Local private equity managers flex their funds

If you're thinking of starting your own road construction firm, chances are you'll have more opportunities to get funding for your start-up once Poland enters the European Union. And if you're one of the country's 30 or so private equity firms financing the operation, EU membership will offer greater prospects for selling your budding investment a few years down the line.
At present, more than 90% of capital fuelling the Polish private equity market already comes from abroad, mainly from Western Europe and the USA, although Poland's EU membership will entice existing union members to pump even more capital into Polish firms, private equity professionals said. The country's membership will raise its investment risk profile from an emerging market to one of stability, thereby making investments more attractive to Euroland companies.
Private equity portfolio managers anticipate EU membership will reverse the trend of the last two years where the economic downturn slowed the pace of new investments, forcing entrepreneurs and company owners to realise that the valuations of their firms were less than what they thought, said Dariusz Stola, the director of the Polish Private Equity Association, a group representing 25 private equity firms.
Other private equity professionals agreed.
"The volume of investments and the number of investors as well as the appetite for the region will increase," said Piotr Noceń, the country manager of 3TS Venture Partners, specialising in tech investments in Central Europe.
Private equity funds in Poland collectively have more than €3 billion (zł. 12 billion) under management. For the past 12 years, they have invested more than €1.73 billion (zł. 7 billion) in nearly 400 Polish companies.
Infrastructure-related projects, such as telecoms, utilities providers or road construction companies, as well as firms in industries undergoing reform, such as health care, will especially benefit from EU accession since the country must upgrade its sagging sectors to meet the union's specifications.

Exit options
Also, private equity firms here will find it easier to invest in infrastructure-related Polish firms since the latter will receive a financial boost from EU funds specifically targeted to their projects, according to Witold Grabowski, a partner and investment director at Renaissance Partners.
EU accession will also bring more options for private equity firms to exit their investments, by introducing more prospective buyers from EU member states interested in purchasing strategic stakes in Polish companies and providing opportunities for domestic firms to list on Euroland stock exchanges.
So far, exit options for private equity funds in Poland have been limited to selling firms to new investors and floating company shares on the Warsaw Stock Exchange, both of which have fallen off due to the global slump and Poland's own economic woes. Portfolio companies have been developing their own businesses slower than expected, so that finding exit alternatives has become more problematic with a halt in investors' acquisition activities and no new offerings on the WSE.
"Local stock markets are not attractive enough to get investors," said David Fisher, a partner at Innova Capital in Warsaw. "In the EU, pan-European markets are well developed, and Polish companies will be able to list on those."
In addition, private equity firms expect to see more management buyouts, where a company's existing management purchases its firm from the private equity company that has invested in it. As exit options for private equity investors, management buyouts account for about 40% of investments in Western Europe, while in Poland there has been almost none since most Polish managers are unaware of how such business moves are made, Stola said.
The country's prospects for EU accession have already started to usher in a new sentiment for funding and selling activities.
"In recent months we have felt there is a change of mood, which means a return of interest in Poland that is related to its accession to the European Union," Stola said. "People anticipate accession, so they want to have a good hold on the market to prepare for their competitors."