Stock Exchange corrections and the depreciation of the national currency against the euro are making Romanian companies cheaper targets for private equity funds, for which the year 2008 is heralded to be one with a flood of acquisitions.
"The overall sentiment of the investors towards the local market is a negative one, and the increased risk of investing in Romania results in a reduction in the price of Romanian assets. The market is dominated by funds in euros, therefore the depreciation of the RON against the euro is making acquisition targets in Romania 'cheaper'. Moreover, the Stock Exchange is on a downward trend, with funding through the Stock Exchange, i.e. exit on the Stock Exchange, is more difficult," said Francisc Bodo, investment director at private investment company GED Capital Investment, adding that for players in the private equity sector, the year 2008 is better for acquisitions than for exits.
His opinion is shared by representatives of another investment fund with extensive operations on the Romanian market, Advent International.
"2008 will most likely be a year of takeovers, because we anticipate the sellers' expectations on the companies' value and outlook will adjust, dropping to much more realistic levels than of late," said Sebastian Tcaciuc, director of Advent International.
Private equity funds invested a total of around 250 million euros last year on the local market, with the rather high price of Romanian companies slowing down the advance of private equity investments.
"The Romanian market is one of the toughest in the region from the standpoint of an investor in private equity, because players push the price of deals very high," according to Robert Luke, a member of the European Private Equity and Venture Capital Association. Most investment fund representatives see the Romanian entrepreneurs' expectations as "unrealistic", so, over the last two years, exits have been a more common than takeovers.
"2006 and 2007 were years with low private equity investments, especially due to the unrealistic expectations of the sellers of Romanian assets. If the market stabilises, Romania could generate around 500 million euros a year from private equity investments. Romania is currently targeted by private equity funds worth around 1.5 billion euros, but the market cannot absorb these funds rapidly because there are not enough viable projects, according to estimates made by the GED Capital representative. Representatives of RAEF (Romanian American Enterprise Fund), for instance, said, in a recent interview to ZF, that they had anticipated this situation as early as two years ago, therefore their strategy was not to enter into very competitive deals. Both the state of the international financial markets and the subprime mortgage crisis have been anticipated, but they also have a positive aspect, in that entrepreneurs will be reassessing their assets in the coming period.
Private Equity market:
In 2008, the Romanian private equity market is expected to be dominated by acquisitions
2006 and 2007 were years with low private equity investments
Romania could generate around 500 million euros a year from private equity investments
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