Getting and Optimizing Leverage in Private Equity

May 21, 2024 | News | 0 comments

Discover the advantages of a relationship bank providing leverage on both fund and portfolio level, optimizing your investments for maximum returns. In this article, where Petr Polach, Co-Head of Group Structured Finance & Investment Banking at Raiffeisen Bank International AG dives deeper into the strategies and benefits of leverage in private equity.

Getting and optimizing leverage in private equity
Private equity in the Central and Eastern European (CEE) region presents unique challenges and opportunities. However, currently deal flow for alternative investment funds remains challenging due to different pricing expectations between buyers and sellers as well as geopolitical factors which also play a significant role. “In such an environment, optimizing leverage becomes crucial for private equity players and that’s where we as a bank being present in 12 CEE markets can step in,” says Petr Polach, Co-Head of Group Structured Finance & Investment Banking at Raiffeisen Bank International AG.

Navigating Fund Level Leverage
At the fund level, alternative investment funds in CEE face “traditionally” fundraising challenges since e.g. US investors expect a higher return on their investment compared to developed markets. To counter this, Net Asset Value (NAV) facilities emerge as an intriguing option. Although common in Western countries, they are not widely utilized in CEE. Recognizing this gap, Raiffeisen Bank International offers tailored support for CEE markets, providing NAV financing ranging from EUR 10 million to EUR 75 million, catering to the smaller fund volumes typical for CEE countries and aligning with the region’s dynamics.

Despite challenges when it comes to securities for NAV facilities such as lower asset diversification and granularity compared to Western European funds, NAV facilities offer several advantages for the fund itself. They enhance Internal Rate of Return, provide funding certainty in competitive situations, or cater for additional investments.

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Leverage on Portfolio Level
RBI also offers leverage on the portfolio level, particularly with its leveraged and acquisition finance team (LAF). While large financial sponsors in European space tend to seek global investment bank financing, local funds often turn to domestic banks. RBI plays a leading role in cross-border transactions across all CEE countries, particularly in markets like Romania, Czechia, Bulgaria, Serbia, and Croatia, and positions a bridge between Western Europe and the whole CEE region. We actively finance European targets and funds having an Austrian or Central & Eastern European nexus, ensuring we can provide specialized support tailored to the unique dynamics of this region.

The most active sectors for leveraged and acquisition finance include consumer, technology, media, and telecommunications (TMT) and infrastructure deals in renewables and digital infrastructure. However, the structure of leveraged finance in CEE differs from Western Europe, being less aggressive, particularly in the mid-cap market. RBI provides a holistic offering across the region, leveraging its presence in various CEE markets. 

Synergy between Fund- and Portfolio Leverage
Aligning fund and portfolio leverage under one bank offers streamlined processes and access to tailored financing solutions. By working closely with the Alternative Investment Fund’s bank, portfolio companies benefit from enhanced relationship management, customized financing, and a deeper understanding of their operations and objectives.
RBI’s dedicated coverage approach ensures end-to-end responsibility and optimized solutions for financial sponsors. The Financial Sponsor Group provides comprehensive support throughout the fund’s lifecycle, while relationship managers leverage industry expertise to meet specific client needs.

In conclusion, leveraging opportunities in private equity within CEE markets requires a tailored approach. RBI’s unique selling proposition in fund financing, particularly in Poland, coupled with its strong M&A advisory services, positions it as a valuable partner for private equity players in the region. By providing a comprehensive suite of services, including fund financing, and leveraged and acquisition finance, RBI supports financial sponsors in maximizing their investments and navigating the complexities of the CEE investment landscape.

About Raiffeisen Bank International AG:
RBI regards Austria, where it is a leading corporate and investment bank, as well as Central and Eastern Europe (CEE) as its home market. 12 markets of the region are covered by subsidiary banks. Additionally, the RBI Group comprises numerous other financial service providers, for instance in leasing, DCM, ECM, asset management or M&A.

Learn more: RBI International AG

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