Private Equity News Hungary

Private equity is an investment strategy that involves buying and selling companies that are not publicly traded. In Hungary, private equity has become an increasingly popular investment option in recent years, with a growing number of investors seeking to take advantage of the country's strong economic growth and favourable business environment.

Private Equity News Hungary: Latest Developments in the Hungarian Private Equity Market

The private equity landscape in Hungary is diverse, with a range of different players operating in the market. Some of the key players include private equity funds, venture capital firms, family offices, and strategic investors. These investors are attracted to Hungary's growing economy, skilled workforce, and favourable investment climate, which make it an attractive location for investment.

private equity hungary

Despite the many opportunities offered by the Hungarian private equity market, there are also challenges and risks associated with investing in this sector. These include government regulations, transparency issues, and the impact of the COVID-19 pandemic on the economy. However, for investors who are willing to do their due diligence and take calculated risks, private equity in Hungary can be a highly rewarding investment strategy.

Key Takeaways

• Private equity is becoming an increasingly popular investment option in Hungary due to the country's strong economic growth and favourable business environment.

• The private equity landscape in Hungary is diverse, with a range of different players operating in the market.

• While there are challenges and risks associated with investing in private equity in Hungary, for investors who are willing to do their due diligence and take calculated risks, it can be a highly rewarding investment strategy.

Private Equity Landscape in Hungary

Hungary's private equity market has been growing steadily over the years, with more and more investors showing interest in the country. According to a report by the Hungarian Venture Capital and Private Equity Association (HVCA), in 2021, Hungarian companies in the start-up phase received on average 5% more capital per transaction compared to deals when Hungarian investors invested into companies at the same stage, either in Hungary or abroad.

Private equity firms in Hungary invest in various sectors, including consumer goods and services, healthcare, IT, and manufacturing. They also invest in different stages of a company's growth, from early-stage to buyouts. The HVCA represents the interests of the private equity and venture capital industry in Hungary by supporting its members and promoting adherence to the highest possible professional and ethical standards.

In terms of funds, the Euroventures Hungary III private equity fund has been making headlines recently. The fund, which targets the growing Hungarian private equity market, has posted a first closing at €31 million and aims to close at a maximum of €75 million in the summer. It will invest in expansion, development, growth, and buyout opportunities in Hungary and other Central European countries.

Hungary's venture capital market has also been active, with investors focusing on start-ups and early-stage companies. In 2021, venture capital and private equity investment value in Hungarian companies reached €1.3 billion, with the consumer goods and services sector attracting the most investment.

Overall, Hungary's private equity and venture capital market is becoming increasingly attractive to investors, with a growing number of funds and investment opportunities available.

Key Players in the Hungarian Private Equity Market

The Hungarian private equity market has a number of key players that are worth mentioning. These entities are involved in various aspects of the private equity industry, including venture capital, private equity firms, and more.

Hungarian Venture Capital Association (HVCA)

The Hungarian Venture Capital Association (HVCA) is one of the most important players in the Hungarian private equity market. The association represents the interests of the private equity and venture capital industry in Hungary by supporting its members and promoting adherence to the highest possible professional and ethical standards. The HVCA also provides a platform for networking and collaboration among industry professionals.

Private Equity and Venture Capital Firms

There are several private equity and venture capital firms that are active in the Hungarian market. These firms invest in a variety of sectors, including technology, healthcare, and consumer goods. Some of the most prominent private equity firms in Hungary include Elite and Orbán. These firms have a track record of successful investments in the Hungarian market.

Lőrinc Mészáros

Lőrinc Mészáros is a Hungarian businessman who has made a name for himself in the private equity industry. He is the owner of several companies, including Opus Global and Konzum. Mészáros has been involved in a number of high-profile investments in Hungary, including the acquisition of MKB Bank and the purchase of a stake in MOL, the Hungarian oil and gas company.

Overall, the Hungarian private equity market is a vibrant and dynamic industry that is home to a number of key players. These entities are involved in various aspects of the industry and are instrumental in driving growth and innovation in the Hungarian economy.

