The Central and Eastern Europe (CEE) M&A market delivered exceptional value and opportunity for dealmakers in 2018. Compared to other emerging regions of the world, the CEE proves to be generally a stable region for international investments.
Mazars in collaboration with Mergermarket has developed the “CEE View: Inbound M&A report 2018/2019”. This new expert publication in the deal landscape offers an overview of the mergers and acquisitions activity in 2018 within and into the Central & Eastern European region, and looks ahead to the challenges and opportunities for the next couple of months.
Strong deal fundamentals in a generally stable CEE M&A market
Compared to other emerging regions of the world, CEE proves to be a generally stable region for M&A investment. Sustained economic growth, a rising domestic consumption, attractive wage dynamics, closer ties with non-CEE markets and good quality assets have provided a solid foundation for M&A activity in the region.
The total value of the M&A market registered in 2018 amounted EUR 46.9 billion, with a total number of 701 deals (figures based on transactions above EUR 5 million). The robust performance and attractiveness of M&A in the region is evident, notably when speaking about countries like Austria, Poland, the Czech Republic, Romania, Hungary, Slovakia or the Adriatic region. Russia still remains the largest M&A market in the region despite geopolitical sanctions.
Private equity’s increasing appetite for growth opportunities in CEE
Across the CEE, the Private Equity industry is maturing, buyouts have increased in value as sponsors eye high-quality assets in the region. PE funds deal value was up 83% in 2018 to EUR 7.5 billion (81 deals registered above EUR 5 million). International buyout firms have noted the attractive economic fundamentals and pricing in the region and stepped up to make sizeable investments, demonstrating PE confidence in CEE’s growth and stability.
Poland strong in the region
The slowdown of transactions streaming to Russia gave the opportunity to Poland, as the biggest country of the Central and Eastern Europe. In 2018, Poland realized 127 transactions, for the total amount of EUR 5.7 milliard and took the third place as per the value of transactions, just after Russia (EUR 22.2 milliard) and Austria (EUR 7 milliard). „Many transactions have been finalized in the technology sector, consumer services, financial and industry sectors and media. All sectors operated dynamically” – says Jan Fido, Director of Financial Advisory Department in Mazars Poland. “Poland is certainly a significant country in the region. We have a well-developed economy, a 38 million population and a Membership in the European Union, all this is supporting a solid transaction activity” – he adds.
In recent years, Poland achieved an average economic growth of over 4%, overtaking the Western Europe, unemployment decreased to the level of 3,4% and has been the lowest for the last 20 years. Moreover, this country has recently become the first country of Central and Eastern Europe and the first country in the World since almost 10 years, which officially joined the group of „developed countries”, according to the FTSE Russell index and thus has become one of the 25 most developed economies of the World. The ranking takes into account different criteria, including the quality of domestic market, consistency, predictability and stability, access to the market and fees of introducing economic changes.
Poland came on the second place in the region as for the quantity of performed transactions, just after Russia which realized 155 transactions and overtaking Austria (99 transactions). One of the largest transactions was the acquisition of Euro Bank by the Polish Bank Millenium, acquiring the core business of Raiffeisen Bank Polska by the Bank BGŻ BNP Paribas, as well as the biggest transaction in the hotel industry for the amount of a EUR 483 million – purchase of Orbis actions by the French firm Accor, amounting to 47,31 % of the company’s share capital.
„It was a profitable year for the banking sector. Polish banks passed stress tests with positive result. Polish banking sector is stable and secure and since a couple of years we have been observing consolidation process in this sector. We have nine major banks in Poland and it seems there will remain five or six in some time. Foreign investors engaging their capital in this sector, have a key role in the consolidation process” – comments Jan Fido.
Attractive direction for international investors looking for good returns on investments
Investments from outside Central and Eastern Europe amounted to 58% of the total M&A market value in 2018 and more than doubled compared to the previous year, amounting to EUR 27 milliard and equalling to more than a half of total transactions value in Central and Eastern Europe during the year. Poland was at the second place just after Austria as for the number of transactions originating from outside the region (their number was of 48, for the total value of EUR 1,9 milliard). „Surface area of Poland, its sophisticated financial markets and proximity of Western Europe – all this makes of Poland an obvious place for setting up the base and for exploring transaction possibilities by foreign investors in the neighbouring countries of the Eastern and Central Europe” – comments Jan Fido.
The Central and Eastern Europe M&A market generally delivers exceptional value and opportunity for international dealmakers, coming from Western Europe, the USA, China or even South Africa. In addition to faster economic growth than the so-called “Old Europe” allowing an economic catching-up, CEE also has lower wage costs and a skilled, multilingual workforce. Economies are diversified, with opportunities available in everything from industrials and energy through to financial services, consumer and leisure.
The region characterises by a diversified economy and generates transactions in many sectors. However, two sectors – industrial and energetic - are outstanding. Energetic sector occupies the first place in the Central and Eastern Europe, as for the value of transactions coming from outside the region, which the total value amounted to EUR 7.6 milliard with only 17 transactions, majority of which resulted from the huge business transactions in Russia. Industrial sector reached again a strong position in 2018, by providing more transactions from outside the region than any other sector (60), and by taking the third place as for the value of transactions per sector (EUR 4,8 milliard).
Positive M&A outlook for 2019
The CEE region is obviously not without a few challenges: the consequences of the Brexit uncertainty, the US trade wars with the EU and China, the impact of sanctions on Russia or the tensions between the European Union and some CEE governments. However, despite these threats, the region has proven to be a credible and growing market for international and domestic players.
„Our region has performed strongly in 2018 and is well-placed to continue doing the same in 2019. As a global advisory firm belonging to the leading deal advisory services providers, Mazars is actively contributing to that trend, successfully bridging the CEE with the rest of the world” – summaries Michel Kiviatkowski, CEE Financial Advisory Services Leader, Managing Partner of Mazars in Poland.
The full report is available on www.mazars.pl.