Managing partner Pawel Gierynski, and partners Wojciech Lukawski, Monika Nachyla and Wojciech Jezierski, discuss ESG transformation, value creation and navigating macroeconomic and geopolitical headwinds.

The CEE market has changed much during the past year – how has Abris adapted?

Pawel Gierynski: What is different about the recent period is not so much the challenges presented by the geopolitical and economic situation, but the unprecedented level of uncertainty around what will happen next.

If you run businesses well, a crisis should be an opportunity to prove your resilience and gain market share. With this in mind, at Abris we believe that we should not seek to avoid shocks, but rather to absorb them and consider how to turn them into an opportunity. This requires agility, a transformation mindset and a clear methodology for reacting to disruption.

We help all our portfolio companies to build their ability to absorb shocks. Each case is different but there is a common approach. We insist that all companies have a business continuity plan worthy of the name. We always use leverage conservatively. We focus on true just-in-case supply chains. And we always hire the best people we possibly can. We also review and revise strategies at our portfolio companies on an ongoing basis, rather than waiting for annual or even quarterly board meetings.

What is the current political and economic situation in the major economies of Poland and Romania?

Wojciech Lukawski: The CEE region is forecast to continue being the fastest-growing region of the EU during the coming years, with GDP expected to further pick up in H2 2023. At the same time, both Poland and Romania enjoy a relatively stable political situation and forthcoming elections in the former are not expected to bring any major shifts in the approach to the economy.

The positive landscape is further underpinned by local currencies returning to long-term trajectories, and interest rates and inflation moving to more normal levels over the course of this year. In addition, accelerated reshoring is translating into further growth in productivity levels, and there has been a surge in FDI both in Poland and Romania.

Data is still limited, but the latest figures show that Poland has recorded a record number of greenfield FDI projects as well as large inflows of net FDI. On a four-quarter-sum basis, total net FDI inflows into Poland, Czechia, Hungary and Romania almost doubled between 2021 and Q3 2022, mostly driven by Poland and Romania. In Poland, FDI reached 4.5% of GDP, the highest in more than two decades, and inflows into Romania also hit a decade high.

How are investors reacting to the situation in Ukraine? And what changes are you seeing in the CEE region as the war continues into its second year?

Lukawski: LPs continue to appreciate CEE’s resilient economic performance. By and large, they see and acknowledge a positive change since the outbreak of the conflict – they understand the opportunity arising from the need to participate in the reconstruction of the Ukrainian economy, and they are keen to work with established partners that have a sound understanding of the regional landscape and well-established connections among the local financial and business community.

While the humanitarian situation in Ukraine remains extremely troubling, from an economic and investment perspective we are not unduly worried. There is no danger of the conflict spilling over to neighbouring countries, and there is continued and growing support for Ukraine across the region and worldwide.

Demographic changes brought about by the movement of people are no longer causing issues – in fact, they are beginning to have a long-term positive impact in neighbouring countries, with immigration helping to address current labour shortages and fill the demographic gap. Near-shoring is also increasing in pace and CEE countries continue to benefit from localisation of production brought about by the disruption of global supply chains.

Finally, many businesses in neighbouring countries will be well placed to assist with the reconstruction of the Ukrainian economy and infrastructure over the coming years, which will drive additional investment inflows.

What have been the key developments at Abris over the past year?

Gierynski: Last year was dominated by scaling our portfolio through add-on acquisitions, of which we completed more than 10 – some very sizeable. This activity was in part driven by market uncertainty. Some players reacted to the disruption by pausing strategic activities, while others went into panic mode. But a few players used the situation as an opportunity.

We wanted to ensure that all our portfolio companies were “opportunity catchers”, and this often took the form of pursuing consolidation. A number also used the time to make transformational new capital investments aimed at building their technological leadership.

In addition, as part of our central focus on ESG transformation, in 2022 we set a company and portfolio-wide focus on DEI, in order to ensure we fully understand how to implement the highest standards of DEI across international cultures and geographies.

Abris has recently started describing itself as an ESG transformation specialist – what does that mean?

Monika Nachyla: Last year, we asked ourselves how we could better explain to investors what we do. One conclusion was to be more vocal about a fundamental element of our value-creation methodology: integrating ESG so that our portfolio companies undergo a true transformation in standards.

As a result, when we exit, each company is a very different player, and a leader in their field in terms of corporate governance, carbon neutrality, risk-based management, digitalisation and sometimes even reaching for B Corp certification. Moreover, we can demonstrate how this process is conducted through deep analysis of data in our proprietary ESG tracking software, which also shows how ESG leadership translates into additional financial value at exit.

So, we decided to make this methodology our label. ESG transformation is our specialisation and we believe our approach – our ESG team, tools and methodology – is unique in the private equity market.

How much of a headache is SFDR and how is Abris dealing with the changes?

Nachyla: Since the regulations are relatively new and not very well tested, all managers are scratching their heads about how to deal with SFDR. What is encouraging is that regulators are serious about greenwashing and are now downgrading many Article 9 funds to Article 8, and Article 8+ funds to Article 6. This helps the firms that are serious about ESG.

We are very comfortable about our future as an Article 8+ manager. While our work is not yet complete, over the past couple of years we have built a comprehensive methodology and implemented ambitious sustainability goals to comply with the regulations entirely.

The most important thing I keep repeating is that at the heart of our value-creation methodology is a focus on delivering a true impact. A change. A transformation.

How much of a role does internationalisation and buy-and-build play in your value-creation strategies?

Wojciech Jezierski: This is an extremely big part of what we do. Across our first three funds, we have invested in a total of 34 portfolio companies and have completed a further 47 add-on acquisitions. Many of these were part of an international expansion strategy.

One of the keys to our investment philosophy is taking local leaders and transforming them into international or even global champions. As an example, we took our portfolio company Patent Co, which we exited last year, into 43 new international markets during our investment period.

How else does Abris go about driving value creation?

Jezierski: In addition to these levers, and other key areas such as digitalisation and efficiency improvements – which are all crucial for our portfolio companies – more and more often we look to apply even deeper programmes. These can take many forms, but include people and talent development, including retention, flexibility and more diverse organisations; management incentive programmes for key people; commercial productivity – especially pricing tools; using data and technology to implement identified value levers; and development capex, with a focus on automation.

We always adopt a ‘sell before buy’ philosophy, so our focus during the investment period is on transforming businesses into attractive targets for international trade buyers. Our value-creation plans therefore focus on everything we need to do to achieve this.

What is next for your firm in 2023?

Gierynski: In 2023, we expect several liquidity events and new acquisitions, and we will continue to strengthen our existing portfolio. And of course, we will focus on further building our ESG excellence. However, what will make 2023 different is that we will also start fundraising of our latest fund – an Article 8+ vehicle focused on ESG transformation and delivering sustainability goals.

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