PE fundraising strong in CEE reveals new report

BY Fraser Tennant

Private equity (PE) fundraising for Central and Eastern Europe (CEE) hit the highest annual level in a decade in 2018 with €1.8bn, according to a new report by Invest Europe.

In ‘2018 Central and Eastern Europe: Private Equity Statistics’, the association reveals that buyout funds in CEE raised a total of €1.1bn last year, while the region’s venture capital (VC) funds attracted over €500m for the second year running.

Furthermore, PE investment into companies across CEE reached €2.7bn, the second-highest amount ever achieved, following 2017’s record €3.5bn. The number of companies backed increased by 50 percent year-on-year to almost 400, also the second-highest level on record. This was driven by a sharp increase in CEE companies supported by VC.

The number of PE and VC-backed exits in CEE also reached an all-time high in 2018, with 128 companies divested. This represented a total value of over €1bn for the fifth year running, measured at historical investment cost. Poland accounted for over half of this total exit value with €575m.

“The strong levels of private equity fundraising, investment and exit activity in Central and Eastern Europe in 2018 demonstrate that the region continues to develop as an attractive investment destination,” said Robert Manz, chair of Invest Europe’s Central and Eastern Europe Task Force. “Global investors see that private equity and venture capital investment is one of the best ways to access the region’s robust markets and high-growth companies.”

In addition, Poland saw CEE’s highest amount of PE investment with its companies receiving €850m in total last year, while the Czech Republic saw €767m invested into its companies via PE and VC funds. Hungary had the highest number of companies receiving investment with over 190 backed last year, almost half of the regional total.

In terms of sectors, biotech and healthcare saw the highest share of CEE’s PE investment, with 32 percent of the total value in 2018, while consumer goods and services companies received 27 percent of funding.

The report also notes that the CEE region also has strong technology start-up credentials, including Czech cyber security group Avast – which was 2018’s largest tech initial public offering (IPO) on the London Stock Exchange at a valuation of £2.4bn.

Report: 2018 Central and Eastern Europe: Private Equity Statistics

Global insurance M&A hits four-year high

BY Richard Summerfield

The level of global insurance industry M&A has increased considerably in recent years, according to Clyde & Co’s ‘Insurance Growth Report 2019’.

There were 222 completed insurance M&A deals worldwide in the first half of 2019, up from 196 in the second half of 2018, a 13.2 percent increase – the highest increase in the volume of transactions since the first half of 2015. The figure also represents the fourth consecutive six-month period of M&A growth. Mega-deals have continued to be a factor in dealmaking in the insurance space, with 11 deals in H1 2019 valued at over $1bn. There were 18 in the whole of 2018.

“Despite recent signs of market hardening, delivering a positive result for shareholders remains challenging and M&A is an attractive strategy to deliver growth for re/insurance businesses around the world,” said Ivor Edwards, a partner and European head of the corporate insurance group at Clyde & Co.

Europe has seen a rush of completed deals that had been put on hold due to Brexit preparations, the report notes. Europe saw the biggest increase in M&A activity – up 39.7 percent – with 88 completed deals in H1 2019 compared to 64 in H2 2018. France led Europe in terms of insurance M&A activity and was the second most active country worldwide, just behind the US. The UK and Spain were next in the list.

Away from Europe, dealmakers have been buoyed by a combination of strong economic growth, notably in the US, and positive growth prospects for the insurance sector. In the Asia-Pacific region, 38 insurance M&A deals were recorded during H1 2019, marking the fourth straight period of rising deal volume to the highest level since 2015. Japan led the region in terms of deals made, followed by Australia and India.

Though the US remains the world’s most active nation in terms of M&A volume, it saw its third consecutive drop in H1 2019, with 66 deals completed. Geopolitical and financial uncertainty relating to potential trade wars involving the US may have rattled investors and could make dealmakers more cautious in the second half of 2019.

Report: Insurance Growth Report 2019

Cost of unicorns grows

BY Richard Summerfield

It is more expensive to become a unicorn in the US than ever before, with the median sum raised prior to the status-conferring round soaring to $126.1m in the first half of this year, according to Pitchbook’s 2019 unicorn report.

The sums raised by companies before becoming a unicorn – which are start-ups valued at over $1bn – are approaching all-time highs.

At midyear, there were 187 active unicorns in the US, with an aggregate private valuation of just over $600bn, down from the peak of $603.3bn recorded in 2018.

The growth of unicorns can be attributed to a number of factors, including burgeoning interest of non-traditional venture capital (VC) investors. 2018 saw a peak of $43.5bn invested across just over 100 transactions, while the first half of 2019 is going strong at $17.7bn invested and 53 completed financings of unicorns both old and new. Indeed, 2018 saw 12 deals worth a total of $4.8bn closed with only foreign investor participation. The first half of 2019 saw over $6bn of foreign capital invested in the unicorn space.

