trust in the economyincreased slightly, given that 79% of participants in the Deloitte Private Equity (PE) Confidence Survey expect the economic climate to worsen in the coming months, compared to 86% in the summer of 2022. While risks such as inflation, supply chain issues and rising costs of energy, raw materials and labor continue to affect companies, Central Europe is in a pretty good situation cope with these challenges thanks to economic growth rates and historical resilience in turbulent times, the study indicates. Central Europe continued to experience the highest GDP growth rates in developed countries, including during difficult times such as in the immediate aftermath of the global financial crisis and in the wake of COVID-19, a resilience that can be partly explained by low debt, in a context in which countries Central Europe’s public debt-to-GDP ratio is estimated at 58% in 2022, compared to 95% in the eurozone, the study also points out.

A sharp decline in the last 18 months a confidence index of private equity firms in Central Europe, which fell from 149 in June 2021 to 58 in June 2022 (the second lowest level in history after the level recorded during the global financial crisis), appears to have stalled, recording slight increase to 67, an evolution that reflects improved optimism.

“Wedding so much turmoil has been a difficult task for the entire market, and investors are no exception. But our research shows that their initial reaction, characterized by a temporary suspension of investment and an extremely cautious attitude, was accompanied by a fairly rapid return of confidence. Now players from private capital from Central Europe have even more experience as they have been through the global financial crisis, pandemic and the aftermath of war, and their management teams know how to navigate periods of great change and disruption. In turn, companies have learned to withstand and even continue to grow in difficult times, and private equity firms are perfectly supportive of them,” he said. Radu Dumitrescu, partner-coordinator of financial consulting, Deloitte Romania.

More than 80% of respondents believe that 2023 will be a good year for investments, and confidence in financial efficiency of investments according to a third of the study participants, increased from only 8% in the summer of 2022. On the positive side, there is also a reduction to almost half of those who expect investment returns to decline, from 27% in the summer, just 14 years. % now.

Despite the unfavorable context, most sales processes (57%) continue their coursebut in 40% of the study participants postponed planned sales operations, because the ratings have suffered and they will wait for a more suitable time to restore them.

Price expectations of sellers falling, say nearly half of respondents (45%) who believe prices will fall in the second half of 2022, and nearly two-thirds (64%) expect them to continue falling in the first half of 2023. The study suggests that we may be entering a phase where the market is dominated by buyersbecause the expectations of companies from private capital on purchase and sale transactions for the benefit of those who buy (60%) due to falling prices, which encourage profile firms to invest in assets they have been looking at for longer and which are now better priced. On the other hand, only 5% of private equity firms plan to focus on exiting specific companies in which they have invested, which is the second lowest level in a decade (after 3% in April 2012).

Market leader companies will remain the most attractive in the current context, dominated by uncertainty, according to more than half of respondents (53%), because buyers usually look for stability in periods characterized by an unfavorable climate, and mature companies have solid cash flows, explains the Study. After five years in which startups seen as attractive to retail investors, peaking at 15% in the winter of 2021, they have fallen out of favor in 2022 following the valuation of some tech companies, including some unicorns, but now appear to be regaining some of their lost ground, reaching 10%.

Although inflation and the energy crisis can put pressure on decisions related to ESG(environmental, social, management)research shows that more and more firms private capital from Central Europe to implement ESG-related measures. Thus, more than a fifth of them have taken concrete steps to meet their commitments to reduce their carbon footprint, and another two fifths are starting to develop such targets. In addition, most respondents now see ESG as an element that benefits companies in their portfolios, a big change from summer 2022. Additionally, 47% of respondents have implemented investment policies that specifically include ESG factors, and 19% have specific ESG Post-Acquisition Plans.

Central Europe is likely to remain medium-sized marketdespite the fact that it is possible that valuetransactions to decreaseaccording to the answers of 38% of the survey participants (the second share of respondents who expect a decrease in the last decade, after June 2020, when it was 43%).

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

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