Private Equity Investments in CEE
Group 2 Kwesi Charles Khoi Mai Eleonora Martignoni
Follow both bottom-up and top-down approaches
Failing to distinguish between signal and noise
Various and reliable data sources Purely focused on economic fundamentals
Independent methodology Improper sector screens
Robust scoring system No connection between first and second level screens
All countries in the world are covered Biased region and country selection
Past Reports Analysis
Past reports
Independent methodology A C B D E
Various and reliable data sources A C B D E
Follow both bottom-up and top-down approaches A B D E
Robust scoring system E A
All countries in the world are covered A B
Past Reports Strengths
Past reports
Failing to distinguish between signal and noise A C B D E
Purely focused on economic fundamentals C B D E
Improper sector screens C D E
No connection between first and second level screens A C B D E
Biased region and country selection A C B D E
Past Reports Weaknesses
Past reports
Democracy
• Eliminate Bottom 15
Corruption
• Eliminate Bottom 15
Growth
• Eliminate less than 6% Growth
Screening
Economical
• GDP Growth • GDP per Capita • FDI • Inflation • Openess • Gov. Debt
Social
• Working Age Population
• Education • Unemployment • Life Expectancy
Political
• Stability • Corruption
Legal
• Rule of Law • Ease of
doing business
Tech
• Mobile phone penetration
Screening
Screening
FDI Stability
Rule of law GDP Growth
Income Per capita
Inflation Openness
Corruption Ease of Doing Business
Working age Population Education Gov. Debt
Unemployment Life Expectancy
Mobile Phone Penetration
Value for the Country’s Indicator – Min value of the indicator
Max Value of the Indicator – Min value of the indicator
10
Static
• Last year
Dynamic
• Average past 10 years
Screening
Entering
• Entrepreneurial Culture
• Population • GDP Growth • Banking Scores
Investing
• Credit Depth • GDP per Hour • Labour Cost • Tax Rate
Exiting
• M&A Attractiveness
• Stock Market Depth
Screening
Eliminate
Excluded Countries
Afghanistan El Salvador Iceland Mexico Sudan Antigua and Barbuda Equatorial Guinea Iran Myanmar South Sudan Bahamas, The Eritrea Iraq Netherlands Syria Barbados Gambia, The Ireland North Korea Turkmenistan Bermuda Germany Italy Portugal United Kingdom Central African Rep. Greece Jamaica Puerto Rico United States Chad Grenada Japan Saudi Arabia Uzbekistan Dem. Rep. Of Congo Guinea Bissau Laos Seychelles Yemen Dominica Haiti Malawi Somalia Zimbabwe
Screening
Eliminate Screen
0.0
2.0
4.0
6.0
Asia CEE LatAm MENA SSA
Political
0.0
5.0
10.0
Asia CEE LatAm MENA SSA
Social
3.4 3.6 3.8 4.0 4.2 4.4
Asia CEE LatAm MENA SSA
Economical
0.0
2.0
4.0
6.0
8.0
Asia CEE LatAm MENA SSA
Legal
0.0
2.0
4.0
6.0
Asia CEE LatAm MENA SSA
Technological
Asia CEE LatAm MENA SSA 136.8 149.3 132.5 148.0 116.4
Screening
Eliminate Screen Select
Country Entrepeneurial
culture Population
GDP Growth
Banking Scores
Credit depth GDP per
hour Labour cost Tax
MeA Attractiveness
Stock Market Depth
Average Score
Bulgaria 3 1.7 3.1 2.5 0 0.4 10 7.4 1.9 3.8 3.38
Croatia 0.9 0.8 0.2 5 5 6.9 5.3 10 1.2 2 3.74
Czech Rep. 10 2.5 0.4 10 5 6.5 3.9 0.5 10 5.8 5.47
Estonia 7.4 0 5.1 5 5 3.3 5.1 0.1 0 1 3.2
Hungary 7 2.4 2.5 0 0 3.7 6.6 0 6.3 4.8 3.32
Latvia 0 0.3 10 0 5 2.3 7.6 4.6 0 0 2.98
Lithuania 3.5 0.5 8.8 2.5 10 5 7.7 2.2 1.2 4.6 4.61
Poland 6.1 10 4.7 7.5 10 4.3 6.4 2.7 8.8 10 7.04
Romania 0.4 5.5 9 7.5 5 0 9.2 2.3 5 2.2 4.61
Slovak Rep. 1.7 1.1 3.7 10 0 7.4 5.6 0.8 6.3 5.4 4.21
Slovenia 9.1 0.2 0 2.5 0 10 0 5.8 1.2 3.4 3.22
Screening
Poland
Czech Rep.
