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THE TIMES OF PRIVATE EQUITY

I have very good news for all of you: contrary to what you might have expected by following the news, the global economy is doing well and everything seems to suggest we can make optimistic forecasts for the future. If the thought that – global economy aside – we certainly cannot say the same about the European economy has crossed your mind, I must disappoint you. There is no reason to think that Europe is in as bad shape as is commonly believed, especially when it comes to Poland and our whole region. Despite the political upheavals, both on the Continent and beyond, companies are investing shovelfuls of money they have saved in the last few years. If times were uncertain, they would be reluctant to invest, wouldn’t you say?

Time to ask the most important question then: have I not gone over the top with all this optimism given how often we hear very restraint assessments and forecasts these days? After all, the capitalisation of the Warsaw market is melting: it stood at nearly 600 bn złoty in 2014, today it is barely over 500 bn złoty. Fortunately, investment is not limited to the stock market. When the climate for launching new companies on the stock market turns unfavourable, an alternative presents itself: Private Equity.

As it happens, I had a good excuse recently to study some mergers and acquisitions reports. Let me share some thoughts with you.

The global mergers and acquisitions market (or M&A for short) has just set a new record – first since 2007 – when the volume of all transactions reached a little over 4.5 trillion dollars. A few lean years followed, until in 2015 the M&A market went ballistic nudging 5 trillion dollars (22 per cent growth). In short, companies are falling over themselves investing! Bravura performance? Not likely! Quite simply, the times of austerity are over. The investment age has dawned.

With such a fantastic last year’s results, the forecast is for further growth in M&A. Companies, including capital companies, are sitting on vast amounts of money they are keen to spend. If 2015 taught them there was nothing to complain about, they will most likely continue shopping. No prizes for guessing that the Far East markets will see the most activity – by 2020 growth in M&A is set to reach over 150 per cent. But Europe will get a piece of this M&A action too.

In Europe matters are somewhat different than in the biggest global economies, which is not yet cause for concern. On the Continent, 2015 closed with a fall both in the number and the value of transactions – 3 per cent and 15 per cent respectively. But facts are facts – mergers and acquisitions attracted a total spend of 53 bn euro. Not bad. It is hard to expect growth when one of the largest markets is groaning under international sanctions. This situation however must stabilise sooner or later. There is also some good news.

First of all, Poland and other countries in the region have not seen any falls. They bucked the European trend and recorded an increase in both the number and value of the transactions in 2015. Data coming from Poland is particularly upbeat: the M&A market grew by 40 per cent reaching the level of 6.5 bn euro (grabbing more than a 10 per cent share of the whole European market in the process!), while the number of transactions was up by 21 per cent. And it is not just because of foreign investment, although Poland is becoming more and more attractive to foreign investors. Domestic mergers and acquisitions are beginning to play a greater role. The forecast for 2016 puts the figure at 1.8 bn dollars, for 2017 at 2.2 bn dollars and for 2018 for as much as 2.5 bn dollars.

We have finally got to the point where I can say: I told you so! When the stock market takes a dip, Private Equity comes to the fore.

It is often said that the stock market acts like an economic barometer. Usually this is true. Sometimes however – and it’s no use beating around the bush on this one – the condition of the stock market reflects the emotional turmoil investors go through, and it is better to use different measuring tools. Isn’t this precisely where we are at the moment? Since companies have come to the decision it is investment time, they will most certainly have not done so based on the information they are getting from the stock markets. So far, so logical, isn’t it?

Here are some of the more important sources of information I have quoted from:

Baker & McKenzie and Oxford Economics Report
http://www.bakermckenzie.com/news/globalmaipoactivityjun15/

M&A Insights, Allen & Overy
http://www.allenovery.com/publications/en-gb/mainsights/Pages/Downloads.aspx

Emerging Europe M&A Report 2015/2016
http://www.cms-dsb.com/Hubbard.FileSystem/files/Publication/ff91c386-f66b-474a-9d34-15bcd47d7cb5/Presentation/PublicationAttachment/d08f2a7c-ceda-4779-9359-1a49c3725b27/Emerging_Europe_M_A_%20report_2015_2016_a.pdf

M&A Index Poland FORDATA Report
http://fordata.pl/wp-content/uploads/2014/10/MA_Index_Poland_podsumowanie_2015_PL.pdf

Plus a few interesting analyses:

http://www.egospodarka.pl/128867,Fuzje-i-przejecia-w-Polsce-w-2015-r,1,39,1.html

http://www.psik.org.pl/wiadomosci-psik/items/rosnie-wartosc-fuzji-i-przejec-w-polsce-podczas-gdy-w-europie-srodkowo-wschodniej-maleje-fundusze-private-equity-coraz-bardziej-.html

http://inwestycje.pl/biznes/Fuzje-i-przejecia-w-Polsce-w-pierwszym-kwartale-2016-roku;279984;0.html

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