Private capital has its eyes set on central Europe’s largest economy despite legislative uncertainty and a relative lack of scale, Abris partner Monika Nachyla tells Agri Investor.
Investor interest in Polish agriculture has remained steady despite indications otherwise, according to a partner at Abris Capital Partners, a Warsaw-headquartered private equity firm.
In a report released last month, private equity trade association Invest Europe said last year there was a 62 percent year-on-year increase in overall private equity fundraising in central and eastern Europe. With 45 percent of total investment value, Poland attracted more capital than any other country in the region, according to the report.
Consumer goods and services, information technology and healthcare were the leading sectors in central and eastern Europe last year, according to the report, which said that the three accounted for 60 percent of total investment.
Agriculture, however, accounted for less than one percent of the total amount invested in the region last year, according to the report, which showed low levels of agricultural investment from both venture capital and private equity investors and no exits over the past year.
Monika Nachyla, a partner at Warsaw-headquartered midcap private equity firm Abris, told Agri Investor that the fact that many agricultural enterprises in Poland remain mid-scale, family-owned businesses dictates that deals often have long lead times. She said that the cyclicality connected with sourcing and executing such deals means that investor interest in the sector, which has remained steady, is not fully reflected in reports like Invest Europe’s.
“There is a lot of interest coming from different international investors. But, they are looking for much bigger players than the market offers. They are not that willing to do the consolidation play,” Nachyla said. “They get discouraged by first-approach and not understanding the preferences of the other party.”
Food and agriculture is one of three focus sectors for Abris’s third fund, which the firm is currently raising with a target of about €500 million to make investments in Poland, Romania and central Europe, Nachyla said. The strength of Polish agriculture, according to her, stems from both the sector’s historical importance to the region as well as the more recent infusion of financial support and technology following EU membership in 2004.
Still, Nachyla acknowledged that other factors could be contributing to large foreign investors’ delay in exploring investments in Polish agriculture.
“The law on the purchase of real estate, especially farmland, changed last year and this has created certain hesitation among foreign investors,” she said, summarizing a change by which local government bodies are given the right of first refusal over farmland deals involving foreign investors. “People are hesitating to ensure that the deals they have been negotiating for months will not simply vanish because the agency will take the land out of their hands.”
Nachyla said her firm is not aware of any instance where local officials have stepped in to buy land that has already been subject to negotiation, as she said investors fear, but stressed that implementing the new regulations will involve education on all sides.
Despite these uncertainties, Poland’s agricultural sector has enticed at least two prominent US investors recently.
TIAA/Westchester is currently raising a vehicle devoted to European farmland, whose initial investments have focused on Poland. In July, Oaktree-backed cold chain platform Agro Merchants Group acquired a cold storage provider based in the country.
“Poland checks all the right boxes: growing economy, growing consumption, import and export. Basically, half the country is rural and used for agriculture,” a source familiar with Agro Merchant Group’s investment told Agri Investor. “There is just so much opportunity in that country.”