PRIVATISATIONS Governments as vendors

Back in August last year it was reported that London-based private equity firm Apax Partners was engaged in exclusive talks to buy a 30 percent stake in Nova Ljubljanska Banka (NLB), Slovenia's largest bank, from Belgian financial services group KBC for a reported valuation of around €900 million.

At the time, the negotiations were seen as typifying private equity's interest in the financial services sector. Blackstone Group was also reported to have looked at a deal but decided to pull out. In February 2009, KBC chief executive Andre Bergen revealed that prospects of a deal with a private equity fund – understood to be Apax – had reached a dead end.

Retrospectively, private equity interest in state-owned NLB is seen as interesting for another reason. Namely, it provided a hint that private equity firms on the hunt for deals in a tough deal-doing market might target privatisations.

A source close to the NLB negotiations recalls that private equity involvement came as a surprise. He says this is because private equity firms have generally not been prepared to compete on price with strategic bidders for state assets.

Horst Ebhardt, a Vienna-based managing partner at Wolf Theiss, a law firm focused on Central and Eastern Europe (CEE), says he sees signs that private equity firms are gearing up to target privatisation processes in the CEE region. “There will be an upsurge of privatisations as certain governments need to raise cash and may be prepared to sell off the crown jewels. In some cases, the International Monetary Fund has provided financing to countries on the basis that they will further liberalise their economies.”

In Ebhardt's view, corporate balance sheets may hold the key to private equity's entry into, and exit from, privatised assets. Battered by the financial crisis, corporates may not today be in a position to outbid private equity firms (many of which have plenty of dry powder in the locker from the fundraising boom of prior years). However, once those same balance sheets have been replenished in two or three years’ time, they may be in a position to take the same assets off GPs' hands. Almost sounds like a “win-win”.