CVCA Private Equity Report a Paper Re Deal Activity in 2018 July 2019 CVCA Private Equity Report | a Paper Re Deal Activity in 2018
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CVCA Private Equity Report A paper re deal activity in 2018 July 2019 CVCA Private Equity Report | A paper re deal activity in 2018 Welcome to the 2018 Activity Report of the Czech Private Equity & Venture Capital Association, produced by Deloitte in association with the Czech Private Equity & Venture Capital Association. 2 CVCA Private Equity Report | A paper re deal activity in 2018 Introduction The Czech private equity market again and set to slow further as external risks – Mega-deals, typically quick to disappear made headlines in 2018, with the country such as Brexit-induced trade tensions in uncertain times, remain in the offing, home to one of Europe’s largest tech IPOs close to home and the US trade dispute with Sanofi’s sale of Zentiva to Advent when internet security firm Avast dual- with China – impact forecasts and GDP International topping value charts and listed on the London and Prague Stock growth is expected to end this year at making headlines. Last year also saw the Exchange in May. The deal was a welcome 2.3%. The Czech National Bank stepped Prague Intercontinental Hotel sold to R2G reminder to investors that Czech up its monetary tightening in 2018, with (completing this year); the same backer businesses can become world-beating late-2017 hikes continuing into 2018 to owns Pegas Nonwovens and announced companies given the right support. The end the year on 1.75%. This May saw the bolt-on acquisition of First Quality’s US year also saw a record level of fundraising a further rise to 2.0%, though we do not and China nonwoven operations. R2G was for Czech-based firms, with Jet Investment anticipate further hikes as the economy set up in 2016 and manages money on and others raising fresh capital. slows despite inflation remaining above 2%. behalf of individuals and families, founded The rises saw the koruna stabilise rather by industrialist Oldřich Šlemr and including These encouraging signs are tempered than gain strength against the euro, and the founders of AVAST. There may be more by a decline in the total number of deals, Czech unemployment decreased further large deals to come. which saw 2018 volume slide from a strong to a record low, making it the lowest in 2017 back to the levels more typically seen Europe. This results in a tight labour market It is encouraging to see the Czech market since 2014. Buyouts saw the steepest with strong wage growth. still doing deals despite adverse pressure decline, with just three recorded, though building in other markets and causing total value spiked on the back of one The deals done in 2018 saw regional some to pause. As private equity is (Zentiva) and suggest a record year since players retrench from the Czech Republic a creator of value and employment through the 2009 peak – but both were skewed by to focus more firmly on their home markets building businesses, it is a force for good a mega-deal. (usually Poland or elsewhere in CE), while for the local economy. local players, including newcomers Espira Looking at the backdrop in which deal- and Sky Limit, featured more heavily. This doers are operating helps us understand may be a sign that uncertain times catalyse the developments. The Czech economy a renewed focus on local expertise to try continues to grow strongly though slightly and originate and execute deals which will less so, with 2018’s impressive 2.9% GDP go on to create value despite the current growth gentler than 2017’s performance high pricing. Zuzana Picková Dušan Ševc CEO / Výkonná ředitelka Partner CVCA / Czech Private Equity Deloitte Advisory s.r.o. & Venture Capital Association 3 CVCA Private Equity Report | A paper re deal activity in 2018 Czech deals revert to five-year average; mega-deal spikes value (Total Investments – in thousand of EUR) 1,500,000 25 1,357,959 1,200,000 20 900,000 15 766,686 600,000 10 484,384 298,640 300,000 247,011 5 181,430 143,962 15,932 105,917 93,371 15,840 57,775 0 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Amount Number of deals Note: Figures for 2017 and prior years were adjusted to reflect new information available after Invest Europe Yearbook publication. Source: Invest Europe Yearbook 2018 12 The sale of Zentiva by Sanofi-Aventis to portfolio M & A given add-on deals tend Equity lead the buyout of Boco Pardubice Advent International turbo-charged equity to entail lower entry multiples and the Machines, a company specialising in 10deal values for 2018. While this mega-deal leverage remains readily available to fund technology for processing and moulding served as a useful reminder of the strong, such activity. rubber and plastics, Skylimit Investments sizeable businesses the country can turn backed the buyout of Ventos, acquiring a 8 out, the Czech market is a mid-market one, The lofty level of multiples at the moment 60% stake in the mechanical engineering and overall activity was subdued for 2018. creates a robust selling environment. firm in 2018 and CEIP acquired ELCOM, an This may be on the back of dampened This encourages owner-managers to electrical engineering company. 