American Chamber of Commerce in Romania

Double-dip and eurozone fears  drive sharp decline in investor confidence
“The most abrupt change of sentiment we have seen,”  says Deloitte partner

Confidence among Central Europe’s Private Equity (PE) professionals declined in the six months between April and October more sharply than at any time since the bi-annual Deloitte Central Europe Private Equity Confidence Index was first launched eight years ago in 2003.

According to Deloitte, investor confidence had steadily grown over the last two years to reach a post-crisis high in April this year. Now however, more recent fears regarding a possible double-dip recession and the future of the eurozone, alongside slowing growth in Poland, the Czech Republic and Slovakia, have driven it down again to the second-lowest level the survey has seen.

Deloitte Partner and M&A Transaction Services Leader Garret Byrne comments, “When investors lose confidence, businesses and economies suffer. We have seen an abrupt and decisive change of sentiment over the last six months. This suggests that the events of 2008 are still fresh in many minds and any recovery we have witnessed over the last two years has been extremely fragile.”

Hein van Dam, Partner in Charge Financial Advisory Services with Deloitte Balkans, added: “The latest findings are not surprising, given the increased economic uncertainty. However, the private equity industry still has significant capital to deploy, although one would expect investments to be more cautious in respect of not only target valuations but also the cyclicality of the industries in which they operate.”

The survey’s key findings include the following:

• A clear majority (66%) of respondents anticipate a decline in the overall economic environment, a significant rise from the 10% who foresaw decline six months ago;
• In another major change of sentiment, 50% expect overall market activity to decrease while 45% anticipate no change, contrasting with the 67% who were expecting an increase in October 2010;
• The availability of debt is set to decrease, respondents believe, reflecting concerns over the conditions of financial institutions and state finances in the Eurozone and
• Most believe that the efficiency of their financial investments will remain unchanged, although this is possibly because expectations of growth and returns remain low.

As Garret Byrne continues, “Despite this overall outlook, even in these market conditions Private Equity professionals intend to make investments now that can be grown and realised in future healthier economic times, with 76% of respondents saying that they expect to buy more than they sell between now and next spring.”



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