Index slides as activity, pricing stabilize
Experience, discipline and an enduring pandemic are catalyzing pragmatism among deal doers, according to the latest Deloitte Central Europe Private Equity Confidence Survey.
The latest Index remains strong, above its 10-year average but down from the previous Survey. Signs of positivity resonate throughout our latest report, pointing to more sustainable levels of pricing. Confidence around the economy for example remains reasonably upbeat, with over half (58%) expecting conditions to remain the same (41%) or improve (17%). Additionally, over half of respondents (61%) expect to focus on new investments in the first half of 2022, a gentle increase on our last Survey and sign of investor confidence.
Private Equity Confidence Survey
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The Index’s drop is unsurprising as it was at a very high level,
- says Dusan Sevc, Deloitte Partner and Private Equity Leader.
Experienced deal doers in the region may be pausing as pricing became unsustainable for certain assets, and are pivoting towards more cautious and value-adding approaches in the transactions they pursue now. They are also awaiting more clarity on inflation and rising interest rates.
After semesters of rises, deal sizes and pricing may be stabilizing. Over half of deal-doers (57%) expect transaction sizes to stay the same, a marked increase from 37% in our last Survey. Additionally, the percentage of respondents expecting sizes to increase has fallen sharply, from 59% over the summer to 39% now.
This may be linked to pricing: while 43% felt pricing had increased in the second half of 2021, a similar percentage (46%) expect prices to remain the same over the first half of 2022. Just a fifth (22%) expect prices to rise in 2022 and another fifth (20%) expect prices to fall in the first half of 2022, up markedly from only 6% expecting this in our summer Survey.
These expectations may be a sign of a healthy market, since high valuations combined with increasing sizes can point to unsustainable metrics last seen prior to the Global Financial Crisis,
- Dusan points out.
Market activity may also be stabilizing after the pandemic-induced standstill of Q2 gave way to increasing activity and pricing levels at the end of 2020 and all of 2021. Over 60% of respondents expect activity levels to continue, with just 30% expecting activity to increase – down from over 60% in our last Survey. Just 9% of respondents expect activity to decline – testament to the resilience of the private equity market in Central Europe since the Survey launched as Omicron landed.
There is also evidence that more houses are embracing ESG factors into their decision making, with the vast majority (85%) deeming ESG an opportunity to build value and mitigate risks.
It is encouraging to see more private equity firms embracing ESG. Houses have a lot of influence on their portfolio and so the industry has a big role to play in leading by example, and we are seeing this in the area of decarbonization already,
- says Ivana Lorencovičová, Deloitte Partner and Financial Advisory Business Leader for Central Europe.