Net job creation in private equity-backed companies increased by 7.1% (4,027 more employees in 2022 versus 2021), compared to the overall economy's increase of 2.3% in 2022 (115,205 more employees in 2022 versus 2021), the Romanian Private Equity Association (ROPEA)'s annual report shows.

The report, which details the performance and results of the Romanian private equity and venture capital market for 2022 and 2023, was produced by ROPEA in collaboration with Deloitte Romania based on data provided by Invest Europe.

The number of employees in ROPEA member private equity-backed companies doubled - from 21,476 in 2018 to 42,371 in 2022.

Net jobs created by PE-backed companies during 2019-2022 stood at 18,393. The analysis of the impact of the private equity and venture capital in the Romanian economy (job creation, additional turnover, and EBITDA/ operational profit generated) is based on publicly available financial and non-financial data for the period 2018-2022 of 156 portfolio companies headquartered in Romania, out of which 72% are owned by ROPEA members.

At the same time, the turnover in the sector increased by EUR 5.2 billion during the period 2019-2022, the report shows.

Despite facing significant challenges due to limited local capital, the Romanian PE and VC sector has demonstrated a real potential to develop local and regional players and an increased appeal to international investors, the report notes. In 2022 and 2023, the sector's evolution was impacted significantly by macroeconomic and geopolitical factors, and Romania continues to be positioned among the last places in the EU, given that the fundraising per GDP and investments per GDP ratios are still among the lowest.

The lack of local capital (public, institutional, and private) continues to be the key reason for such under-performance. However, the sector is estimated to take off in the context of the Recovery Equity Fund (REF), a EUR 400 million Fund of Funds managed by the European Investment Fund, set up by the Romanian Government under the National Recovery & Resilience Plan.

"We are ready to prove the role of financial investors in the Romanian economy: through accelerated increase of revenues and job creation, private equity or venture capital funds contribute significantly to the growth of the businesses they invest in through their involvement in strategy design, management appointment, financial reporting and achievement of operational efficiencies," Horia Manda, chairman of the board of ROPEA, said.

While the regional private equity ecosystem is in a good position to help the growth of small and medium local players to the next level, the local funds are focused mostly on growing the smaller tickets in the market, the report notes. When it comes to the investment stage, although the local PE transactions fluctuated, VC investments increased exponentially during 2021-2023 versus prior periods, with average values of the transactions increasing from EUR 0.6m in 2017 to EUR 2.1m in 2023.

In Romania only 0.041% of investments as percentage of GDP were made by PE and VC funds in 2023, despite the increase from 0.028% in the previous year.

The total number of PE and VC deals in Romania fell by 16% compared to 2022, to 73 transactions in 2023. The decline was, to some extent, driven by the rapid increase in interest rates, which impacted deals reliant on bank financing. Buyout investments remain the core driver in the CEE region, amounting to EUR 1,000m in 2023, out of which around EUR 76.1m are invested in Romanian companies (such transactions representing the main type of PE-backed investments in Romania in 2023 out of the total EUR 111.7m).

At the same time, 2023 saw an increase in value and in number of deals, mainly in ICT start-ups. Total VC investments saw a steep increase, driven by mixed capital funding rounds, which include a mix of Romanian and foreign capital, from EUR 8.2m in 2017 to EUR 129.6m in 2023, an approximately 16x increase over the period.

Romanian PE fundraising activity is lower in terms of value compared to other CEE countries. From 2017 to 2023, most locally raised funds were largely directed towards VC investments, with a total of EUR 111.8m, representing 69% of the total fundraising activity of EUR 161.8m.

Romania's local fundraising activity has been historically marked and supported by government agencies, including international financial institutions, by managing programs, including public programs aimed at developing the local PE & VC market.

During 2017-2023, besides the government agencies, which provided 56% of the total capital raised, 36% was provided by family offices and private individuals. Romania misses a key class of investors - pension funds, which, in developed markets, provide up to 25% of the capital raised by PE and VC funds. Generally, the PE funds active in the entire region attract financing in larger countries from CEE (mainly Poland) and deploy their investments in Romania.

"In our view, more diversified financing sources are instrumental to the development of the local private equity and venture capital market, which continues to be highly dependent on government agencies. Besides pension funds, Romania lacks another important class of investors: corporates, which are much more present in Central and Eastern Europe and Europe in general. But we hope to see improvements in these areas over the next years," Radu Dumitrescu, Financial Advisory Partner-in-charge, Deloitte Romania, said.

A substantial increase in fundraising activity is anticipated for the remaining months of 2024. One of the most notable outcomes in the upcoming period is the projected positive impact of the EUR 400 million Recovery Equity Fund (REF), managed by the European Investment Fund. This initiative, set up by the Romanian Government under the National Recovery & Resilience Plan, is expected to catalyze up to EUR 600 million in investment capital over the next 5-7 years, dependent upon successful fund closures and co-investor involvement. The capital is to be allocated to fund managers that will invest in Romanian SMEs and mid-caps operating in strategically designated sectors and infrastructure projects.

ROPEA is a non-profit organization dedicated to promoting Romania's private equity and venture capital industry and increasing awareness of this sector among potential investees.

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simona@romania-insider.com