Foreign Direct Investment flows

Foreign Direct Investment flows

During the time of COVID-19, Foreign Direct Investment flows are expected to fall by 30% in 2020. Despite the government support and policy measures to help against COVID-19 pandemic, FDI flows are expected to drop.

According to the latest report from OECD, FDI could play an important role in supporting economies during and after the crisis. The FDI help could include financial support to their affiliates, assisting governments in addressing the pandemic, and through linkages with local firms.

Public health measures have caused economic disruptions that impact the foreign direct investment decision of firms. We learned from the past crisis that small and medium-sized enterprises show greater resilience due to their linkages with the financial resources of their parent companies.

According to the OECD Investment Policy Response, FDI is expected to decline sharply as a consequence of the pandemic and the resulting supply disruptions, demand contractions, and pessimistic outlook of economic actors.

In addressing the medical supply shortage, governments should leverage investor networks and investment promotion agencies. Some governments have already embraced imports of essential good, while some businesses have started producing medical essentials such as medical masks etc.

Moving forward, cross-border partnerships and collaborations between companies can facilitate finding long-term business solutions, such as ways to resume production while protecting workers’ health.

FDI is expected to face major drops as the supply chains are facing disruption. Meanwhile, capital inflows will be impacted as companies put some mergers and acquisitions (M&As) on hold.

As an example of earning in 2020 of large MNEs are expected to fall. According to the latest statistics data gathered from Refinitiv, there will be large year-over-year drops in earnings in the energy, consumer discretionary sector, industrials, and materials sectors. On the other hand, it is expected that there will be year-over-year increases in earnings in the health care, technology, and communications sectors.

Source: OECD, from Refinitiv M&A database

The latest data from Refinitis M&A database shows a significant drop in completed M&A deals in the first quarter. However, there is no evidence on the deals withdrawn. That leads to the conclusion that investors are focused on closing deals rather than withholding from it. In the short term, equity capital flows will fall due to so many deals being put on hold, but it could mean that there will be an increase in the future as these deals are completed as the economy recovers.

To read the full report and in-dept insight into FDI investments, please visit the OECD official website.

Private Equity in CEE overview

Private Equity in CEE overview

Private Equity in South-East Europe is alive and well. There are few talks in media on the recent acquisitions in the South-East region. One of them includes Nikos Stathopoulis, chairman of BC Partners’ portfolio management committee. Moreover, Nikos is also a chairman of Serbia based United Group and leads media and telecoms. Last year, there were two major acquisitions in the region. One was Tele 2 Croatia for an enterprise value of €220 million. While the other one was for Bulgarian service provider Vivacom for a reported enterprise value of €1.2 billion.

Meanwhile, a Pharmaceutical company Zentiva Group completed the acquisition of Alvogen’s CEE business in Romania, Bulgaria, Croatia and several other countries.

Private-equity (PE) investors own companies but are not like those that raise money by selling their shares in stock exchanges. There is a big difference. Public companies are those that shareholders list on publicly available registers. Secondly, listed companies make regular announcements. If they’re backed by private equity, there’s no need to do so: it’s all private. Therefore, Private Equity backed companies tend to value that freedom.

Private equity investments in CEE companies

Private equity and venture capital investment into companies in Central and Eastern Europe (CEE) reached a record €3.5 billion in 2017, according to data from Invest Europe.

Source: Invest Europe / EDC

From the Invest Europe, 2018 Report, 3,750 European companies exited in 2018, a 3% decrease on the previous year. By the amount of former equity investment (divestment at cost), the total value was €32bn, a year-on-year decrease of 28%. The most prominent exit routes by the amount at cost were trade sale (32%), sale to another private equity firm (31%) and public offering (10%).

Buyout funds in the region raised a total of €1.1 billion, whilst CEE venture capital funds attracted over €500 million of investor cash for the second year in a row.

The number of private equity and venture capital-backed exits in CEE reached an all-time high with a total of 128 companies divested in 2018. With an exit value of €575 million, Poland accounted for nearly half of all exit activity. The biotech and healthcare sector took the lion’s share of CEE private equity investment, making up just over 30% of the total value for the year. Consumer goods and services companies also fared well, receiving 27% of the overall funding.

What is private equity looking for in 2020?

According to online media, private equity markets are looking for technology companies where covid-19 is not worthy of mention.

It will be some time yet before the bargain hunters are searching for opportunities in manufacturing industries with complex, international supply chains. Meanwhile, creditors will be more focused on a conservative business plan for the underlying companies.