Investment Trends and Sector Analysis

Hungary's private equity and venture capital industry saw a strong performance in 2021, with EUR 225.3 million invested through 241 transactions, according to the Hungarian Private Equity and Venture Capital Association (HVCA) [PDF Venture Capital and Private Equity update Hungary 2021 - HVCA]. This represents a 5% increase in the total invested amount compared to the previous year.

The consumer goods and services sector attracted the highest amount of investments in 2021, with nearly 80 million euros invested, according to Statista [Hungary: venture capital and private equity investment value 20210 ...]. This is followed by the technology sector, which received investments of 61 million euros. The real estate sector also saw significant investment, with 41 million euros invested.

In Q2 2022, Hungary saw a significant increase in private equity and venture capital investment, with 39 transactions closed involving 38 target companies that received total investment of HUF 31,079 million, according to EY [PDF Venture Capital and Private Equity update Hungary Q22022 - EY]. This represents a 201.8% increase in total invested value compared to the same period in 2021 and a 383% increase compared to Q2 2020.

Telecommunications is another sector that has seen significant investment in recent years. In 2021, the sector received investments of 42 million euros, according to Statista. This trend is expected to continue in the coming years, as the demand for telecommunications services continues to grow.

Private equity and venture capital investors in Hungary are increasingly looking to invest in innovative and high-growth companies, particularly in the technology sector. In Q1 2022, investments were executed by 29 funds managed by 15 fund managers, according to HVCA [PDF Venture Capital and Private Equity update Hungary Q12022 - HVCA].

Overall, Hungary's private equity and venture capital industry is expected to continue to grow in the coming years, driven by strong investor interest and a favourable economic environment.

Government Influence and Regulations

Private equity in Hungary is subject to government influence and regulations. The government has been providing strong support for VC investments, and the past few years saw the rise of seed and start-up investments providing capital for the early phases of product development and distribution. However, the government has also implemented regulations to control foreign investment in sensitive sectors such as national security.

In 2022, Hungary adopted a law to control foreign investment in sensitive sectors. Under the terms of the law, investors from outside the European Economic Area would have to get government clearance to buy more than 25 percent of private companies in Hungary, and 10 percent of strategic companies. The law is aimed at protecting national security and preventing foreign takeovers of Hungarian companies.

Private equity fund managers in Hungary may face regulatory requirements that are similar to those of alternative investment fund managers. Although the laws, in some respect, expressly exempt private equity fund managers from the obligation to file certain internal rules during the licensing procedure, the Hungarian regulator takes the position that it requires the submission of the entire set of internal rules which would otherwise be required from an 'ordinary' alternative investment fund manager.

The government elite in Hungary has been linked to private equity funds. Private equity funds linked to the Hungarian government elite have been used to hide wealth instead of offshore companies. Other businessmen are also successful in the market, such as OTP Group, headed by Sándor Csányi, which has five private equity funds, and Zsolt Hernádi, CEO of Mol, who is responsible for two private equity funds.

In conclusion, private equity in Hungary is subject to government influence and regulations. While the government provides strong support for VC investments, it has also implemented regulations to control foreign investment in sensitive sectors. Private equity fund managers in Hungary may face regulatory requirements that are similar to those of alternative investment fund managers. The government elite in Hungary has been linked to private equity funds.

Impact of COVID-19 on Private Equity in Hungary

The COVID-19 pandemic has had a significant impact on the private equity industry in Hungary. As with other countries, private equity firms have had to navigate through the challenges posed by the pandemic and its economic fallout. Here are some of the ways in which COVID-19 has impacted private equity in Hungary:

• Investment activity: Investment activity in Hungary's private equity sector has been affected by the pandemic, with deal volumes and values declining. According to a report by Euractiv, the number of private equity funds tied to the Hungarian government has been increasing, indicating a shift in investment focus towards domestic opportunities.

• Portfolio companies: Portfolio companies have been hit hard by the pandemic, with many struggling to maintain operations and meet financial obligations. Private equity firms have had to provide support to their portfolio companies and work closely with management teams to navigate through the crisis. According to McKinsey, private equity firms have been focusing on liquidity management and cost reduction measures to help their portfolio companies weather the storm.

• Fundraising: Fundraising activity in Hungary has been affected by the pandemic, with some private equity firms struggling to raise capital. However, there are also reports of increased interest in private equity from institutional investors seeking higher returns in a low interest rate environment. According to Funds Europe, large private equity funds from major institutions such as TPG and KKR have been on the rise.

