Polish private equity/venture capital market in 2008 ⁽¹⁾

EXECUTIVE SUMMARY

According to the 2008 survey carried out by the European Private Equity and Venture Capital Association (EVCA), Private equity and venture capital (PE/VC) investments in Poland reached a total of EUR 628 million in 2008, which is just 8% below the 2007 record level. Most of the investments were made into mature companies. Buyout transactions accounted for 80% of total investment value.
In 2008 fund managers generated exits from 17 Polish companies with a historical cost of EUR 73 million.
PE/VC funds raised EUR 2,5 billion of new capital, which represents decrease of 40% from the 2008 peak of EUR 4,3 billion.

INVESTMENT ACTIVITY

Investments in Poland reached a total of EUR 628 million in 2008, which is just 8% below the 2007 record level. The avarage size of investment per company decreased by EUR 0,5 mln and accounted for EUR 10 mln. The corresponding figure for CEE region in 2008 was EUR 12,5 mln, compared to EUR 14,7 mln in 2007.
Most of the investments were made into mature companies. Buyout transactions accounted for 80% of total investment value - a similar number to 2007. For comparison, buyouts in CEE region accounted for 63% of total investment value in 2008 versus 77% in the previous year. Growth capital investment amounted to EUR 72 mln in 2008 (or 12% of total), far below the avarage of CEE region (EUR 710 mln or 29% of total).
The other 9% went into venture investments, including early stage financing. Only EUR 18,6 mln of total venture investments went to companies at very early stages (seed and start-up), whereas in 2007 the figure totaled EUR 4,3 mln.

TABLE 1. BREAKDOWN OF INVESTMENTS BY STAGES IN POLAND, 2007 - 2008⁽²⁾

	2007				2008
€ x 1,000	Amount	%	Number of companies	%	Amount	%	Number of companies	%
Seed	2,483	0.4%	4	6.2%	3,725	0.6%	10	15.9%
Start-up	1,815	0.3%	9	13.8%	14,900	2.4%	14	22.2%
Later stage venture	35,911	5.3%	17	26.2%	35,687	5.7%	17	27.0%
Total venture	40,208	5.9%	30	46.2%	54,312	8.6%	40	63.5%
Growth capital	95,375	14.0%	8	12.3%	72,454	11.5%	5	7.9%
Rescue/Turnaround	1,257	0.2%	1	1.5%	68	0.0%	1	1.6%
Replacement capital	1,118	0.2%	1	1.5%	0	0.0%	0	0.0%
Buyout	545,560	79.8%	27	41.5%	501,122	79.8%	17	27.0%
Total	683,518	100.0%	65	100.0%	627,957	100.0%	63	100.0%

Source: EVCA

In terms of sector activity, transportation as well as consumer goods and retail were the most attractive sectors. Fund managers invested respectively EUR 173 million and EUR 142 million of their total investment into these sectors.
Communications remained the most popular sector measured by the number of companies which received investment in 2008.

TABLE 2. SECTOR DISTRIBUTION OF INVESTMENTS IN POLAND, 2007 - 2008

	2007				2008
€ x 1,000	Amount	%	Number of companies	%	Amount	%	Number of companies	%
Business and industrial products	138,227	20.2%	11	16.9%	81,360	13.0%	6	9.5%
Business and industrial services	2,600	0.4%	1	1.5%	22,568	3.6%	3	4.8%
Chemicals and materials	875	0.1%	1	1.5%	0	0.0%	0	0.0%
Communications	11,835	1.7%	17	26.2%	5,931	0.9%	17	27.0%
Computer and consumer electronics	26,263	3.8%	5	7.7%	19,045	3.0%	7	11.1%
Construction	12,763	1.9%	3	4.6%	5,144	0.8%	1	1.6%
Consumer goods and retail	74,716	10.9%	6	9.2%	142,100	22.6%	6	9.5%
Consumer services: other	6,261	0.9%	4	6.2%	1,869	0.3%	4	6.3%
Energy and environment	62,040	9.1%	2	3.1%	56,139	8.9%	2	3.2%
Financial services	133,462	19.5%	8	12.3%	45,957	7.3%	4	6.3%
Life sciences	102,757	15.0%	5	7.7%	60,463	9.6%	6	9.5%
Transportation	111,718	16.3%	2	3.1%	173,370	27.6%	3	4.8%
Unknown	0	0.0%	0	0.0%	14,011	2.2%	4	6.3%
Total investment	683,518	100%	65	100%	627,957	100%	63	100%

Source: EVCA

DIVESTMENT ACTIVITY

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 2008 fund managers generated exits from 17 Polish companies (versus 30 in 2007) with a historical cost of EUR 73 million. This represents 58% drop on 2007 exit amounts (EUR 175 million).
As in 2007, sale to another private equity house was the most common form of exit in 2008 and accounted for 37% of all exits compared to 54% in 2007. The other main exit route was trade sale - 28% of total exits versus 13% in the previous year. Only one company was divested through the stock exchange, which comes as no surprise considering the adverse stock market conditions.

FIGURE 1. DIVESTMENTS IN POLAND, 2007-2008 (exit value at investment cost)

Source: EVCA

FIGURE 2. DIVESTMENTS IN POLAND, 2008 (number of companies)

Source: EVCA

FUNDRAISING

As the vast majority of private equity funds raised for CEE were for the region as a whole and not for any specific country, fundraising is presented as a total pool of capital raised for the region. In 2008, fundraising for CEE totaled EUR 2,5 bn, about 40% below the recent 2007 peak of EUR 4,3 bn.

FIGURE 3. FUNDRAISING FOR CEE PRIVATE EQUITY, 2003 -2008

Source: EVCA

The raising of EUR 1 bn-plus funds entirely dedicated to the CEE region in both 2007 and 2008 indicates strong institutional investor interest in the area.

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(1) The information presented in this article is based on PEREP_Analytics data (www.perepanalytics.eu).

(2) Historically the venture segment included seed, start-up and expansion stages. In 2008, the expansion stage has been replaced by two new stages: later-stage venture and growth.
Later - stage venture:: financing provided for the expansion of an operating company, which may or may not be breaking even or trading profitably.
Growth: it is a type of private equity investment, most often a minority investment but not necessarily, in relatively mature companies that are looking for capital to extend or restructure operations, enter new markets or finance a significant acquisition without a change of control of a business.