The vehicle, which aims to garner €107 million in commitments, will focus on small- and medium-sized management buyouts and buy-ins in Poland. It will also be open to investments in other countries in central and south-eastern Europe.
This fresh investment is more than double that made by the EBRD in the firm’s previous vehicle, although the proportion of equity contributed to the total remains unchanged. The EBRD invested €12 million in Avallon MBO Fund I, which held a final close on €50 million, in 2007.
By backing Avallon, the EBRD aims to help the region go through a phase of generational change, Michal Pankiewicz, associate banker in the EBRD’s Warsaw Office, told Private Equity International. “Entrepreneurs that set up their businesses in Poland and the CEE after the collapse of the Soviet Union are now approaching retirement, so they are seeking an exit. Now is a good time for the management to take over the business, with a fund like Avallon supporting them.”
The move is also meant to address the region’s broader challenges, said Anne Hutton, principal banker in the EBRD’s Equity Funds team. “The one overriding difficulty hitting our region of operation is access to equity capital for small and medium companies, and fundraising for equity funds.”
In the long run, the idea is to encourage the emergence of a sustainable private equity industry in Poland, she said. “We want to act as a catalyst to try and attract third party finance into the region. We are targeting those funds that we believe can attract institutional investors, or first time funds in the region, or funds that have a very specific niche.”
The EBRD invested up to €80 million in Enterprise Investors, the oldest and largest Polish private equity firm, last year. If all goes according to plan, it will be making another investment into a first-time Polish fund in 2013, Hutton said.
The EBRD is the largest private equity funds investor dedicated to the Central South Europe (CSE) and Commonwealth of Independent States (CIS) regions. Its private equity funds provide support to small and medium businesses, as well as large scale companies, through debt and direct equity investments. They typically make eight to 10 investments a year, amounting to a rough total of €300 million.
Avallon, founded in 2001, was among the first investors focused on MBO and MBI transactions in the Polish market. It has a generalist approach, and its current portfolio includes investments in the food, manufacturing and energy sectors.