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Private Equity Pullback in Poland: High Costs, Geopolitics Dampen Deals, But Optimism Emerges for 2024

BUSINESSPrivate Equity Pullback in Poland: High Costs, Geopolitics Dampen Deals, But Optimism Emerges for 2024

The number of takeovers involving private equity funds dropped by over 20% in Poland in 2023, according to analysis by Bain & Company. This was due to the persistently high cost of capital and uncertain macroeconomic and geopolitical situation. However, experts predict that with the expected reduction in global interest rates and thanks to significant funds collected for investments, international funds may increase their activity in the market this year.

According to estimates by Bain & Company, last year private equity funds and their portfolio companies completed a total of 33 takeovers in Poland. This represents a drop compared to 2022, when 42 transactions were conducted. Among the largest investments made by financial investors in Poland were InPost package network operator’s minority stake takeover by PPF Group, acquisition of shares in Autostrady Wielkopolskie (Great Poland Highways) by French infrastructure fund Meridiam, and Accel-KKR’s investment in Symfonia, a software manufacturer from Mid Europa Partners’ portfolio.

“The last year was not easy for the private equity market, primarily due to the persistently high inflation and significant cost of acquiring capital. Uncertainty related to the geopolitical situation may also have induced some international funds to reduce activity in our region,” says Paweł Szreder, Partner at Bain & Company. “However, the worst seems to be behind us and we expect more engagement from foreign funds in our market this year.”

Bain & Company experts estimate that, in addition to new asset acquisitions, private equity funds in Poland also made approximately 10 exits from investments last year, most of which related to selling companies to financial investors. Among the largest transactions of this type was the sale of PKP Energetyka by CVC Capital Partners, Abris’ exit from the investment in Velvet CARE, and the sale of Dr Gerard company by Bridgepoint.

“Poland attracts the attention of many foreign investors, both industry and private equity players. This is aided by the prospect of faster economic growth than in Western Europe and attractive possibilities for asset consolidation in many sectors,” adds Paweł Szreder. “In the transactions of selling companies by PE funds, we see both industry investors and other funds, which take over attractive assets with the intention of building regional champions.”

Bain & Company experts stress that in the strategies of many private equity funds globally and in Poland, ‘buy and build’ transactions play a key role, i.e. the consolidation of selected sectors of the economy, which requires many acquisitions by portfolio companies. High-interest rates negatively affect the benefits of such a strategy due to the increasing use of financial leverage and the growth of multiplier in the valuations of acquired companies.

Artificial Intelligence (AI) plays an increasingly significant role in improving efficiency and increasing the value of portfolio companies, and also in conducting transactions themselves. Many funds and portfolio companies have begun to use Generative AI on a larger scale to streamline investment decision-making processes and due diligence research, as well as to find solutions to increase company profits.

In the European market, the total value of company takeovers made by private equity funds fell almost by half to $140 billion last year, the weakest result since 2016, according to a Bain & Company report. The total number of companies taken over by funds in Europe fell year-on-year by 13% to 1133. The most takeovers were made in 2023 in the technology and industrial sector. At the same time, the value of funds gathered for investments increased by 4% to the highest level in history at $821 billion.

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