Private equity investments in Romania

6th July 2023

Romania is experiencing a renewed and solid interest in the industrial and manufacturing sectors. That is true for almost all manufactured product and industrial markets. Food is also an area where there is a lot going on, horizontally and vertically. Further, the electricity, oil and gas markets go through a turmoil period, with distribution and supply businesses under big stress and divestment and exit decisions that are in the making or already under implementation.

Beyond renewables – that are generally selling forward – M&A projects in the energy sector are driven by consolidation. New entrants so far are motivated by regional consolidation reasons. Finally, we can see significant activity in the ITC fields, also driven by consolidation reasons. While technology deals, particularly in the start-up and growth segments, seem to diminish, telecom infrastructure and resources projects are flourishing.

The status quo right now differs from two years ago, equity cost changed dramatically. Key institutional players adopt a more prudent approach, while leveraged M&A suffers because of financing costs affecting economic fundamentals of most of the envisaged transactions. The M&A sector is increasingly marked by the moves of the strategic investors, in the mid transactions market, while funds remain active in the mega deals, with a high appetite for work-outs and businesses conglomerate deals.

ESG is also shaping the investor interest. The ESG standard is by now an essential consideration in virtually all large and medium size transactions. It is not only a due diligence imperative, but in many cases a doing business inherent condition. ESG standardisation is indeed taking place not only in terms of processes but ultimately to the businesses DNA level.

The companies’ access to business development and expansion finance are likely to favor the PE funds more flexible in advancing expansion money into their investee targets. Flexibility and investment structures ahead of the traditional PE fund offerings will give an edge in a market that it is not only competitive, but also marked by carefulness. PE funds must be ready to offer medium and longer-term investment solutions.

This article is co-authored by Dr. Saverio Salandra and Silviu Stoica, Partner at Popovici Nițu Stoica & Asociații

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