Overall we maintain a positive outlook for the performance of new commitments to private equity in 2020. Investors’ emphasis on ESG will increase further in 2020. That also aligns well with private equity’s long timeframes and higher engagement. This is becoming especially important for private equity in CEE; Central and Eastern Europe.

As we mentioned in the previous article on ESG growth, heightened awareness of climate change are important drivers of change. Nevertheless, the European Commission’s Sustainable Finance initiative is as well, highly important driver.

According to Pitchbook, private equity is on a long-term growth trend, and there seems to be little that will stop it. Private equity has long been an important contributor to value creation in the real economy and for investors’ portfolios alike.

Changes in the M&A world: Tech sector

Changes in the M&A world: Tech sector

While the crisis has not yet passed, M&A discussions are already increasing. Many firms that were once in a stable position last year are now looking for an exit strategy or need to merge for growth or survival.

In the latest Economic Outlook chapter, economic experts describe a baseline scenario. In the scenario the pandemic fades in the second half of 2020 and containment efforts will slowly loose. Moreover, the global economy could show growth by 5.8 % in 2021 as economic activity normalizes, helped by policy support.

Source: IMF

When looking at the latest chart from the IMF Economic Outlook, a high rise in GDP is expected for the countries with advanced economies. With this in mind, companies can incorporate the latest data related to covid-19 into their equation. With coronavirus, the acquired or merged-in firm’s revenue stream may not be as predictable as in the past. The quality of the firm is not the question. Moreover, a firm’s value can drop if the incoming firm’s client revenue shrinks.

What are the remaining challenges in the M&A?

No matter the covid-19, the selling factor remains the same. In M&A challenges, there is an ongoing concern of whether or not the team can bring in sales. Partners do not want to risk payout on a team with no record of selling.

Here’s how to look at the firm value in any CPA M&A deal, pre- or post-pandemic. Value has been, and will always be, what the buyer/acquirer feels it is worth.

Make sure that there is no risk of revenue loss. In that case, the seller or upward-merger firm should not be worried about getting paid in full.

How do you increase the value of your firm? To maximize value, you need to understand the market value of your firm in today’s environment and the drivers that increase or decrease firm value.

Software industry changes in the M&A

In the software industry, private equity-backed providers are helping in subtle ways. They are offering their products and services to government agencies to help them respond to the pandemic or track its spread.

The world of private equity ownership often provides for higher authority over a company’s strategic management. That said, businesses can promptly shift direction to respond to market challenges. Moreover, the technology sector shows that a lot of companies are constantly producing innovative technological solutions.

A recent example of the tech company is digital assistant Andrija, developed in Croatia to help fight against coronavirus. This “virtual doctor”, powered by artificial intelligence, has been developed by Croatian IT companies in cooperation with epidemiologists.

The idea of ​​the assistant is to assist healthcare professionals, doctors and epidemiologists in controlling the development of the Covid-19 epidemic. In addition to that, users are able to determine if they are covid-19 positive.

In short, many software companies are looking for new ways to thrive after the crisis. The post-pandemic situation will bring some economic difficulties for many companies. Meanwhile, tech giant Facebook is already working with health researchers and nonprofits. Facebook will provide anonymized and aggregated statistics about people’s movements. The project is called desease-prevention maps.

Changes in the M&A: Investors still on the hunt

With 170 deals completed in the first three months of 2020, deal volumes are significantly down. If we compare with the previous quarter, deal volumes are the lowest since early 2014.

Moreover, covid-19 crisis has significantly disrupted the normal flow of M&A deals. With the global economy change in mind, companies are more likely to prioritize short-term actions over long-term initiatives. However, those that are able to stay on the course, will more likely establish foundation for continued success once the crisis ends.

Although M&A activity as a whole is expected to be down this year, the deals that get done are expected to involve the same technology disrupters that make attractive targets in scope acquisitions. In the survey, company Baker McKenzie predicted global M&A drop 25% this year, from $2.8 trillion to $2.1 trillion. However, the deals that will get done will involve technology of disrupters. In the repor, data shows that across all sectors, companies will seek to acquire the advanced digital technology.

To sum up, technology sector will continue to receive increase in interest from financial buyers. Moreover, the changes in the M&A will result in fewer acquisitions. In addition to fewer M&A acquisitions, the buyers will take companies in a new directions.

Covid-19 impact on Private Equity: What to expect?

Covid-19 impact on Private Equity: What to expect?

