We’ve recently had an interesting fact-finding trip to Warsaw to meet a number of active local PE firms and a handful of strong candidates.
It’s easy to forget that the whole market economy in Poland is less than 25 years old, so the private equity industry remains still very much a young business. A number of founder-entrepreneurs are approaching the point where they wish to sell their businesses to LBOs but many still plan to run them for some years to come and will only contemplate bringing in minority PE investors for growth capital. This makes the quality of interpersonal relationships all the more significant (if you are selling out completely you may be less concerned about the new owner than if you are formally partnering with them), and drives a more old fashioned, but possibly fundamentally more sophisticated longer term origination model, based around getting to know owners over a period of time, outside a formal auction process. This requires patience and emotional intelligence, not just raw financial analysis. It also usually needs to be led by local investors, so there is understandably a clear preference to develop Polish-nationals in investment teams.
The economy itself is somewhat volatile, with current gdp growth estimates ranging from 0 to 2,5% (up and down quarter to quarter) but over the medium term its growth profile still looks favourable relative to many of the Western European markets, driven fundamentally by a strong export culture, if not by consistently robust domestic demand, and with a population approaching 40m this clearly has a lot of critical mass.
Fundraising is a hot topic here, as elsewhere. Structurally, Polish pension funds and institutions are not permitted to invest in PE, so all funds have to be raised from foreign investors. Many are drawn by the growth characteristics of a ‘near’ emerging market, and a better combination of entry pricing and operational upside. However, Polish funds have also undoubtedly suffered the contamination of the Euro effect, with many US institutional investors in particular avoiding exposure to the wider Euro-area. Several of the leading domestic and CEE funds are going to market simultaneously, chasing the same LPs and clearly not all will hit their targets. A number of other funds are sitting on their hands, watching anxiously and waiting for the crowd to disperse before launching their own PPMs once the dust has settled. Interestingly, in such a young market, the general trend is to wish other competitors well in their fundraising to build confidence and scale in the overall market, rather than exploit each other’s short term weakness.
The Polish PE market is still developing. Perhaps some of the larger transactions are being driven by advisers and investors from outside the country, but the domestic firms and advisers are independently building strong and distinctive reputations and look well placed to become a truly significant part of the overall European market. PER is fast building a strong pool of junior and mid level candidates within Poland and would be pleased to discuss this in more detail with any firms wishing to build their local teams, please contact Rupert Bell on
rupert.bell@perecruit.com