Last year, PE/VC funds invested in 23 companies. If the acquisition of Zentiva by the Advent International fund is excluded from 2018 due to its exceptional character, the volume of invested funds increased by 127%.
“Despite the signs of economic slowdown, 2019 showed favourable results given the number of PE/VC acquisitions and higher investments. Unfortunately, 2020 is unexpectedly marked with uncertainty resulting from the Covid-19 outbreak, which is challenging for investors, sellers, banks and other transaction participants,” said Dušan Ševc, Partner in the Financial Advisory function of Deloitte.
Last year demonstrated the growing investment activity of local funds and the weakening presence of the international ones. Besides, the local funds also increasingly focus on small and medium-sized enterprises as a large number of small family businesses address the question of succession and the funds become their partner in providing a solution. Other investment trends include search for independent functioning units in large corporations that are able to operate on their own and, contrarily, do not fit into the corporations’ general development concept. The Fenestra Wieden transaction, which involved an entrance in a family business connected with an acquisition of a part of the Skanska group, may serve as an example.
In terms of investments, Czech funds increasingly focus on the CEE region. For example, two of three new investments of Genesis Capital funds have been recently realised outside the Czech Republic. “All of us have observed that a growing number of Czech businesses are expanding abroad, both organically and through acquisitions, thanks to a blend of optimistic results, ambitions and growing experience of their management. This also applies to leading Czech private equity investors who basically follow the natural dynamics of the local market,” said Ondřej Vičar, Managing Partner at Genesis Capital Equity.
After the all-time high figures reported in 2018, the volume of divestments dropped from approximately EUR 190 million to EUR 80 million. However, it should be noted that in this context 2018 was very successful. Logically, funds took advantage of an intense market purchasing power as well as high valuations and sold portfolio companies the potential of which had been exploited. In 2019, the volume of divestments generally decreased across Europe, not excepting the Czech Republic.
Funds raised in the amount of EUR 92 million may seem as a decline compared to EUR 284 million in 2018; however, it is still a significant volume with respect to investment cycles. “Funds always raise capital in certain, approximately 5-year cycles. When one year is extremely successful, it can hardly be expected that the same volume of funding will also be raised in subsequent years. 2018 was truly exceptional, which is why the last year’s result is considered very good in this context, confirming the confidence in local funds and business,” said Zuzana Picková, Chief Executive Officer of CVCA.
Almost half of the raised volume includes funds in venture capital funds that focus on early development stages of companies. Existing players obtain new financial resources – for example, Credo Ventures received EUR 100 million. Besides, new funds are established which is one of the reasons why the demand for financing on the part of startups increases as well. The new players include, for example, the Czech company Nation 1 VC, which has operated on the market since July 2019. Throughout its existence, Nation 1 VC has realised seven startup investments, using funds from private investors and EIF resources.
“Seed funding provided to startups with a global vision ranges from EUR 50 thousand to EUR 1.5 million. In the next 10 years, Nation 1 VC plans to invest EUR 35 million in approximately 40 entities in the Czech Republic to help them with international expansion,” said Jaroslav Trojan, Managing Partner at Nation 1 VC.
“The impact of Covid-19 on the private equity sector is not entirely negative; nevertheless, considerable caution is apparent. Of course, portfolios of some funds include, on the one hand, companies directly affected by the pandemic but, on the other hand, also investees which are unlikely to be affected significantly,” Jiří Beneš, President of CVCA and Managing Partner at Genesis Capital Growth, commented on the current situation in the industry.
In terms of investments, funds are currently completing selected transactions arranged before the crisis, which relate to sectors less affected by the current situation. New investments are rather postponed. Although the statistics for 1Q 2020 are not yet available, a downturn is anticipated in all monitored areas, i.e. new investments, divestments and fundraising activity of funds.
“At present, it is critical for private equity funds to stabilise portfolio companies and secure sufficient cash flow. The advantage of private equity owners is an opportunity for close cooperation with portfolio companies, their stabilisation and long-term development,” added Jiří Beneš.
CVCA 2020 Private Equity Report is based on data collected by Invest Europe (European Private Equity & Venture Capital Association) and is most representative in the PE/VC industry. It is available here.
The Czech Private Equity & Venture Capital Association (CVCA) represents the interest of companies operating in the private equity a venture capital segments in the Czech Republic. The membership includes entities investing in private equity a venture capital (ordinary members) and entities providing advisory services concerning private equity a venture venture capital (associate members). CVCA is part of Invest Europe (European Private Equity & Venture Capital Association) and closely cooperates with other associations, primarily in the CEE region.
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