EBRD commits up to €40 million to Avallon's fourth Polish buyout fund
Avallon MBO Fund IV held a €171.5 million first close in September and can grow to €260 million; the EBRD says regional fundraising remains difficult.
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The European Bank for Reconstruction and Development has committed up to €40 million to Avallon MBO Fund IV, a private equity fund that backs management buyouts of small and mid-sized companies in Poland and elsewhere in central and eastern Europe, the bank said on 15 October.
The fund, managed by the Poland-based private equity firm Avallon, is targeting total commitments of €220 million with a maximum size of €260 million, according to the EBRD statement. The bank's ticket is equal to about 18 per cent of the target and about 15 per cent of the hard cap.
Avallon said on 2 September that it had completed a first closing of €171.5 million, which already makes Fund IV its largest vehicle, and that fundraising would continue, with larger Polish family foundations able to invest at the next stage. The EBRD statement does not say whether its commitment formed part of that first close or came afterwards.
Where the money goes
At least 70 per cent of the fund's commitments will be invested in Poland, according to the EBRD. Up to 30 per cent can go elsewhere in the region, namely Bulgaria, Croatia, Czechia, Estonia, Hungary, Latvia, Lithuania, Romania, the Slovak Republic and Slovenia. The fund will build a portfolio of equity and quasi-equity investments in SMEs and small mid-caps.
Avallon's own description of the strategy is more specific. The fund will invest alongside managers and the founders of family businesses in companies with turnover of between €20 million and €100 million, the firm said in its first-close announcement. It named its investment in Inglot as the fund's first transaction and said technology would be a larger part of the strategy than before, both in technology companies and in traditional businesses that can grow through digitalisation and automation. Consumer brands, B2B services, e-commerce and manufacturing remain target sectors, as do companies facing succession, professionalisation or consolidation.
Tomasz Stamirowski, Avallon's managing partner, said in the same announcement: "A number of Polish companies are today undergoing generational change. We are seeing growing interest in succession transactions and management buyouts."
Each fund larger than the last
Avallon says it has invested more than PLN 1 billion in Polish companies over more than 25 years. According to the firm, its first fund raised €50 million and its second €109 million, while Avallon MBO III, closed in 2021, raised €137 million and invested in eight companies. Fund III's portfolio includes Clovin, Norlys, Letniskowo, MPPK Group, SAT, Globema and the Czech company TES Vsetin. The €171.5 million first close of Fund IV is about 25 per cent larger than the whole of Fund III.
Avallon also added Mateusz Kacprzak to its partner group, with responsibility for sourcing new deals and for technology adoption in portfolio companies, the firm said.
The EBRD has backed all four funds. "The EBRD has been a key investor in four consecutive funds," Stamirowski said in the EBRD's release.
A harder market for regional managers
The bank framed the commitment as support for a market where long-term risk capital is scarce. In its statement it said private equity fundraising across central and eastern Europe has faced challenges in recent years, affecting the availability of growth financing for smaller businesses, and that its participation would help mobilise additional investment.
Dirk Werner, the EBRD's managing director for equity, said in the release: "With fundraising conditions remaining difficult even for established managers, the EBRD's support is instrumental in bringing in institutional-quality investors and strengthening the development of private equity funds, which are increasingly needed in today's environment."
Andreea Moraru, the bank's managing director for central Europe and the Baltic states, said the investment would help businesses "strengthen their market position, pursue new opportunities and contribute to sustainable economic development across the region."
The EBRD says it has invested more than €17 billion in Poland across more than 610 projects, through debt, equity and equity-like instruments, both directly and indirectly. Neither release names the fund's other limited partners or gives the fund's term, fees or carried interest.