How will the covid-19 impact on the private equity industry? The only possible answer is that no one knows. As a healthcare crisis, it is unusual in its global impact. As an economic event, it raises many unknowns about how the sudden demand shock will affect business activity. Moreover, it raises the question of how will it affect consumer behaviour. In our previous article, we discussed the covid-19 impact on private equity markets in CESEE countries. Nevertheless, we will cover in this article global implications on the private equity industry.

That said, if we take a closer look at previous economic crises, we will be able to better understand private equity funds. Covid-19 impact on private equity is raising concerns on businesses and economies. The situation is changing quickly, with widespread impacts. Most companies already have business continuity plans, but those may not fully address the fast-moving and unknown variables of an outbreak like COVID-19. 

Private Equity firms may be facing a situation in which they have multiple companies with hundreds of employees looking for guidance during this crisis. Cybersecurity is always a priority for PE firms and their portfolio companies. However, they may face additional threats and vulnerabilities now. That is because they will have significantly higher levels of remote access to core systems.

Without the right monitoring and planning, PE firms could be overloaded with issue after issue. Additionally, HR policies may be inconsistent across the underlying entities.


Dealmaking fell off sharply when the global financial crisis hit in 2008, and this crisis should also trigger a substantial contraction. Credit markets, meanwhile, have tightened up but haven’t frozen completely. See the graph below that shows deal activity sank by half during the global financial crisis.

Global buyout deal count showing implications on covid-19 impact on private equity
Source: Dealogic

Banks will put lending for new deals on hold as they focus on working with existing borrowers to avoid default. It will also take time for lenders to work through how to assess risk today. Scrutiny during underwriting will increase dramatically as they work out how much to lend and at what price. 

While many factors suggest that dealmaking and lending activity will slow in the months ahead, there are some significant differences in the current market that could limit the downdraft in the activity.

First, PE funds have a record $2.5 trillion in uncalled capital—more than $800 billion for buyouts alone—and are on the clock to spend it. Private debt funds have emerged since the global financial crisis as a major force in the market. Also, they have more than three times the assets under management they had in 2008. They might provide financing for new deals. The firms with the largest direct lending funds also have extensive distressed debt and special situations capabilities.

With the public markets depressed and potential corporate buyers holding onto their cash, PE funds are well-positioned to be the buyer for any asset that does come up for sale.

Economic challenges for the private equity industry

With broad government-mandated policies related to the covid-19 coming into effect, massive crashes are set to hit the global economy.

The travel & leisure industries have already seen demand plunge, while retail foot traffic is down dramatically and the service industries. Outside of the consumer space, many manufacturers and retailers have seen disruptions to international supply chains. Oil demand had already declined due to Covid-19, but because of this supply shock, prices plunged below $30 to the date.

These forces point toward negative revisions to global corporate earnings expectations. Cash-flow profiles will likely decline as revenues drop.

Exits will inevitably drop, and holding periods for some assets will extend, as sellers sit tight and wait for the markets to recover. But activity may not fall off as steeply as it did in 2008 and 2009. 

Cost reductions may mitigate cash-flow declines, but many businesses will find themselves looking for capital to help cover negative cash flow. Moreover, many public companies and various private equity firms have asked their portfolio companies to do the same. 

Now, the industry is coming off many consecutive years of strong dealmaking. Meanwhile, GPs are sitting on assets that they would be expected to sell soon in a normal market. They won’t exist if the price isn’t right.  But there is reason to believe that as soon as market conditions improve, exits could rebound faster than we saw coming out of the global financial crisis.

At the same time,  high-yield bonds have skyrocketed as investors look to sell risk assets with heavy velocity. As of the beginning of March, roughly $860 million in leveraged loans came to market. That is reflecting a decline of more than 99%, according to LCD. 

Credit markets creating private debt

Given the fall-off in demand for risk assets, there is a tightening in the credit markets applicable to the upper end on private equity. In times of heavy market distress, it is important to emphasize two central components for valuing a business. Those are free cash flow projections and the weighted average cost of capital. As we see earnings fall and the cost of capital rise, asset prices will decline across the board, hurting exit multiples.

In addition, we think well-funded PE vehicles will be forced to inject more liquidity into portfolio companies. That will reduce the leverage in the LBO market.

Firms may have to underwrite deals to lower return profiles, which might remove a significant portion of viable target companies overnight. That said, certain assets trade at cheaper prices, PE might be able to make transactions work. However, PE will have the intent of re-levering later in the holding period.

