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Land of opportunity: Central and Eastern Europe Private Equity Trends

In Investment News by Isabelle HillsonLeave a Comment

Central and Eastern Europe (CEE) Gross Domestic Product (GDP) has rapidly risen since the fall of communism, as denoted by the chart below.

CEE GDP per capita

Even more interesting is that at 3.16%, the growth rate of CEE GDP per capita is nearly double that of the EU. This is a market that has plenty of opportunities.

CEE vs. EU GDP growth rates

Private Equity has been instrumental in the transition to market economies and increase in GDP of CEE countries after the fall of the Eastern Bloc.  Since the successful accession of most of the regions countries to the EU, CEE is particularly appealing to international investors due to its unique position as an emerging market with stable political, judicial and legislative procedures in place. The number of Private Equity Deals dropped off during Europe’s 2012-13 Sovereign Debt Crisis that caused investors, particularly from the US, to be overly cautious of the region, fearing that CEE would experience contagion.  This is depicted by the corresponding dip in the number of Private Equity deals in the graph below.  However the region bounced back, with Private Equity fundraising reaching €621m last year, a year on year increase of 62%; similarly, Private Equity investment reached €1.6bn, the highest since 2009.

Number of Private Equity Deals in CEE region 

Focusing on the consumer sector, specifically clothes, consumer demand in the CEE region has been increasing since 2004 as illustrated in the graph below.  We determined consumer demand by proxy using google search trends for clothes and related terms for the longest period that data was available for.

Google search demand for clothing in CEE region 

Evidently, demand for clothes has been increasing steadily in the region. At the same time brand loyalty, while still higher than CEE consumer’s Western European counterparts, has been decreasing as consumers forget communism and become members of the global capitalist market. The digitization of the marketplace has had a lot to do with falling consumer loyalty.  The flip side is that digitization allows us to analyse consumer behaviour.  We can now track brand reputation, consumer sentiment, find out returns on investment for marketing, platform analysis, and benchmark brands against their competitors or sectors.  The world of digital big data allows investors to analyse the life cycle of consumer behaviour in relation to a particular brand or product, from initial browsing, to purchasing, to sentiment during consumption and disposal.  In a growing market that is ripe with opportunity, with consumers that possess a morsel more brand loyalty than the fickle West, Digital Diligence is paramount to gaining that competitive advantage for brands and fund managers alike.

 

To find out more about how onefourzero’s digital due diligence and insights can help you identify opportunities for growth and potential risks, contact fleur@onefourzerogroup.com

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