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Private equity: CEE private equity on the fast track

Growth potential is the buzz-phrase in the central and eastern European private equity market. Many in the market are extolling its virtues, not to mention its returns, but what are the hidden risks? Jethro Wookey reports.

Volume up, deal value down

Middle-class demand

MUCH HAS BEEN made of the fantastic growth opportunities for private equity in central and eastern Europe but there might be more obstacles than many in the market have expected. Depending on who you talk to, the CEE private equity market is a stable source of great opportunity with relatively high returns and no sub-prime exposure or a risky market that requires overly heavy investment of capital and time and that may be more exposed to the credit crunch than many investors realize.

For now, the numbers support the optimistic case. According to ISI Emerging Markets, which gathers financials and company data for more than 70 countries, there were almost 170 private equity deals in CEE in 2007, with an overall deal value of some $10.1 billion. (This figure does not include numbers for Russia and other CIS countries, such as Ukraine, Belarus and Moldova.) That amounts to an increase in deal volume of one-third over the 2006 figure, and a rise in deal value of almost 50%. And there is still much room to grow. Private equity as a percentage of GDP in CEE is about 0.22%,

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