Private equity funds invested almost 200 million euros in the first six months of the year, 25% less against the same time last year. Their main areas of interest were constructions and other related sectors, according to the statistics of South Eastern Europe's Private Equity Association (SEEPEA).
As a result, Romania replaced Poland, which was the most important market in Central and Eastern Europe, on the map of the private equity investments. Poland attracted 80 million euros in investments from private equity funds in the first half of the year, while in Bulgaria the funds invested approximately 50 million euros, SEEPEA statistics show.
"Romania was the star of the private equity funds in the first half. Even though the volume of investments attracted was lower than last year, the Romanian private equity market is healthy despite the financial crisis", Robert Luke, SEEPEA chairman said.
The reduction of private equity investments on the domestic market comes after a 400% increase, which reached a total volume of 476 million euros in 2007.
"The main causes that led to a decline in investments have to do with the evaluation multiples of the companies whose values shot through the roof. Starting from the second half of the year, the expectations of local entrepreneurs about the value of the companies they run went down somewhat. I therefore estimate that we will see multiples come close to their real values in the second half of next year and an increase in the number of deals," said Mihai Sfintescu, partner of 3TS Capital Partners.
A poll conducted among members of SEEPEA found that the main obstacles hindering the development of private equity investments on the local market are the reluctance of Romanian entrepreneurs to accept an investor and the low number of interesting companies on the domestic market.
"A lot of Romanian companies bet on very high increases over the coming years, which is not happening, and have therefore turned to banks for funding to support their development plans. I believe these companies will be the first to turn to a private equity fund," said Cristian Nacu, partner of Enterprise Investors.
Although Romanian companies were deemed expensive, and the current financial crisis will bring up the issue of cash, private equity funds are willing to invest more on the local market next year than they did in the previous year, according to a SEEPEA poll. The main reason is the reduction in the price to buy into Romanian companies.
"This year will end with fewer investments than in 2007, both in terms of deals and in terms of volume. Whereas Romania attracted 476 million euros from funds last year, this year I believe investments will stand at 300-350 million euros," Luke added.
The financial crisis will make companies significantly cheaper, the private equity funds' representatives agree. This decline in price will be an opportunity to buy funds and a challenge for those seeking to exit.
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