Central and Eastern Europe, the next frontier for mid-market private equity

Private equity has been Europe’s fastest growing industry over the past 40 years, with assets under management (AUM) increasing 230-fold, from EUR 5 billion in 1983 to EUR 1.15 trillion in 2023. Today, private equity is a major growth engine for the European economy, supporting 10.9 million jobs across Europe, or around 5% of the total workforce—equivalent to the population of Sweden, Greece, or Portugal.

How has private equity achieved this meteoric rise? Its success stems from its active ownership model, which is focused on aligning the interests of investors, business owners and managers to drive operational outperformance and, ultimately, attractive investment returns. Its approach incentivises the development of strong, resilient, and innovative companies that enhance economic vitality. Institutional investors (such as pension funds) provide the fund’s capital and fund managers channel it towards promising businesses in need of financing. Working closely with their portfolio companies, fund managers then provide strategic guidance, improve operations, identify acquisition targets, and strengthen management and governance.

As risks such as climate change become material business considerations, private equity is also increasingly emerging as a key channel for pursuing broader societal goals, both in supporting climate-related innovation and energy transition, and in enhancing the climate-preparedness and environmental profile of companies.  As reported in the launch of Invest Europe’s ‘Mid-Market Private Equity: Europe’s Engine for Growth: “If the private equity industry is a cornerstone of Europe’s economy and society, the Mid-Market is the rock on which it stands”. 

In Central and Eastern Europe, one of EBRD’s core markets and a predominantly mid-market opportunity set, private equity has also grown steadily, albeit more gradually — demonstrating resilience through major crises, from the dotcom bubble to COVID-19.

What CEE primarily offers discerning investors is an attractive set of mid-market prospects: high-growth enterprises embedded within the European market and benefiting from lower valuations. With a relatively low PE penetration in the region (more than 10 times lower than the Europe-wide share of GDP), private equity investors have found success by focusing on value creation through succession, professionalisation and the consolidation of fragmented sectors. As a result, the industry has been a dominant source of IPOs for the region. Recent examples include the listing of Europe’s largest convenience store chain, Zabka Group, on the Warsaw Stock Exchange in October 2024, or the listing of online marketplace Allegro, which became the largest ever IPO on the Warsaw Stock Exchange when it was listed in 2020 at €9.8 billion market cap.

Overall, private equity-backed companies in CEE—nearly 3,750 over the past 15 years—have demonstrated impressive growth, creating jobs at a rate seven times higher than non-private equity-owned firms (6.6% versus 0.9% growth, according to Invest Europe data) and collectively employing around 300,000 people in 2022. Crucially, there is compelling evidence that the value creation impact of PE in CEE persists beyond exit¹. The region’s success has also spurred a diversification of offerings by fund strategy, with opportunities now available across venture, mezzanine, private debt, infrastructure and renewables, with some notable successes already achieved. In 2024, Earlybird Digital East Fund, now renamed Bek Ventures, became the first European VC to claim the top position in the HEC Paris-Dow Jones Venture Capital Performance Ranking, on the back of its highly successful investment in Romanian robotic process automation company UiPath, which listed on the NYSE in 2021.

Despite these successes, fundraising in CEE is currently uniquely challenging, impacted by investor caution over neighbouring geopolitical risks and exacerbated by global factors such as inflation. The ability of large global funds to offer more efficient capital deployment opportunities for major investors has also played against CEE (and indeed small to mid-market funds globally). According to Invest Europe, capital raised in 2023 was 55% lower than the average of the previous five years, with the decline felt primarily in the smaller fund size classes, including venture and growth capital strategies. This has lengthened fundraising timelines for regionally focused funds and will ultimately reduce the equity capital available to local companies.

These temporary headwinds notwithstanding, we at EBRD have witnessed the industry's broad impact in CEE over the past three decades, and we are confident in its longer-term direction in the region. CEE has a wealth of talent, a strong entrepreneurial dynamism, and experienced fund managers. Private equity will continue to drive economic growth, fostering cross-border integration, creating jobs, enhancing productivity & innovation, accelerating the green energy transition, and generating returns for limited partners. For these reasons, EBRD will continue to be a staunch supporter of the region: over the past thirty years, we have committed over €3.5 billion to more than 130 CEE-focussed funds, supporting more than 1,100 portfolio company investments.

Anne Fossemalle

Director, Equity Funds, European Bank for Reconstruction and Development (EBRD)

Member, LP Council, Invest Europe

1 – See the following study based on EBRD’s funds portfolio investments: Biesinger M, Bircan C & Ljungqvist A (2020) Value Creation and Persistence in Private Equity, EBRD Working Paper (242).