From an exit perspective, 2019 has already been a notable year, with a new record of close to $160bn realised across only 14 acquisitions or initial public offerings of unicorns, with around $142bn of that figure attributed to IPO exit value.

“Current unicorns will be truly tested by a significant market shock, which, given that nearly all have only existed within one of the largest bull markets in history, would present a challenge most have yet to face,” said Garrett James Black, senior manager, custom research and publishing at Pitchbook.

He continued: “It is difficult to envision any waning in investor willingness to fund companies to unicorn status unless there are significant market shocks to derail investing activity. The incentives for early exposure to rapidly growing, mature companies are still intact, especially given that several have validated their valuations in public debuts this year. The common limiting factor is the number of investment firms that have the resources and wherewithal to take on the inherent risk and potential outsized reward. There are enough such firms, especially as VC grows more institutionalised.”

Report: Pitchbook’s 2019 Unicorn Report

Bayer and Lankess sell Currenta stakes to MIRA in €3.5bn deal

BY Fraser Tennant

In a deal valued at €3.5bn, German chemical groups Bayer AG and Lanxess AG are to sell their stakes in chemical park operator Currenta to infrastructure investor Macquarie Infrastructure and Real Assets (MIRA).

Managing and operating infrastructure, energy supply and other essential services across chemical parks in Leverkusen, Dormagen and Krefeld-Uerdingen, Currenta is a joint venture of Bayer, with a 60 percent stake, and Lanxess, with 40 percent.

“We are delighted to announce that in MIRA, the world’s leading infrastructure asset manager, we have found the right partner to drive the successful development of Currenta while leveraging its international expertise,” said Dr Hartmut Klusik, a member of the board of management and labor director at Bayer. “In addition, MIRA has a long term focus and will also be a reliable employer for Currenta’s employees.”

Active in Germany for 30 years, MIRA has extensive experience in Currenta’s core business areas including utilities, transport, logistics, storage, waste management and treatment services. Through these investments MIRA has demonstrated its commitment to sustainability and helping to create stronger businesses.

“MIRA is delighted to partner with Bayer and Lanxess to acquire Currenta,” said Hilko Schomerus, head of Germany at MIRA. “As a long-term owner of essential infrastructure, MIRA is committed to working with the Currenta management team to ensure the longevity and ongoing success of the business for both customers and employees.”

As one of Currenta's main customers, Lanxess will provide MIRA with operational support during the transition phase and will continue to hold its stake in Currenta for several months longer than Bayer, which expects its part of the transaction to close in the fourth quarter of 2019.

“With MIRA as an experienced and strong partner and with the long-term contract package, we have achieved this and secured a reliable infrastructure at competitive conditions for the future,” said Matthias Zachert, chairman of the board of management at Lanxess. “At the same time, the sale of our stake will give us additional financial leeway to drive forward our growth course in specialty chemicals.”

The transaction is expected to be fully completed by the end of April 2020.

News: Lanxess, Bayer sell chemical park operator to Macquarie for $3.9 billion

Doors closing: Barneys New York files for Chapter 11

BY Fraser Tennant

In a move which threatens its almost 100-year history, US luxury department store operator Barneys New York filed for reorganisation under Chapter 11 of the US Bankruptcy Code.

As a part of the Chapter 11 process, Barneys New York will close its physical store locations in Chicago, Las Vegas and Seattle, in addition to five smaller concept stores and seven warehouse locations.

Alongside the bankruptcy process, the company has secured $75m in new capital which, combined with operating cash flow, will help it to meet its go-forward financial commitments, as well as facilitate a going concern sale process.

Well known for its high-end designer collection, Barneys New York has struggled in recent years with high rents and changing consumer tastes.

"For more than 90 years, Barneys New York has been an iconic luxury specialty retailer, renowned for its edit, strong point of view, creativity and representation of the world's best designers and brands," said Daniella Vitale, chief executive of Barneys New York. “Like many in our industry, Barneys New York's financial position has been dramatically impacted by the challenging retail environment and rent structures that are excessively high relative to market demand.”

“In response to these obstacles, the Barneys New York board and management team have taken decisive action by entering into a court-supervised process, which will provide the company the necessary tools to conduct a sale process, review our current leases and optimise our operations,” she continued. “While doing that we are receiving new capital to help support the business.”

Despite the store closures, Barneys New York will continue to serve customers in five flagship locations. In addition, Barneys.com and BarneysWarehouse.com will continue serving customers without disruption.

Serving as Barneys New York’s legal adviser is Kirkland & Ellis LLP. Houlihan Lokey is financial adviser, while M-III Partners, L.P. is restructuring adviser.

Ms Vitale concluded: "I would like to express my deep appreciation and profound gratitude for the continued support of our employees, vendor community and customers – truly the lifeblood of Barneys New York. We are unwavering in our commitment to executing our forward thinking vision on what retail should look like today."

News: New York retail icon Barneys files for bankruptcy