Country Profile: Poland

Poland is considered to be the most attractive country in the region for private equity investors. For one, it is one of the largest single markets within the EU ranking only slightly behind France, Germany, Italy and the UK. By nature of its size it is seeing the largest amount of deal flow within CEE and is showing genuine signs of development in anticipation of the upcoming EU accession.

'Private equity in Poland and the region is quite dynamic,” says Robert Manz of private equity firm Enterprise Investors. “While the investment infrastructure is not perfect, it is functional,” he states. For example, there is reasonable corporate governance and shareholder protection and other recent developments have contributed to the growth of the market.

Banks in general are becoming more liberal and open to discussing debt financing with representatives from small and medium-sized companies. Their mind-set has changed from focusing on fixed assets and positive cash-flow to future revenue and profit streams. And the arrival of the large US and UK law firms has encouraged an increase in the volume of domestic transactions as well as ensuring that the necessary checks and balances are in place to see that deals run as smoothly as possible.

The venture capital market in Poland did not start to develop until the mid 1990s. A number of the early players were sponsored by various organisations such as USAid and the European Bank for Research and Development (EBRD), which focused on the privatisation of state-owned enterprises. Later, more purely profit-driven venture capital players were established and more attention was given to start-ups by both local and foreign entrepreneurs. The EBRD no longer plays such a substantial role in the country as it feels that private equity investors, made up, in part, by US and UK pension funds, are now comfortable to move into the country on their own.

Dave Dixon, the resident US partner in the Warsaw office of Altheimer & Gray, the first foreign law firm in Poland, believes that the huge Polish diaspora adds tremendous value to the market. “With 120m Poles world wide, of which there are only 38m actually living in Poland, you get a unique phenomena of know-how and capabilities being provided by expatriats,” he explains.

One player that has recently recognised the potential of Poland’s contribution to technology is venture capitalist Softbank Emerging Markets (SBEM). It believes that the country is one of the major IT and telecommunications markets in CEE and plans to focus on opportunities in Polish wireless communications, enabling technologies and internet infrastructure. SBEM says it will “identify and fund promising local technology business concepts and help build them into successful companies locally and internationally”.

Today, there are close to 30 recognised venture capital companies established in Poland, many of whom tend to look for yields in the region of 35 per cent. Although many funds adopt a generalist approach, some sectors are receiving more attention than others. “Telecoms was extremely popular but is getting a bit of a battering right now world wide,” says Dixon. But, he believes it will come back as it is “always a driver”. A lot of deals are also being seen within pharmaceuticals and financial institutions. But the bottom line is that, because of the amount of competition that exists within the country, there is a lot of activity in many sectors.

Law firm SJ Berwin has helped set up a number of CEE funds in Poland. John Daghlian, a partner at the firm, argues that the country is able to offer more opportunities than its neighbours because of the greater size of its economy. Having visited Warsaw on business over a number of years he says: “I have been impressed by the way it seems to have pulled itself up by the boot strap.”

Dave Dixon is witnessing a vibrant public equity market in the Poland at a time when it is more difficult to do IPOs. “Everybody is nosing around for good deals,” he says. “Right now with all of the downturn in the bourses worldwide, private equity is a shining star. It is the only game in town.”