providing legal counsel.

The CEE area has become a hotspot for both emerging market investors and a number of European and US-based LBO firms, such as Carlyle and Permira in the last year.

“The region is definitely going more mainstream and there are more people looking at these countries, but we’re confident of remaining the leading buyout firm, specialising in a region in which we have deep local knowledge,” said Butcher. “The upsizing of our funds is an incredible benchmark – you never saw that in the past.”

In the past couple of months Carlyle has opened an office in Warsaw and Advent opened a new office in Ukraine based in Kiev. Ukraine in particular seems to be attracting a lot of attention from the larger pan-European houses.

Franz Hoerhager, executive director, Central Europe, at Mezzanine Management, described the attraction of Ukraine for private equity players. “The Ukraine is a massive economy and has the highest percentage of university graduates in Europe,” he said.

“It is ideal for private equity houses because there is entrepreneurial culture providing businesses for them to buy. They can then exit these businesses to trade buyers, who prefer to buy from private equity houses with a proven track record that have cleaned up the businesses and Westernised them rather than from a Ukrainian entrepreneur.”

Mid Europa Partners typically invests between €50m and €200m in companies with enterprise values of up to €1bn. Butcher added that current interest was “supported by the enormous flow of deals and good returns coming out of the region.

“Since last November, we can count €4bn-plus of transactions, including Austrian mobile operator One and Czech Republic broadcast and telecoms firms Radiokomunikace and T-Mobile Czech Republic,” he said.