While leveraged buyouts are commonplace on Western markets, in the CEE region such transactions have been a rarity. According to private equity fund Enterprise Investors, however, its purchase of a 75 percent share in hygiene products producer Harper Hygienics in a deal worth zł.118.6 million indicates that such transactions - once rare on CEE markets outside big-money privatization deals - look to soon become more commonplace in the region.
According to Jacek Siwicki, managing partner at Enterprise Investors, the deal represents a maturing of attitudes among local banks, achieved, at least in part, through the firm's efforts of persuasion over the last two and a half years. For local banks, this kind of transaction involves a new way of valuating companies, requiring a move away from counting assets towards looking at possibilities.
The increasing willingness of banks to finance such transactions, however, is itself driven by the increasing number of suitable acquisitions - that is, acquisitions that have already been developed to a size and stability able to guarantee large enough cash flows.
"The fast growth of CEE economies has meant that, to date, investors have tended to buy stocks outright, while any debt taken on subsequently has been used to fuel growth and expansion," says William Watson, partner at Baring Private Equity Partners, adding that the fact that debt is now being taken on by the company acquired at transaction stage demonstrates that "many local companies have now achieved a level of growth able to produce the kind of cash flows necessary to justify this kind of transaction."
Also encouraging equity firms to buy up locally on credit is the surging new interest of strategic investors in the local market following Poland's EU accession.
"We've noticed that May 1 has really catalyzed strategic interest in some of our portfolio companies," Watson says. "Well-positioned local companies look likely to play a role as consolidators and consolidatees in the region." This fact in turn obviously increases the attraction of mid-market buy-outs for private equity funds.
A key factor feeding the new trend, according to Ryszard Wojtkowski, a partner at Enterprise Investors, is that "many Polish family firms are tired. Many of those who spent the last 15 years building up their firms in the '90s have had enough."
And Watson couldn't agree more. "What we're starting to see is the classic phenomenon of the guy who likes starting and growing businesses but then gets bored and wants to move on," he reveals.
"Whereas in Europe people build up companies to hand them down to their grandchildren," Siwicki announced to the press, "Poles are going the way of the Americans, who build up companies in order to sell." Which is a good thing, he claims, lest anyone fail to get the message.
Some would say, though, that such a statement contained a good deal of simplistic patriotic spin of the kind popular with the local press. "I don't think you could say that UK citizens buy up companies to hand them down," says Watson, adding, nevertheless, that "Continental Europe, and Germany in particular, certainly embraces traditionalist attitudes to business largely foreign to the USA."
"I think it's more of a generational thing," says George wirski, director for Central Europe at global private equity firm Advent International. "It's actually only the younger owners of younger Polish businesses that want to sell; those classic cases who began way back by shuttling a white van back and forth between Poland and Germany are more likely to want to pass the business on to their children."
Hilary Davies
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