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The Warsaw Voice » Business » October 29, 2010
Business & Economy
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Poland Is a Strategic Market
October 29, 2010   
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Piotr Czapski, head of the EQT Partners office in Warsaw and of EQT’s operations in Central and Eastern Europe, talks to the Voice’s Andrzej Ratajczyk.

Why is EQT, a group of leading private equity funds operating mainly in Scandinavia, the United States and Asia, interested in the Polish market?
We have eyed Poland and some other countries in the region for a long time. There are several factors that prompted us to open an office in Warsaw in 2008. Firstly, the region—and Poland in particular—is an attractive market in terms of prospects for the development of businesses in sectors that are of interest to us. Secondly, it seemed to us that the private equity model EQT has developed in Scandinavian and German-speaking countries would be easy to transfer to the Polish market. In line with this model, we look at investments not only from the financial but also corporate perspective. This means that we contribute not only capital but also specialist knowledge to the companies we take over. We use the term “industrial acceleration” to describe this approach to the companies in our portfolio. EQT is able to do so thanks to its wide network of experts and experienced managers and its long experience gained in many sectors in Western Europe.

n Poland has recently attracted more interest from foreign investors. One of the reasons is that last year Poland was the only European Union country to avoid recession. I suppose companies like EQT should be happy with this situation.

Paradoxically, this situation offers not only advantages to us. Certainly, a big advantage is that Poland has become a much more stable market when it comes to the freedom and comfort of investing. The market already resembles the mature markets of Western Europe. This is why our investors and banks which lend money for these kinds of transactions feel more confident. Today, no one really wonders whether or not they should invest in Poland while a few years ago, the market was still perceived as similar to Russia or Ukraine.

But the disadvantage of this situation is that the market has become more competitive. Many potential investors have appeared, both financial and corporate ones. Also, the valuations of Polish companies are quite high now thanks to the favorable situation on the stock market, which is an alternative source of capital for companies. All this means it is not easier now to carry out transactions than in the past. But economic growth is not a problem because if this trend continues, the valuations of companies we have acquired will also be growing. Problems would appear if the Polish economy slowed down. This would make Poland less attractive for investment.

So far EQT has carried out only one transaction on the Polish market. At the end of last year, the group took over a majority stake in HTL Strefa, the world’s leading producer of safety and personal lancets for taking blood samples. The net value of the shares exceeded zl.850 million. How is the company developing?
In our view, the company is developing well, which is reflected in the expected double-digit increase in its EBITDA this year compared with 2009. Last year was a bit less favorable for the company because demand for medical equipment fell on Western European and U.S. markets due to the crisis. But this year we have seen a major improvement.

EQT Group acts as a catalyst of change in the companies in which it has invested. What has changed in the operation of HTL Strefa?
Most of the changes are associated with corporate governance. We have replaced the supervisory board, which included mainly economists and lawyers and is now composed of world-class specialists who have experience in the medical sector, especially the market for products manufactured by HTL Strefa. The chairman of the supervisory board is a former president of Roche, one of the world’s largest medical corporations. By the way, Roche is the largest customer for HTL Strefa. These people contribute vast knowledge about how to develop this business, what markets the company should enter and to whom it should talk to on these markets. This enables the company to enter the next stage of development.

And what about new projects? Does EQT plan to carry out any transaction on the Polish market in the near future?
Poland is our strategic market in the region and we are always on the lookout for new investment opportunities in the country. We are now working on several interesting projects in various sectors.

What Polish sectors are the EQT funds particularly interested in?
Traditionally, we are interested in medical firms. But we also have an interest in food producers, companies operating in the trade and distribution sectors, and those providing business services and working in the media and telecommunications sector, in a broad sense. The fact that we have not conducted any transaction on the Polish market this year is due to high valuations and competition on the market. In several cases, when we tried to take over a company, we were outbid by a strategic investor or another fund ready to pay much more than the amount suggested by our analyses. But we are not discouraged and are still on the lookout for attractive companies to acquire. Some projects that we are now negotiating may be completed by the end of the year or in the first quarter of next year. And the investments we are now considering do not have to be carried out at all. Everything depends on valuations.

Apart from Poland, what markets in the Central and Eastern European region are of interest to EQT Group?
Poland is now the indisputable leader in terms of investment attractiveness. This is why we focus on this country. But in the medium term of one or two years, the Czech Republic will certainly become an attractive market. In the longer term, it will be Slovakia and Slovenia, countries which are members of the eurozone. Our funds are denominated euros and because of the currency risk, it is easier for us to invest in countries that use this currency. The remaining countries of the region still have some problems, greater or smaller, with coming out of the crisis and it seems to me that we will not be eager to invest on these markets in the near future—unless there is a special bargain to be made.


Factfile
EQT is a group of leading private equity funds focused on the Scandinavian countries, Central and Eastern Europe, the United States and Asia. EQT manages funds that specialize in leveraged buyouts, financing expansion and infrastructure investments. Since its inception in 1994, EQT Group has acquired around 13 billion euros for its 12 funds, which invested around 7 billion euros in around 70 companies. The Group’s portfolio companies employ more than 500,000 people.
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