M&A deals in CEE fall 22% by volume but rise 29% by value in 2020

M&A deals in CEE fall 22% by volume but rise 29% by value in 2020
M&A deal volume 2013-20 / Wolf Theiss
By bne IntelliNews February 2, 2021

Mergers and acquisitions (M&A) in Central and Eastern Europe fell 22% by volume to 406 deals but rose by 29% in value to €28.5bn in 2020, according to the annual report compiled by Austrian law firm Wolf Theiss and MergerMarket.

The M&A Spotlight report, compiled from surveying investors across the region (and including Austria), found that deal flow had been hampered by the coronavirus (COVID-19) pandemic – 29% of respondents had to abort or delay transactions – but that investors were broadly positive about the prospects for deals in the region this year as the global economy recovers. The findings broadly support those of law firm CMS's survey of the wider CEE region including Russia and Turkey last month.

“Being higher growth than Western Europe, less hampered by public debt and with a number of governments having taken swift and decisive action in 2020, the CEE/SEE economy has withstood the effects of the pandemic more robustly than the rest of the continent,” the report argues.

The M&A Spotlight says that the region is benefiting from its traditional strengths (economic growth, lower labour costs, skilled workers, EU membership) together with current factors such as the booming technology sector and the potential shifting of supply chains away from Asia back towards Europe.

Just over half (52%) of the respondents said that the health crisis will increase their appetite for deals in the next 12 months, with 26% of private equity respondents saying they were looking to pursue significantly more deals.

The TMT sector, which has benefited during the pandemic lockdowns, represented €8.3bn of deals across the region, a 29% market share of total M&A value. Within TMT, telecoms was the major segment, with Poland a particular focus.

“There's an ongoing consolidation in terms of the larger telecom groups in Poland,” said Jacek Michalski, a partner in Wolf Theiss' Warsaw office. “There's also now a lot of similar movement that you see in many other markets in Europe, with telcos selling their infrastructure as separate towerco units backed by infrastructure investors.”

Poland maintained its position as the region's number one deal market, with TMT and real estate and construction sectors particularly buoyant. The country saw €11bn worth of deals, claiming nearly 40% of the CEE market, including the region's largest deal outside Austria, French telecoms group Iliad's €3.7bn acquisition of mobile network Play Communications.

More than half (55%) of respondents say that TMT will be among the top two sectors with the highest growth rate in deal numbers, while pharmaceuticals, medical and biotech (PMB) is in the top two for 45% of respondents. PMB is a defensive sector during general recessions, and especially so given that the current economic crisis was brought on by a global health emergency, the report says.

The worst performance in terms of deal flow last year was achieved by consumer and leisure, which was hit by lockdowns and weaker consumer confidence. Volume fell by 48% to 59 deals and value collapsed by 65% to €962m, the first sub-€1bn showing for the sector the annual survey has recorded.

According to the survey, 58% of investors expect the energy, mining and utilities (EMU) sector will be among the two sectors in which deal flow will be the most negatively affected by the pandemic, and 36% include the industrials and chemicals sector. As upstream industries, both are seen as highly sensitive to economic weakness, though this cyclicality presents its own opportunities for private equity and those willing to pursue deals at the riskier end of the spectrum, the report argues.

Private equity funds are expected to be most active in taking advantage of the opportunities the pandemic has thrown up. As shown in the graph above, PE deals fell year on year from 56 to 52 deals, but activity picked back up once economies were reopened and total deal value rose marginally, from €2.3bn in 2019 to €2.6bn in 2020.

Some 70% of respondents believe that financial buyers are best placed to take advantage of the opportunities presented in the aftermath of COVID, because the current unpredictable and highly challenging conditions are uniquely suited to PE funds' skill set and high-risk appetite.

“PE is in a strong position in part because of its attitude towards risk-taking in terms of participating in an upside cycle of the economy,” said Horst Ebhardt, a partner in Wolf Theiss' Vienna office. “As an asset class, it has also accumulated a significant amount of cash that it needs to deploy and now there are many different deployment strategies.”

Looking at the positive consequences of the pandemic for deal flow, 42% of respondents pointed to lower valuations, though technology companies have surged in value. Distressed debt opportunities were cited by 33% as a key plus, and it is a phenomenon that 72% expect to become more common as governments withdraw support for corporates during the year.

“There's going to be a lot of distressed debt deals but more likely towards the year end and beginning of 2022, simply because of moratoriums on loan repayments and everything that governments have done to prop up their economies,” says Claudia Chiper, a partner in Wolf Theiss' Bucharest office. “There is a place for PE to come in and take over companies which are in a lot of distress and are struggling with their debt or have become insolvent.”

The report argues that corporate carve-outs will also be an important source of deal flow, as companies are forced to review what is absolutely essential to their business and retrain their focus on core markets. 

News

Dismiss