Economic conditions will worsen in the coming months, 86% of participants in a Deloitte Private Equity (PE) survey believe, as COVID-19, the war in Ukraine and inflation have a strong negative impact on procurement, supply chains and interest rates. Pessimism is even stronger than at the beginning of the pandemic, and none of the participants in the survey expects the general economic climate to improve.

Trust index, which usually moves in tandem with expectations of economic development, fell sharply from 149 in the summer of 2021 to 58 in the summer of 2022, the second lowest since October 2008 during the global financial crisis (when it reached 48). A key difference from 2008 is that the region’s private equity market is now more experienced in terms of both team members and institutions, the study noted.

Despite the growing uncertainty, private equity firms are still eager to do deals, with about half saying they will focus on new investments (down from 61% in winter). The explanation for these plans lies in the anticipation of the fall evaluation indiceswhile 14% of respondents said salespeople asked lower pricesi during the last six months, and 65% believe that this trend will continue. The development marks a reversal of prices, which had been high both in Europe and around the world, the study noted, rising before the pandemic, then stagnating, and then rising sharply again.

companies market leaders remain the most interesting for private funds equity who want to buy (53%), and startups attracted the attention of only 8% of them.

“Our research shows that we are in a phase of buyer dominance. The fact that valuation multiples are falling makes this a good time to buy. However, private equity firms remain cautious as we predict an increase in the share of those who will focus on portfolio management (43%), indicating a defensive stance in anticipation of difficulties. Currently, inflation and the cost of financing are among the biggest challenges facing the Central European market. In Romania, we do not expect any differences compared to the rest of the region, although I firmly believe that our country is an ideal place for the investments that many countries in Western Europe or even other continents intend to make in the near future. “, he said Radu Dumitrescu, partner-coordinator of financial consulting, Deloitte Romania.

Private companies equity from Central Europe expect difficulties in financing transactions in the coming months, with more than two-thirds of them (71%) expecting limited access to finance, significantly increased compared to 30% in winter. In a context where banks provide less credit or at very high costs, debt financing funds (debt funds), which are popular in the US and started to appear in Europe around 2010, are starting to appear in Central Europe.

Over the past year, the importance of aspects related to sustainability (ESG – environment, social, management) increased for both companies and private equity funds. More than half of survey participants (53%) have implemented an investment policy that specifically includes ESG factors, compared to 30% during the winter. On the other hand, companies are beginning to realize that an emphasis on sustainability can be a powerful source of growth, just as digitizationand can increase the value of the business to international buyers.

Of transaction sizeCentral Europe is generally a medium-sized market, with more than two-thirds of private firms equity (69%) do not expect any changes in this regard in the coming months, despite the deterioration of the general context.

The Deloitte Central Europe Private Equity Confidence Survey analyzes the evolution of the private equity market equity since 2003 twice a year.

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