Overall, the impact of COVID-19 on private equity in Hungary has been significant, with firms having to adapt to the changing economic landscape and support their portfolio companies through the crisis. While the pandemic has presented challenges, it has also created opportunities for private equity firms to invest in distressed assets and provide much-needed capital to struggling businesses.

Transparency and Offshore Companies

Private equity funds have been gaining influence in Hungary in recent years, with many companies being acquired while keeping the identity of investors secret. In the past, offshore companies were often used to hide the wealth of politically exposed persons (PEPs), but now, domestic private equity funds have become a popular alternative.

The Hungarian Green Party has launched an online signature drive aimed at introducing new legislation on keeping a public record of the names of the owners of private equity funds. The party argues that transparency is necessary to prevent money laundering and corruption.

While offshore companies are often associated with a lack of transparency, it is important to note that not all offshore companies are used for illegal purposes. Many legitimate businesses use offshore companies for tax planning and other legitimate reasons. However, the lack of transparency associated with offshore companies can make it difficult to determine whether they are being used for legal or illegal purposes.

In Hungary, there have been several tax law changes that might have implications for M&A transactions, including the introduction of a flat rate corporate income tax (CIT) of 9%. The business environment for private equity transactions in Hungary has been favourable in recent years, though the COVID-19 pandemic has had an impact.

In order to promote transparency, it is important for Hungarian companies to disclose their ownership structure and for regulators to enforce transparency laws. This can help prevent money laundering and corruption, and promote a level playing field for businesses.

Overall, while offshore companies have been used in the past to hide the wealth of PEPs, domestic private equity funds have become a popular alternative. The Hungarian Green Party is pushing for greater transparency in the private equity industry to prevent money laundering and corruption. It is important for Hungarian companies to disclose their ownership structure and for regulators to enforce transparency laws to promote a level playing field for businesses.

Data Accessibility and Sources

Private equity firms in Hungary rely heavily on data to make informed investment decisions. However, the availability and accessibility of data can vary greatly depending on the sources used.

Many private equity firms in Hungary have access to a variety of data sources, including proprietary data, industry reports, and public databases. These sources can provide valuable insights into market trends, company performance, and other key metrics that can inform investment decisions.

One popular source of data for private equity firms is Statista, a database that provides access to a wide range of industry statistics and market forecasts. Private equity firms can use Statista to gain insights into market trends, consumer behaviour, and other key metrics that can inform investment decisions.

In addition to proprietary data and industry reports, private equity firms in Hungary also rely on public databases such as the Hungarian Central Statistical Office (KSH) database. The KSH database provides access to a wide range of economic and demographic data, including GDP, inflation rates, and population statistics. Private equity firms can use this data to gain insights into the broader economic landscape and identify potential investment opportunities.

Private equity firms in Hungary also rely on source references such as PNG, PDF, and XLS files to access and download data. These files can provide valuable insights into company performance, financial metrics, and other key data points that can inform investment decisions.

Overall, private equity firms in Hungary have access to a wide range of data sources that can inform investment decisions. However, the availability and accessibility of data can vary greatly depending on the sources used. Private equity firms must carefully evaluate the quality and reliability of data sources to ensure that they are making informed investment decisions based on accurate and up-to-date information.

Private Equity and Venture Capital Statistics

Hungary's private equity and venture capital industry has been growing steadily in recent years. According to the Investment Monitoring Report 2022 by the Hungarian Venture Capital and Private Equity Association (HVCA), the total funds raised by private equity funds in Hungary in 2022 was €69.9 million. This is a significant increase from the previous year, where total funds raised amounted to €52.3 million.

The report also highlights that the total fund size of private equity funds in Hungary has increased to €1.08 billion in 2022, up from €1.02 billion in 2021. This shows that investors are increasingly interested in the Hungarian market and are willing to commit more capital to private equity funds.

In terms of venture capital, the HVCA report states that 184 investments were made in Hungary in 2022, with a total capital investment of €250.2 million. This is a substantial increase from the previous year, where 139 investments were made with a total capital investment of €192.9 million. The report also notes that 36 divestments were made in 2022, with a total divestment value of €277.4 million.