Romania
Country reports
Country reports
Country reports
Country reports
Questions?
Appendix
Criteria Area Importance Lower Upper Difference Evaluation Definition i want
Stability Political 3 -2.89 1.92 5 last year Reflects perceptions of the likelihood that the government will be destabilized or overthrown by unconstitutional or violent means, including politically-motivated violence and terrorism. high
GDP growth Economical 3 -3% 14% 17% average 10
years
Annual percentage growth rate of GDP at market prices based on constant local currency. Aggregates are based on constant 2005 U.S. dollars. GDP is the sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products. It is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources. high
FDI Economical 3 -3% 36% 40% average 10
years
Foreign direct investment are the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as shown in the balance of payments. This series shows net inflows (new investment inflows less disinvestment) in the reporting economy from foreign investors, and is divided by GDP. high
Income per capita Economical 3 251 103858 103607 last year
GDP per capita is gross domestic product divided by midyear population. GDP is the sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products. It is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources. Data are in current U.S. dollars. high
Rule of law Legal 3 -2.45 1.95 4 last year Reflects perceptions of the extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence. high
Corruption Political 2 8 91 83 last year Corruption perception Index, as compiled by Transparency International low
Inflation Economical 2 0% 29% 29% average 10
years
Inflation as measured by the consumer price index reflects the annual percentage change in the cost to the average consumer of acquiring a basket of goods and services that may be fixed or changed at specified intervals, such as yearly. The Laspeyres formula is generally used.
low
Openess Economical 2 0% 398% 398% last year Merchandise trade as a share of GDP is the sum of merchandise exports and imports divided by the value of GDP, all in current U.S. dollars. high
Working age population Social 2 0% 86% 86% last year
Total population between the ages 15 to 64 is the number of people who could potentially be economically active. Population is based on the de facto definition of population, which counts all residents regardless of legal status or citizenship--except for refugees not permanently settled in the country of asylum, who are generally considered part of the population of the country of origin. high
Ease of doing business Legal 2 1 189 188 last year
Ease of doing business ranks economies from 1 to 189, with first place being the best. A high ranking (a low numerical rank) means that the regulatory environment is conducive to business operation. The index averages the country's percentile rankings on 10 topics covered in the World Bank's Doing Business. The ranking on each topic is the simple average of the percentile rankings on its component indicators. low
Gov. debt Economical 1 3% 124% 121% last year
Cumulative total of all government borrowings less repayments that are denominated in a country's home currency. Public debt should not be confused with external debt, which reflects the foreign currency liabilities of both the private and public sector and must be financed out of foreign exchange earnings. low
Education Social 1 4 20 16 last year School life expectancy (SLE) is the total number of years of schooling (primary to tertiary) that a child can expect to receive, assuming that the probability of his or her being enrolled in school at any particular future age is equal to the current enrollment ratio at that age high
Unemployment Rate Social 1 0.0% 67.0% 67% last year Labor force participation rate for ages 15-24 is the proportion of the population ages 15-24 that is economically active: all people who supply labor for the production of goods and services during a specified period. low
Life Expectancy Social 1 45 83 38 last year Life expectancy at birth indicates the number of years a newborn infant would live if prevailing patterns of mortality at the time of its birth were to stay the same throughout its life.