6 economic confidence given the gentle sell stakes in their businesses, and in softening of the country’s GDP growth; May 2018 Genesis Capital announced New Czech investor Espira Investments it4 could also be deal-doers exercising a vehicle to provide growth capital to acquired a 50% stake in JK Education, discipline in a high-valuation market. fund succession opportunities. The high an education group operating three valuations also facilitate lucrative private private schools, runs an agency placing Steep2 entry pricing is supported by the dry equity divestments, with a healthy number central European students at the foreign powder amassed by Czech and regional of exits recorded, including the London private boarding schools in the United private equity houses as well as liquid Stock Exchange listing of Avast by backers States, Canada, and Western Europe and debt0 markets, in addition to the fairly CVC Capital Partners and Summit – one is organizing student fairs in the Czech recent phenomenon2007 2008 of bonds2009 supporting2010 of Europe’s largest2011 2012 tech IPOs2013 (top 5 at 2014the Republic,2015 Slovakia,2016 Poland,2017 and Hungary.2018 companies’ growth and deal making. time of its flotation in May). Czech’s low unemployment rate makes labour markets tight and organic growth The year’s deal activity was well balanced is thus expensive. For these reasons, in terms of sectors, with engineering some firms may be keeping a keen eye on also featuring. In this space, BHS Private 800,000 16 747,911 4700,000 14 636,516 600,000 12 500,000 10 398,206 400,000 8 300,000 6 258,311 264,554 200,000 181,973 4 115,333 121,506 122,592 100,000 2 51,515 39,928 578 0 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 250,000 200,000 191,357 180,500 150,000 100,000 86,950 50,000 41,400 31,100 28,121 10,450 7,600 9,100 1,060 2,000 0 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 15 10 5 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1,500,000 25 1,357,959 1,200,000 20 900,000 15 766,686 600,000 10 484,384 298,640 300,000 247,011 5 181,430 143,962 15,932 105,917 CVCA Private Equity9 Report3,371 | A paper re deal activity in 2018 15,840 57,775 0 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Venture most prominent deal type for 4th year running (Investments by stage focus – # of deals) 12 10 8 6 4 2 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Venture Growth, Rescue, Replacement Buyout Note: Figures for 2017 and prior years were adjusted to reflect new information available after Invest Europe Yearbook publication. Source:800,000 Invest Europe Yearbook 2018 16 747,911 700,000 14 The spike in buyout activity in 2017 fell a shareholder636,516 until 2006, when it sold its The fall in buyout deals may be less about sharply last year, with just three buyouts remaining shares to Sanofi-Aventis. a subdued market and more about a shift 600,000 12 recorded, including the sizeable Zentiva in focus: last year was a record for Czech- deal by Advent International. Growth deals The long-term partnership of Warburg based funds securing commitments, actually500,000 saw an uptick in transactions year- and Zentiva was among the region’s first so houses may have been prioritising 10 on-year and venture held steady as venture big success stories and helped398,206 draw fundraising and harvesting capital rather capitalists400,000 continue to seek investment international institutional interest to CEE than deploying it. A brake on buyouts may8 opportunities in the Czech Republic, with as headlines showed the returns that also be a sign of discipline on the part 2018300,000 marking four strong years in a row as could be generated through a value- of the country’s seasoned deal-doers: 6 258,311 264,554 eight deals were recorded. enhancing partnership. Last October, currently high valuations means it may 200,000 Advent International bought the business be a better time to sell than to181,973 buy, and 4 Of the 15 deals done last115,333 year, Zentiva 121,506off Sanofi in a deal valuing the business so backers may be 122,592more cautious in their stood100,000 out not only for its large size, but at €1.9 billion and stated its intention to origination and diligence efforts.