CEE dealmaking falls for fourth consecutive year

CEE dealmaking falls for fourth consecutive year
By bne IntelliNews January 19, 2016

Last year was the fourth consecutive year of decline in both the volume and value of mergers and acquisition (M&A) activity in Central and Eastern Europe (CEE), according to research published by law firm CMS in cooperation with EMIS.

The number of deals slipped 3% to 2,138, while the value of deals fell 15% to €53.5bn. The most recent peak of dealmaking was in 2011, when there were 3,792 deals, worth €150bn.

But the report also indicates a slight pick-up in the volume of private equity activity, renewed interest by US-based funds and companies, and a shift towards more stable and developed markets such as Central Europe.

Activity in Russia remained depressed because of sanctions, the fall of the rouble and lack access by local players to capital. The number of deals fell 6% to 683, and value was down 37% to €18.7bn, which nevertheless is still 35% of the activity in the CEE region.

Turkish M&A fell 8% in volume and 11% in value to 240 and €12.5bn respectively, hit by domestic political uncertainty and regional tension. The €2.8bn acquisition of Finansbank by QNB of Qatar was the largest M&A deal in the region in 2015.

By contrast dealmaking in Central Europe remained robust, with Poland and Hungary up in both volume and value. This indicates that some of the money that might have gone further south or east had shifted to more developed countries because of declining risk appetite, as well as the tighter funding environment as the Federal Reserve moved to increase rates at the end of the year.

One question in 2016 will be to what extent whether Poland suffers an investor backlash as the new Law and Justice government picks fights with the European Union and follows a populist budget and business policy that targets foreign-owned companies.  Hungary under Prime Minister Viktor Orban has suffered from this for almost six years but nevertheless bounced back with a 155% increase in dealmaking by value in 2015, helped by the €421m initial public offering of Wizz Air, the largest in the CEE region.

In private equity M&A there was a 16% increase in the number of deals announced to 288, more than half of which constituted new PE entries. The biggest deal was Goldman Sachs’ acquisition of 13% of Socar Turkey Enerji for €1.16bn.

The strong dollar encouraged a surge in investment from US-based funds and companies, with the volume of US deals up 9% to 127, while the value soared 61% to almost €4bn. Investment from UK-based funds and companies rose 23% in value to €2.5bn, and there was also growing activity from German, Chinese and Korean buyers.

In terms of target companies, the top sector remained manufacturing with 343 deals, worth €8.9bn (up 14%), followed by telecoms and IT with 298 deals, worth €5.7bn, and real estate with 263 deals, worth €8.3bn.

CMS was the top law firm in M&A in CEE, working on 56 deals, with Dentons a close second with 50.