|
|
|
 |
|
POLISH FUND MANAGESR IN 2006[1]
EXECUTIVE SUMMARY
According to the 2006 survey carried out by the European Venture Capital Association (EVCA), fundraising last year reached an absolute record level of more than EUR 936 million. Private equity houses based in Poland invested EUR 294 million - an increase of 90.8% over 2005. Most of the investments (94% of the total or EUR 276 million) were made into mature companies. The boom on the PE/VC market is visible throughout Europe - European private equity firms raised a new record of EUR 112 billion in 2006, while investment totaled EUR 71 billion - another all-time high.
Polish Fund Managers - Fundraising Activity
Polish fund managers set a new record last year, raising more than EUR 936 million. This is significantly up on the previous record of EUR 303.8 million in 2004. Most of the capital committed - EUR 654.3 million or 69.8% - came from Europe, while 26.4% was non-European. There was a conspicuous absence of domestic capital, which represented just 3.8% of funds raised.
CHART 1. PRIVATE EQUITY RAISED BY POLISH PE/VC FUND MANAGERS BY TYPE OF INVESTOR, 2006
Polish Fund Managers - Volume of Private Equity Investment
Polish-based private equity houses invested EUR 293.7 million in the CEE region, which represents a 90.8% increase compared to 2005. The boom on the PE/VC market is evident throughout Europe, where total capital invested reached an all-time high of EUR 71 billion, whereas in 2005 the figure amounted to EUR 47 billion.
CHART 2. INVESTMENT ACTIVITY BY POLISH-BASED PE/VC FUND MANAGERS, 2005-2006
The number of investments increased from 32 in 2005 to 46 in 2006, whereas the average value of each transaction grew by EUR 1.6 million to EUR 6.4 million. A focus on larger investments was apparent throughout Europe in 2006. For comparison, in 2006 the average size of a PE/VC investment in Europe was EUR 6.6 million. Only 5 of those 46 deals had either transnational or national syndication - the others had just one PE/VC investor each.
A major change occurred in initial versus follow-on investments in 2006. In 2006 initial investments contributed only 28% (EUR 82 million) of the total amount invested by Polish-based PE/VC funds, whereas in 2005 as much as 75% (EUR 115 million) of total investment was in this category.
CHART 3. INITIAL VS. FOLLOW-ON INVESTMENTS BY POLISH-BASED PE/VC FUND MANAGERS, 2005-2006
Polish Fund Managers - Patterns of Investment by Sector
After focusing very strongly on consumer-related companies in 2005, last year Polish-based PE/VC fund managers switched their sector preference back to communications. In 2006 Polish-based private equity fund managers invested EUR 165 million, or more than half of their total investments, into communication companies. Manufacturing companies ranked second, receiving EUR 61 million or 21% of the total. The financial services sector ranked third, with EUR 41 million invested or 14% of the total. This is a dramatic increase from 2005, when this sector attracted only EUR 3.2 million. Total high-tech investment by Polish private equity houses was EUR 165 million or 56% of total investments, up from EUR 37 million or 24% of the total.
