A SWOT Analysis of Romania’s Private Equity landscape in 2023

The good news is that private equity (PE) managers in Romania have gained experience, while entrepreneurial firms have engaged in further investments recently. However, private equity players expect greater caution from investors in the way they allocate money.

By Claudiu Vrinceanu

Strengths

THE EXPERIENCE PE MANAGERS HAVE ACCUMULATED OVER THE PAST THREE YEARS Managers of private equity funds have acquired valuable experience from the last three years, which have included the pandemic crisis and the war in Ukraine, giving them a solid foundation for the next 12 months. PE funds’ initial response, characterised by a temporary brake on investments and an extremely cautious attitude, was followed by a relatively rapid return of confidence. Private equity players operating in Romania are now even more experienced, having gone through the global financial crisis, the pandemic, and the effects of war.

Entrepreneurial Companies Engaging In New Financing

A lot of things are changing at the moment, and we are in a stage that’s dominated by buyers, but market-leading companies need new financing and continue to be the most appealing for private equity funds that are looking to buy. In the last two years, activity has been dominated by large funds focused on acquiring companies. Indeed, as a strategy, 90 percent of the capital raised in the last quarter was geared towards acquisitions. It’s worth noting that technology, healthcare, and real estate have remained the most active sectors, together accounting for almost half of total private equity transaction values.

Weaknesses Only A Handful Of Private Equity Funds Trade Consistently

Although more than 20 private equity funds are present and active in Romania, only a few of them made direct acquisitions in 2022, a year marked by multiple uncertainties. Meanwhile, the number of private equity funds that carried out exits was similar to that of funds that made direct investments.

Pe Market Still In A Development Phase

The private equity market in Romania is still in the development stage, accounting for only 1 percent of the total private equity capital raised in the CEE region. According to the OECD, even Romania’s average annual share in the CEE GDP is 11.7 percent. PE fundraising activity in Romania is modest compared to CEE regional volumes, and local private equity firms mainly rely on foreign investors when raising funds.

OPPORTUNITIES PNRR (ROMANIA’S RECOVERY AND RESILIENCE PLAN)

Over the next couple of years, all eyes will be on private equity players, namely new investment funds set up with the help of the PNRR. The good news is that prospective investors have submitted 20 applications for the equity investment programme, which has a budget of EUR 400 million coming from the PNRR.

New Players On The Market

In addition to the European money, a few new investment funds in Romania, such as Invenio Partners and Integral Venture Partners, are also open to founders. Bulgarian private equity firm Invenio Partners, which launched a EUR 55 million fund for investments in the CEE region, is getting ready for its first acquisitions on the Romanian market. Invenio is in advanced talks to acquire several manufacturing, healthcare, FMCG, and education companies. Integral Venture Partners, a private equity fund dedicated to investments in Central and Eastern Europe, became a shareholder of the medical imaging centres network Medima Health, a company which is part of the Morphosis Capital portfolio.

THREATS PE FUNDS’ PRUDENCE WITHIN THE NEW ECONOMIC CONTEXT

Economic conditions are expected to deteriorate in 2023 as the war in Ukraine rages on and inflation continues to affect consumption, supply chains, and interest rates. Pessimism is intensifying and private equity investors are not expecting an improvement in the general economic climate. It also remains to be seen what happens to the discrepancy between sellers' high price expectations, and investors' value thresholds, within which they must consider rising interest rates, rising inflation, and expected returns.