The CEE region is also seeing a rise in venture capital activity, with Hungary being a key player. In 2022, the CEE region received a total of €3.5 billion in venture capital investments, with Hungary accounting for a significant portion of this amount.

The HVCA is a key player in the Hungarian private equity and venture capital industry, providing valuable statistics and insights into the market. The association has been instrumental in promoting the industry and attracting investors to the Hungarian market.

Overall, the private equity and venture capital industry in Hungary is showing strong growth and is expected to continue to attract investors in the coming years. With the support of the HVCA and other industry players, Hungary is well-positioned to become a key player in the CEE region's venture capital industry.

Mergers and Acquisitions in the Private Equity Sector

Private equity companies in Hungary are actively involved in mergers and acquisitions (M&A) in various sectors. In recent years, the private equity industry has seen an increase in M&A activity in Hungary. The sector has been attractive to private equity companies, which are looking to invest in companies with strong growth potential.

M&A activity in the private equity sector involves the acquisition of one company by another, with the aim of creating a more valuable entity. Private equity companies are often involved in such transactions, as they are able to provide the necessary funding and expertise to make the deal successful.

The private equity companies involved in M&A transactions in Hungary are typically looking for companies that have strong growth potential, but may be struggling financially. They are also interested in companies that are undervalued or underperforming, as they believe that they can add value to the company through their expertise and resources.

Private equity companies are also involved in M&A transactions as owners of companies. They may be looking to acquire other companies in order to expand their operations, or to sell their own company to another private equity firm or strategic buyer.

Overall, M&A activity in the private equity sector in Hungary is expected to continue to grow in the coming years, as private equity companies continue to seek out investment opportunities in the region.

Consumer Goods and Services Sector Investments

According to the 2021 HVCA report, the consumer goods and services sector in Hungary attracted the highest amount of investments in 2021, measuring at nearly 80 million euros. This sector includes companies that produce and distribute non-durable goods such as food, beverages, and personal care products, as well as companies that provide services to consumers such as retail, hospitality, and transportation.

The report also showed a slight decreasing appetite for larger investments by Hungarian VC-s, resulting in a 7% decrease in the reported average deal sizes compared to 2020. However, the total invested amount in the consumer goods and services sector increased by 5.6% compared to the previous year, indicating that investors still see potential in this sector.

In Q1 2022, investments in the consumer goods and services sector continued to be strong, with 11 out of 29 funds managed by 15 fund managers investing in this sector, according to the HVCA Investment Monitoring Report Q1 2022. This report also showed that the total number of investments in this sector increased by 22.2% compared to the previous quarter.

Some notable investments in this sector include the acquisition of Hungarian bakery and confectionery company, Bonbonetti, by Swiss chocolate maker, Lindt & Sprüngli, and the acquisition of Hungarian dairy company, Pannontej, by French dairy group, Lactalis.

Overall, the consumer goods and services sector in Hungary continues to be a popular target for private equity and venture capital investments, with steady growth and potential for further expansion.

Insights and Returns from Private Equity Investments

Private equity investments offer investors a unique opportunity to generate significant returns by investing in private companies that are not publicly traded. Private equity investors typically invest in companies that have the potential for significant growth, and they work closely with management to help achieve that growth.

One of the key benefits of private equity investments is the potential for high returns. According to a report by McKinsey & Company, private equity returns have outperformed public markets over the past decade, with an average annual return of 13.5% compared to 8.2% for the S&P 500. Private equity investments also offer the potential for significant tax benefits, as they are often structured as limited partnerships that allow investors to defer or reduce taxes on their investment gains.

However, private equity investments also come with risks. Private equity investments are illiquid, meaning that investors may not be able to sell their shares easily. Additionally, private equity investments are typically long-term investments, with an average holding period of five to seven years. During this time, investors may not receive any returns on their investment, and there is a risk that the investment may not perform as expected.

Portfolio management is also a critical component of private equity investments. Private equity investors typically invest in a portfolio of companies, and they work closely with management to help achieve growth and increase the value of the portfolio. This involves conducting due diligence on potential investments, monitoring the performance of portfolio companies, and making strategic decisions about when to exit investments.

