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, while the turnover in this category increased by €5.2 billion during the period 2019-2022. The report was produced by ROPEA in collaboration with Deloitte Romania, based on data provided by Invest Europe, one of the largest global associations of PE and VC, and on publicly available information.

The report reveals that 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. During 2022 and 2023, the sector's evolution was impacted significantly by the macroeconomic and geopolitical factors, and so Romania continues to be positioned among the last territories in European Union considering 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 significantly takeoff in the context of the Recovery Equity Fund (REF), a €400 million Fund of Funds managed by European Investment Fund, set-up by Romanian Government under 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,” said Horia Manda, Chairman of the Board of ROPEA.

Investment outlook. 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. 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 €0.6 million in 2017 to €2.1 million in 2023.

Private equity investments. As per Invest Europe, in Romania only 0.041% 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. This decline was to some extent driven by the rapid increase in interest rates, which had an impact on deals reliant on bank financing. Buyout investments remain the core driver in the CEE region, amounting to €1,000 million in 2023, out of which approximately €76.1 million are invested in Romanian companies (such transactions representing the main type of PE-backed investments in Romania in 2023 out of the total €111.7 million).

Venture capital investments. 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 €8.2 million in 2017 to €129.6 million in 2023 – an approximately 16x increase over the period.

Job creation. Net jobs created by PE-backed companies during 2019-2022 are the equivalent of the entire population of Targu Neamt (18,393 new jobs created). 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 on non-financial data for the period 2018-2022 of 156 portfolio companies headquartered in Romania, out of which 72% are owned by ROPEA members. Net job creation in the overall economy reached 2.3% in 2022 (115,205 more employees in 2022 versus 2021), while for the PE-backed companies the increase was of 7.1% during the same period (4,027 more employees in 2022 versus 2021), highlighting the performance of such partnerships, which managed to grow even during volatile market conditions. The number of employees in ROPEA member private equity-backed companies doubled - from 21,476 in 2018 to 42,371 in 2022.

Fundraising. Romanian PE fundraising activity is lower in terms of values compared to other CEE countries. From 2017 to 2023, most locally raised funds were largely directed towards VC investments, with a total of €111.8 million, representing 69% of the total fundraising activity of €161.8 million. Romania's local fundraising activity has been historically marked and supported by the government agencies, including international financial institutions, by managing programs, including public programs, aimed at developing the local PE and VC market. During the period 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 in Europe in general. But we hope to see improvements in these areas over the next years," said Radu Dumitrescu, Financial Advisory Partner-in-charge, Deloitte Romania.

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 €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 €600 million in investment capital over the next 5-7 years, dependent upon successful fund closures and co-investor involvement. The capital is aimed to be allocated to fund managers that will invest in Romanian SMEs and mid-caps operating in strategically designated sectors and infrastructure projects.

ESG. The sector is also expected to see a stronger focus on ESG (environmental, social and governance) criteria, aligning with global trends towards sustainable and responsible investing.