TABLE 1. SECTOR DISTRIBUTION OF INVESTMENTS BY POLISH-BASED PE/VC FUND MANAGERS, 2005-2006
| In thousand EUR |
2005
|
2006
|
Amount of Investment
|
%
|
Number of Companies
|
%
|
Amount of Investment
|
%
|
Number of Companies
|
%
|
Communications
|
8 606
|
5/6
|
7
|
28/0
|
164 977
|
56/2
|
7
|
18/9
|
Computer Related
|
28 376
|
18/4
|
4
|
16/0
|
0
|
0/0
|
0
|
0/0
|
Medical/Health Related
|
114
|
0/1
|
1
|
4/0
|
3 046
|
1/0
|
1
|
2/8
|
Consumer Related
|
65 785
|
42/7
|
7
|
28/0
|
9 219
|
3/2
|
5
|
13/5
|
Industrial Products and Services
|
0
|
0/0
|
0
|
0/0
|
0
|
0/0
|
3
|
8/1
|
Other Manufacturing
|
38 209
|
24/8
|
1
|
4/0
|
60 633
|
20/7
|
3
|
8/1
|
Transportation
|
9 675
|
6/3
|
2
|
8/0
|
7 460
|
2/5
|
2
|
5/4
|
Financial Services
|
3 216
|
2/1
|
2
|
8/0
|
41 437
|
14/1
|
5
|
13/5
|
Other Services
|
0
|
0/0
|
0
|
0/0
|
103
|
0/0
|
1
|
2/7
|
Construction
|
0
|
0/0
|
0
|
0/0
|
5 001
|
1/7
|
1
|
2/7
|
Other
|
0
|
0/0
|
1
|
4/0
|
1 847
|
0/6
|
9
|
24/3
|
Total Investment
|
153 981
|
100/0
|
25
|
100/0
|
293 723
|
100/0
|
37
|
100/0
|
Subtotal High-tech
|
36 983
|
24/0
|
11
|
44/0
|
164 977
|
56/2
|
7
|
18/9
|
Polish Fund Managers - Activity by Investment Stage
Last year there was a spectacular increase in the amounts invested in later-stage transactions, i.e., replacement and buyout deals. These totaled EUR 276 million in 2006, while the corresponding figure for 2005 was EUR 149.2 million. In percentage terms, later-stage deals represented 94% and 97% of total investments in 2006 and 2005 respectively.
The value of buyouts increased dramatically in 2006 compared to the previous year. Similar trends are visible throughout Europe, where in the same period buyouts increased from EUR 32 billion (68% of total investments) to EUR 49 billion (69%).
Fund managers' focus on later-stage deals and their increasing appetite for buyouts reflect the growing maturity of the Polish private sector and the increasing availability of debt financing for PE transactions. There is a growing pool of managers that can cooperate with private equity funds in buyout transactions on the Polish market.
Expansion capital transactions accounted for EUR 15 million or 5% of total investments. The low level of expansion transactions in 2006 is no indication that the investee companies lack solid prospects for dynamic growth. On the contrary, the majority of Polish companies that have received PE/VC financing have strong potential for growth, particularly through expansion abroad.
Early stage investments - seed and start-up - increased slightly from EUR 0.5 million in 2005 to almost EUR 2.5 million in 2006. For this figure to improve, new funds specializing in early stage investments would need to appear on the market.
CHART 4. STAGE DISTRIBUTION BY PERCENTAGE OF AMOUNT INVESTED BY POLISH-BASED PE/VC FUND MANAGERS, 2005-2006
Polish Fund Managers - Divestment Activity in 2006
Divestment activity or 'exits' are reported in the EVCA survey at the historical cost of the investment rather than as the actual proceeds from the sale of the companies. According to the survey, in 2006 Polish-based fund managers generated exits from 37 companies, with a historical cost of EUR 140 million. This represents 21% growth on 2005 exit amounts (EUR 116 million). Although the value increased, the number of divestments fell from 40 in 2005 to 37 in 2006. Therefore, the average value of divestments increased from EUR 2.9 million in 2005 to almost EUR 3.8 million in 2006. Divestment by public offering represented the most common exit route in 2006 and accounted for 53% of the total value of divestments (19% in 2005), whereas 15% of exits took the form of sale to another private equity house (0.9% in 2005). There were surprisingly few trade sales, which represented only 14% of the total value of divestments in 2006 (down from 64% in 2005). Repayment of principal loans constituted 12.3% of the total value of divestments in 2006. No write-offs were recorded in 2006.
Divestments made in 2006 throughout Europe amounted to EUR 33 billion, and were up by EUR 3 billion on the 2005 figure. Divestment through trade sale was the largest exit route by amount in 2006, at EUR 7.5 billion or 23% of total divestment value. Divestment by repayment of principal loans ranked second, at EUR 5.7 billion or 17% of the total, and sale to another private equity house came third, at EUR 5.5 billion or 16.6% of the total.
CHART 5. DIVESTMENTS BY POLISH-BASED PE/VC FUND MANAGERS, 2005-2006
[1] Figures quoted in this article are from the EVCA 2007 Yearbook. They represent the activities of PE/VC fund managers based in a given geography. Figures for Poland represent the activities of PE/VC fund managers based in Poland.
|
|
|
|
