Today, with the buyout market getting increasingly crowded, many European firms are starting to consider the fast growing economies of Central and Eastern Europe. What makes Thierry Baudon, the managing partner of Mid Europa Partners, unusual is not that this is the market he chooses to work in – it’s the fact he chose it twenty five years ago.
“When I started my career I wanted to work in emerging markets, so I joined the International Finance Corporation,” he told PEO. “I did deals in India, North Africa, and Central Europe. I basically did what I do today, using the same skill set but in the context of a multinational financial institution.”
He and his partners at Mid Europa, Craig Butcher and Colin Hewitt, recently completed the final closing of their second fund. At €650 million ($783 million), Emerging Europe Convergence Fund II is the largest yet to focus on central Europe. From its offices in London, Budapest and Warsaw, it will invest between €25 million and €100 million in companies based in the region. Last month the fund completed its first acquisition when it agreed to buy Polish media and communications group Aster from Hicks Muse Tate & Furst for $490 million (€406 million).
Although the fund is the partners’ second, it is their first as an independent firm: its $550 million predecessor was raised when the team were the European arm of EMP Global. “We raised the first fund ourselves, with our own team 5,000 miles from the firm’s headquarters,” explains Baudon. “At some point we realised that being part of a global group wasn’t bringing us extra value. When the time came to raise a successive fund, we spun off and formed our own partnership.”
The firm is likely to find itself operating in a very different market to the one it first entered five years ago. Most of the countries it is mandated to invest in now have EU and NATO membership, and are experiencing the kind of growth rates that are nothing but a distant memory in much of western Europe.
“Debt wasn’t readily available until the end of 2003,” Baudon explains. “Until then deals were often all-equity and done by consortia: the deal flow was typical of emerging markets rather than the European mainstream. Now you’re starting to see deals on the LBO model and cross border M&A has expanded. It’s a mini-China on the doorstep of Europe. It doesn’t have quite the growth rate, but there’s less risk of it overheating and more transparency.”
This change in attitudes towards the region goes some way to explain fund II’s success with investors: it exceeded its target of €500 million, and Mid Europa claim it could have been €200 million bigger.
For Baudon, though, the region’s shift towards the European mainstream is the fulfilment of a long held ambition. He left the International Finance Corporation in the early nineties to join the newly formed European Bank for Reconstruction and Development, and except for a brief period with a French utility has worked in international development finance his entire life.
“I’ve always been fascinated by development,” he says. “I get a big kick out of situations where I see investments contributing something. I’m never going to make as much money as guys who work in western private equity houses – but it’s a lot more fun to work on a Polish or Slovenian investment than to be the fifth midmarket firm to buy a company.”