In the end, private equity may have more levers to support portfolio companies than ever. That is if we consider the well-capitalized state of current private capital markets. PE firms might also hold on to their most prestigious assets as they look to weather an economic shock and look for multiples to regain steam.

Recent trends & statistics in European Private Equity

Recent trends & statistics in European Private Equity

European private equity has shown a high return in the most recent trends and statistics. Rising deal value in 2019 capped the strongest five-year stretch in history, while deal count reflected stiff competition and rising asset prices and planning carefully for how they can profit from the downturn. With the global financial crisis fresh in their memories, firms are focusing their diligence much more intently on downside scenarios. They learned valuable lessons during the crisis about what holds up well through the cycle or not, and are adjusting accordingly. Even within a sector like healthcare, widely viewed as recession-resistant, there were subsector differences in performance worth noting. Healthcare support services, for instance, produced multiples of better than two times invested capital

Spotting pockets of opportunity has been a challenge even in the up-cycle. For GPs, finding the right asset at the right price was the biggest constraint on doing deals in 2019. That helps explain why the number of transactions has remained stubbornly flat. The number is bouncing between 3,000 and 4,000 buyouts per year since 2010 according to Bain. Both exit value and volume in 2019 dipped far below the postings of recent years. 900 European PE exits closed for a total of €201.7 billion, though we anticipate these figures to increase as we collect more data.

The rise of bolt-on investments, GP-led secondaries, and long-dated funds has consolidated exit activity. Exit value via IPO hit a nine-year low, as European private equity firms sold a heightened proportion of portfolio companies to strategic. The IT sector accounted for nearly a quarter of the total PE exit value in 2019, its highest annual proportion.

private equity IPO
Source: Pitchbook

Trends in European private equity

According to the PitchBook European PE deal activity in 2019 remained robust. European private equity deal activity records €453.5 billion closed across 3,867 deals, reflecting YoY declines of 2.4% and 3.2%, respectively. The deal value recorded its second-highest reading in our dataset. This was largely propelled by 34.1% YoY growth in the median deal size to a decade peak of €30.8 million.

The near 4.5x growth in European private equity deal value over the past decade point to capital markets graduated closer to the mainstream. Moreover, 2019’s record fundraising year in terms of capital raised. An ever-growing number of institutional investors previously shied away from PE allocations. However, now they see the asset class as fundamental to their portfolios.

European IT deals accounted for €79.0 billion of the total value in 2019, the highest annual figure for the sector. Nearly 60.0% of IT deals occurred in the software space. Further, subsectors of business & productivity, financial, application and network management software accounting for most of the total deal count.

The healthcare subsectors of telehealth, provider services, and payor/payee services could be ones to watch in 2020. A notable deal within this realm in 2019 was the €550.0 million bolt-ons of Belgium-based Armonea. In Q2 by IK Investment Partners via its portfolio company Colisée, a leader in the elderly care industry. The combination will reportedly become the fourth-largest European player in the elderly care segment with approximately €1.0 billion in revenue.

PE deals by sector

European Private Equity Exits

Over the past decade, an increasing proportion of non-European investors are leading or participating in European transactions. In 2019, non-European investors participated in 726 deals worth a combined €125.8 billion. Abu Dhabi Investment Authority, Public Sector Pension Investment Board and Ontario Teachers’ Pension Plan contributed to nearly a quarter of annual transaction value.

Though the absolute volume of these deals declined YoY, their annual proportion of deal volume increased to 23.0%. Seven of the top 10 European private equity deals in 2019 involved at least one non-European investor.

Moreover, 900 European PE exits closed for a total of €201.7 billion in 2019, finishing with the lowest totals in recent years. That being said, we do expect exit activity to increase from reported figures due to reporting and data collection lags. Bolt-on investments have ballooned in the past five years, accounting for 44.0% of overall European PE deal volume.

As the buy-and-build strategy continues to increase, portfolio/platform entities have become larger. Moreover, that has resulted in a dwindling number of total exits as bolt-on acquisitions will exit as part of a larger entity. We see this trend continuing in 2020.

Top five buyout mega-funds

Given the growth of the private markets and their higher return potential vs. public markets. That said, making private equity more accessible to retail investors is gaining importance. Moreover, retail investors are struggling to gain exposure to the small and middle-market companies that have been the bread and butter of private equity. These companies are increasingly turning to private financing to avoid the cost and hassle of being publicly traded.

top five buyout mega-funds to close in 2019 by capital raised

In 2019, a record of €86.4 billion was raised for European PE funds. Although fund count increased just over 10% YoY, 2019’s 89 closed vehicles represented the second-lowest annual figure in over a decade. Additionally, capital continues to flow into larger funds. This is evidenced by the average buyout fund size rising by 21.4% to new record of €1.3 billion in 2019. Further on, eclipsing €1.0 billion for the second year in a row. Much of the increase in capital raised is also attributable to the rise in the number of funds closed in the €1 billion-€5 billion brackets.