high
Mobile Phone Penetration Technological 1 0 290 290 last year Mobile-cellular telephone subscriptions per 100 inhabitants high
Average Score per region Asia CEE LatAm MENA SSA Grand Total
First tier criteria
Stability 4.9 6.4 5.6 5.1 5.1 5.4 GDP Growth 5.9 4.2 4.7 5.1 5.2 5.0
FDI 2.1 2.5 1.9 1.9 2.3 2.2 GDP per capita 0.5 0.9 0.7 2.0 0.2 0.7
Law 4.6 5.6 4.6 5.7 4.1 4.8
Second Tier Criteria
Corruption 3.4 4.3 3.7 4.3 3.1 3.7 Inflation 7.6 8.0 6.9 8.3 7.1 7.5 Openess 1.9 2.6 1.5 1.9 1.6 1.9
Working Age 7.7 7.7 7.5 8.3 6.4 7.4 Ease of Business 5.2 6.6 4.6 5.5 2.8 4.8
Third Tier Criteria
Education 5.3 6.6 5.7 6.3 3.6 5.2 Unemployment 9.2 8.0 9.0 8.6 7.5 8.3
Gov. Debt 6.8 6.6 7.0 6.3 7.4 6.9 Life Expectancy 6.7 7.6 7.6 7.7 3.2 6.2
Mobile 3.5 4.38 3.8 4.4 2.4 3.6 Weighte tot Score 136.8 149.3 132.5 148.0 116.4 134.5
Regional Scores
Region Number of countries
in top third Number of countries
in the region Percentage of top
countries Average score for the
region Average score for top
quartile countries Asia 10.0 21.0 48% 136.8 161.9 CEE 11.0 22.0 50% 149.3 166.9 LatAm 5.0 18.0 28% 132.5 159.8 MENA 7.0 14.0 50% 148.0 164.2 SSA 1.0 29.0 3% 116.4 150.6
Top Third Scores
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0 Political
Economical
Social Legal
Technological
Asia
CEE
LatAm
MENA
SSA
Regional Ranking
Indicator Source Definition
Entrepeneurial culture
VCPE Attractiveness Index
Weighted Index based on innovativeness index, capacy for innovation, scientific journals, ease of starting a business, simplicity of closing a business and corporate R&D
Population World Bank Total population living in the country
GDP Growth World Bank Annual percentage growth rate of GDP at market prices based on constant local currency.
Banking Scores S&P BICRA Index
The BICRA analysis for a country covers all of its financial institutions that take deposits, extend credit, or engage in both activities. The analysis considers the relationship of the banking industry to the financial system, and furthermore to its sovereign.
Credit dept World Bank Credit depth of information index measures rules affecting the scope, accessibility, and quality of credit information available through public or private credit registries. The index ranges from 0 to 6.
GDP per hour Total Economy Database
GDP per capita in 2013 US$ (converted to 2013 price level with updated 2005 EKS PPPs) divided by Annual hours worked per worker
Labour cost Eurostat
Total Labour Costs cover wage (direct remunerations, bonuses, and allowances) and non-wage (social contributions plus employment taxes) costs less subsidies. They do not include vocational training costs or other expenditures such as recruitment costs, spending on working clothes, etc.
Tax World Bank Total tax rate measures the amount of taxes and mandatory contributions payable by businesses after accounting for allowable deductions and exemptions as a share of commercial profits.
MeA Attractiveness Cass M&A Research Center
The index aims to cover all of the areas of a country’s development which are relevant for M&A attractiveness purposes. It is an equally-weighted average composition of five factor groups: Regulatory and Political, Economic and Financial, Technological, Socio- economic, and Infrastructure and Assets
Stock Market Dept VCPE Attractiveness Index
Weighted Index based on market cap of listed companies, number of listed domestic companies, trading volume, IPO activity, M&A activitity, Ease of access to loans, Interest rate spread, NPL, financial market sophistication
Country Selection Factors
0.0
2.0
4.0
6.0
8.0
10.0
Bulgaria Croatia Czech Republic
Estonia Hungary Latvia Lithuania Poland Romania Slovak Republic
Slovenia
Market Selections Scores Entrepeneurial culture Population GDP Growth Banking Scores
0.0
2.0
4.0
6.0
8.0
10.0
Bulgaria Croatia Czech Republic
Estonia Hungary Latvia Lithuania Poland Romania Slovak Republic
Slovenia
Company Management Credit depth GDP per hour Labour cost Tax
0.0 2.0 4.0 6.0 8.0
10.0
Bulgaria Croatia Czech Republic
Estonia Hungary Latvia Lithuania Poland Romania Slovak Republic
Slovenia
Exit MeA Attractiveness Stock Market Depth
Country Scores
0
10
20
30
40
50
60
70
Labor force with secondary education (%
of tot)
Labor force with tertiary education (% of tot)
Poland EU
0
10
20
30
40
50
60
70
Hourly Labor Cost
-4%
-2%
0%
2%
4%
6%
8%
2003 2006 2009 2012
GDP Growth Poland OECD
Poland
Czech Republic
0
10000
20000
30000
40000
50000
60000
Railways, goods transported (million ton-
km)
Roads, goods transported (million ton-
km)
OECD Czech Republic
0.00
1.00
2.00
3.00
4.00
5.00
6.00 32
33
34
35
36
37
2010 2011 2012 2013
FDI VC PE rank
-
5,000.00
10,000.00
15,000.00
20,000.00
25,000.00
GDP per Capita
Romania
0.00
20.00
40.00
60.00
80.00
100.00
Bulgaria Romania Latvia Lithuania Ukraine Poland Czech Republic
Slovak Republic
Croatia Albania Slovenia Hungary
Gov Debt
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