Exit strategies are a critical component of private equity investments, as investors typically realize their returns through the sale of their shares in portfolio companies. Private equity investors may exit investments through a variety of channels, including initial public offerings (IPOs), mergers and acquisitions (M&A), and secondary sales to other investors.

In summary, private equity investments offer investors the potential for high returns, but they also come with risks. Portfolio management and exit strategies are critical components of private equity investments, and investors must carefully consider these factors when making investment decisions.

Professional Associations and Events

Hungary has a well-established private equity and venture capital industry, supported by various professional associations and events. The Hungarian Venture Capital and Private Equity Association (HVCA) is the main representative body for the industry in the country. It represents the interests of private equity and venture capital firms in Hungary by promoting adherence to professional and ethical standards. The association also supports its members and aids public understanding of their activities.

The HVCA organizes various events throughout the year, including the HVCA Investment Conference, which is held annually. The conference brings together professionals from the private equity and venture capital industry in Hungary to discuss current trends, share knowledge and network with each other.

In addition to the HVCA, there are other professional associations in Hungary that cater to the private equity and venture capital industry. These include the Hungarian Private Equity and Venture Capital Association (HVCA), which focuses on promoting the interests of its members and creating a favorable environment for private equity and venture capital investments in Hungary.

There are also several events organized by these associations and other entities that are relevant to the private equity and venture capital industry in Hungary. These events provide opportunities for networking, knowledge sharing and deal-making. Some of the notable events include the Central European Private Equity Conference, the Budapest Venture Capital and Private Equity Conference, and the Hungarian Private Equity and Venture Capital Association Annual Conference.

In addition to events, there are also various publications and videos that provide insights into the private equity and venture capital industry in Hungary. The HVCA publishes an annual Investment Monitoring Report that provides analysis of the performance of the Hungarian private equity and venture capital market. The report is prepared in collaboration with EY and provides valuable insights into the industry.

Overall, the private equity and venture capital industry in Hungary is well-supported by various professional associations and events. These entities play an important role in promoting the interests of their members and creating a favorable environment for private equity and venture capital investments in Hungary.

Frequently Asked Questions

What is the current state of private equity investment in Hungary?

According to the Hungarian Venture Capital and Private Equity Association (HVCA), the private equity market in Hungary has been growing steadily over the past few years. In 2022, 39 transactions were closed in Hungary involving 38 target companies that received a total investment of HUF 31,079 million. The majority of investments were initiated in the start-up phase.

Which private equity firms are active in Hungary?

There are several private equity firms that are active in Hungary. According to the HVCA report 2021, the top five private equity firms by number of investments in Hungary in 2021 were Day One Capital, PortfoLion, OXO Group, Hiventures, and Bonitás.

How has the private equity landscape in Hungary evolved over time?

The private equity landscape in Hungary has evolved significantly over time. In the early 2000s, foreign investors dominated the market, but in recent years, Hungarian investors have become increasingly active. In 2021, Hungarian companies in the start-up phase received on average 5% more capital per transaction (from both Hungarian and non-Hungarian investors) compared to deals when Hungarian investors invested into companies at the same stage (either in Hungary, or abroad).

What are the key challenges facing private equity investors in Hungary?

One of the key challenges facing private equity investors in Hungary is the shortage of skilled workers, particularly in the technology sector. Another challenge is the lack of liquidity in the market, which can make it difficult to exit investments. Additionally, the legal and regulatory environment can be complex and challenging for foreign investors.

What impact has Hungary's political climate had on private equity investment?

Hungary's political climate has had a mixed impact on private equity investment. On the one hand, the government has implemented policies to support start-ups and encourage foreign investment. On the other hand, there have been concerns about the government's approach to the rule of law and the independence of the judiciary, which can make investors wary.

What opportunities exist for private equity investment in Hungary's emerging markets?

Hungary's emerging markets, particularly in the technology sector, offer significant opportunities for private equity investment. Start-ups in areas such as fintech, e-commerce, and software development are attracting increasing levels of investment. Additionally, there are opportunities in traditional sectors such as manufacturing and infrastructure, particularly given Hungary's strategic location at the crossroads of Europe.