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Private equity in Poland

Poland has been through a lot of change in the last ten years - much of it painful. But as Enterprise Investors explains it has emerged as one of central Europe's most promising countries for private equity investment.

Poland has seen huge changes over the last ten years and throughout has remained committed to difficult economic and social reforms. These have been a burden for the population, but they have transformed the country into the most powerful economy in the region. Poland now has one of the fastest growing GDPs in Europe.

Poland has moved beyond the point of being an unpredictable emerging market and is moving towards free-market status and convergence with western Europe. Attractive investment opportunities in Poland will continue emerging as ongoing structural reforms start taking effect. It is now trying for full accession to the EU and EMU and this should ensure that Poland becomes an even more attractive private equity proposition.

Poland also has some inherent advantages that make it an attractive investment destination. It has the largest population and consumer base in central Europe (40 million people). It covers a large area, has abundant natural resources and is located right between eastern and western Europe. Plus, compared with other countries in the region, Poland has for decades enjoyed a more entrepreneurial culture and had some form of free enterprise, including private ownership of land. Therefore, it has many entrepreneurs who are running viable businesses or who have developed compelling business ideas and plans.

Poland's economy has improved a great deal over the last decade but there are still many of challenges. Anyone hoping to make successful private equity investments in Poland will need hands-on experience and a strong reputation and presence in the local market. Two major new sectors are emerging as promising investment opportunities: IT and healthcare.

IT
The Polish IT market was worth more than $2.2bn by the end of 2000. It is growing fast - some segments, such as the software and services are growing at over 30 per cent a year. What's causing this growth? The modernisation of industry, banking and the public sector is creating a demand for IT. As happened in the US and Western Europe, many experienced executives are leaving larger established companies to start their own IT businesses and younger, technology-savvy entrepreneurs are starting other companies. All these companies need capital to finance their growth.

Healthcare
Healthcare delivery and related businesses will develop into another important investment sector in Poland. The healthcare market is estimated to be worth around $9bn. The Polish healthcare system has recently been reformed, introducing a competitive market for healthcare services. The companies that form to service this market will provide many new private equity investment opportunities. Private expenditure on healthcare is also rising in Poland.

Poland has a large pool of well-educated doctors and other healthcare professionals. However, the technical and logistic infrastructure for healthcare delivery to the general population has been poor at best. Backing companies that help solve this delivery problem could make for compelling private equity investment opportunities. There are other attractive investment opportunities in medical and healthcare management information companies and in companies that provide outsourcing services to hospitals.

Other sectors
Other sectors to look out for in Poland are telecommunications, consumer goods, energy, financial services, industrial products and services and business-to-business services. These could well provide good sources of private equity investment.

And finally
The last ten years have been difficult and marked with huge changes. But the future looks good for private equity. 'Poland will offer investors the opportunity to participate in very promising companies in various sectors,' says EI managing partner Jacek Siwicki. 'Given all that has taken place over the past decade, we see Poland generating significant opportunities for private equity investors. Higher potential returns are expected as a result of new sectors developing in the country, companies being able to compete on an international basis, local entrepreneurs' capabilities improving significantly, and improved exit opportunities.'

Sajan K Thomas founded S.S. Thomas & Associates, a registered broker/dealer, in September 1997 and the Thomas Investment Group in September 1998. The firms serve as a boutique investment bank, which specializes in creating, structuring and raising capital for venture and other private equity funds worldwide.

Enterprise Investors was the first private equity firm in Poland. Since its creation 1989 as the Polish-American Enterprise Fund, it has invested over $0.5bn in Poland. The firm has backed over 70 companies and exited over 30 of them, generating over 34 per cent gross return for its investors. Today, Enterprise Investors is the largest and most experienced private equity firm in central and eastern Europe, with broad capabilities in all the functional areas necessary to successfully create and manage a large private equity portfolio in the region. www.ei.com.pl

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