Buyout funds have continued to account for the majority of European PE capital raised. That said, over €74.3 billion was raised across 61 funds in 2019, reflecting YoY increases of 25.7% and 5.2%, respectively. Moreover, the €12.0 billion raised across 27 growth equity vehicles in 2019 caught our eye up substantially from the €4.4 billion raised across 16 funds in 2018. The fund type gained significant traction in 2019, likely given the potential for lower valuations and less competition. Additionally, a larger and more differentiated pool of targets compared with buyouts.

Opportunity for New retail PE investors

Individuals are missing out on the opportunity to invest in fast-growing start-ups with the potential to generate big returns. That said, companies stay private longer. Now, as a growing number of traditionally public companies go private, it makes more sense than ever to push the door open for retail PE investors. Around 15% to 20% of Blackstone’s annual fund-raising already comes from retail investors, and this is likely just the start. Moreover, PE firms continue to rely on IPOs less and less as a liquidity option. To sum up, 2019 saw 29 entities exit to public markets for €20.4 billion in total exit value (on a pre-money valuation basis). Additionally, registering the lowest IPO value and volume figures since 2012.

Permira gathered €1.5 billion in commitments for its debut growth fund in 2019, Permira Growth Opportunities Fund I. The fund marks a departure from the firm’s typical control buyout and credit strategies. Furthermore, CVC also closed on €1.4 billion in commitments on its second growth fund in 2019, CVC Growth Partners II. Additionally, Paris-based Keensight Capital raised €1.0 billion for Keensight Capital V, achieving a sharp 2.2x step-up from its 2014 vintage predecessor, Keensight Capital IV. Despite the steep increase in fund size, the firm’s strategy will remain the same, targeting Western European companies in the healthcare and IT sectors. Moreover, they generate between €15.0 million and €250.0 million in revenue, which are profitable and have been growing north of 10% per year.

Leading Private Equity Investors

Leading Private Equity Investors


In this article, we will emphasize the leading private equity investors in Southern Europe and Eastern Europe. Many of those transactions have occurred in the commercial products and commercial services sectors. Moreover, Audax is working to build out its portfolio of under-the-radar middle-market businesses. That said, this is little known to the wider public. Among the platforms the firm has been conducting add-ons with this year are Colony Hardware, which distributes tools to job sites. Furthermore, these include Imperial Dade, which sells disposable foodservice products and janitorial supplies; and Reedy Industries, provider of HVAC services.




Most notable this year has been HarbourVest’s stake in Hub International. Moreover, that is a global insurance brokerage that Hellman & Friedman acquired a majority interest in at a $4.4 billion valuation in 2013. Last year, Altas Partners bought into Hub at a $10 billion-plus valuation. In yet another instance of the insurance industry attracting heavy add-on attention, Hub has completed 18 platform acquisitions. According to PitchBook data, in the US in 2019, making for a significant portion of HarbourVest’s activity.




Genstar Capital has been busy backing add-ons in the insurance space That said, a trend that indicates just how active some private equity firms have been in attempting to consolidate the industry. The most acquisitive insurance company in Genstar’s portfolio is Alera Group It is a provider of various insurance, employee benefits, and other services that the firm helped create in 2017. Already this year, it’s sealed 10 separate takeovers, per PitchBook data.




Most Active in Central & Eastern Europe and Southern Europe




Mercer Advisors, another Genstar portfolio company, has also had a busy year, conducting more than a half-dozen add-ons of its own. Over the summer, reports emerged that Genstar was seeking a sale of the company. Later, in September, the firm and co-investor Lovell Minnick Partners sold a portion of their stake in Mercer to Oak Hill Capital as part of a recapitalization.




Leading private equity investors are according to Pitchbook; Ardian and high on the list Investindustrial.




most active in central and eastern europe




most active in southern europe




Breaking down their deals even further, the most active firms tended to invest largely in B2B and IT deals Moreover, accounting for 160 of these firms’ 251 total deals or nearly 64% of deals, as indicated by the pie chart. This is a small step up from private equity as a whole, which invested 58% in the two sectore.


Read more about venture capital investors, in our recent blog post on leading venture capital investors.


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