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Index stabilizes as market adjusts to new backdrop

Last year’s steep fall has been arrested as experienced deal-doers look to build businesses in a challenging paradigm, with 2023 set to be a strong vintage, according to the latest Deloitte Central Europe Private Equity Confidence Survey.

The market has seen an unusually high number of shocks in just three years, with the post-pandemic recovery giving way to inflation and interest rate rises causing investors to pause and reflect,

- says Dusan Sevc, Deloitte Partner and Private Equity Leader.

In our Survey’s 20 years we have seen that each shock is followed by a rise in confidence, economic conditions, and transacting, so we trust the region’s investors to draw on their experience to help businesses remain resilient and embrace opportunities for sustainable growth in today’s backdrop.

The composition of deal funding is shifting, with two-fifths of deal doers now looking more to credit funds and non-bank lenders as they find leverage more difficult to secure for deals. Nearly a fifth (17%) report needing more lenders now for a deal than just six months ago.

GPs in CE are progressing their ESG journeys, with over a fifth having already implemented decarbonization commitments and targets, up 50% on our Summer Survey. Another two-fifths of respondents are starting to develop these, nearly double our last Survey.

Investors are increasingly embracing ESG as they embrace it as a value creation tool. Just as regulation increases, we see our respondents’ erstwhile intentions turning into meaningful action, and it’s a very positive step,

- says Ivana Lorencovičová, World Impact leader for Deloitte Central Europe.

Indeed the majority of deal doers in the latest survey (52%) now accept ESG as a value creation tool for portfolios, up markedly from our last Survey, and another quarter (24%) see ESG as a risk mitigation strategy.

For full Survey results, please click here.

The latest Index sees a pause in what had appeared to be another freefall as inflation and the war in Ukraine took their toll on the global economy in 2022. The recent Survey reveals glimmers of optimism around market activity as economic expectations stabilize and pricing softens to create strong vintage potential, with over 80% of respondents confident 2023 will prove a good year for returns.

This is creating appetite for GPs to invest, with a doubling of respondents seeing more actionable opportunities now (41%) than in Summer 2022 (18%). Transactions may be boosted by softening prices, with nearly half of respondents (45%) feeling vendors’ price expectations have decreased in H2 2022 and nearly two-thirds (64%) expecting them to decrease in H1 2023.