M&A in Emerging Europe fell by 20% to €32.93bn in 2022

M&A in Emerging Europe fell by 20% to €32.93bn in 2022
The number of deals rose by 5.6% to 1,229 but the value fell by 20% to €32.93bn in 2022. / CMS
By bne IntelliNews January 30, 2023

Mergers and acquisitions in Central and South-Eastern Europe fell by 20% to €32.93bn in 2022, according to the Emerging Europe M&A Report by law firm CMS and information platform EMIS published on January 30.

The number of deals rose by 5.6% to 1,229 but the number of  “megadeals” valued at €1bn or more was down from 10 in 2021 to only three, demonstrating the increased caution of investors in a year of financial volatility marked by soaring energy prices and inflation, rising interest rates, falling growth and Russia’s invasion of Ukraine.

“In spite of extraordinarily difficult circumstances, M&A activity in Emerging Europe has proved remarkably resilient, maintaining a steady pace, and comparing favourably to pre- pandemic levels,” said Horea Popescu, head of CMS’ CEE Corporate M&A practice. “While this is an encouraging picture, the decrease in deal values shows that dealmakers are more cautious in light of the current economic situation and the lengthening conflict in Ukraine.”

According to the report, the weak macroeconomic backdrop and the spectre of possible recession are likely to stifle M&A in the coming months, but the region’s strong fundamentals will continue to underpin activity in the medium term.

One hopeful sign is that private equity and venture capital firms are said to be sitting on €1.23 trillion and €547bn of dry powder respectively, which is yet to be put to work. PE executives believe a downturn will ultimately spur M&A, according to a survey of more than 200 dealmakers EMIS carried out last autumn.

In 2022 telecoms and IT was once again the number one sector for M&A activity in terms of numbers, with 336 deals (compared with 278 in 2021) but there was a 77% plunge to €3.78bn in value (€16.4bn). Real estate was the second busiest, with 205 deals (215) but with a 34% rise in volume to €7.82bn (€5.8bn).

Ranked by deal values, mining, including oil and gas, was above real estate at €7.98bn because of the €7.9bn acquisition of Polish state-owned oil and gas company PGNiG by state-owned energy group PKN Orlen.

Despite turmoil on the energy markets, the energy and utilities sector still saw 69 transactions, including notable activity in renewables, with a total value of €4.03bn.

Poland was once again the top M&A market this year with 250 deals (down 7%) but with a value of €15.97bn, up by a third. Croatia was second, with €3.16bn in deals, up 69%, with deal numbers rising 16% to a new peak of 80. Romania was the third strongest market, with 234 deals, up 20%, with a value of €2.9bn, up by a fifth.

The biggest deals after the PKN Orlen-PGNiG merger were Czech property group CPI’s €1.8bn acquisition of a 25% stake in Austria’s Immofinanz, and Polish energy group PGE’s  €1.3bn acquisition of PKP Energetyka.

The number of listings plunged from 60 to just 13, with IPO values falling from €8.6bn to just €40mn, with the largest listing – Telematic Interactive Bulgaria on the Bulgarian Stock Exchange – at only €8.2mn.

The report estimates that there are now an estimated 34 unicorns in the region, up from just six in 2015.

Private equity deal volumes edged up 32 to a new five-year high of 289. In contrast, deal values were at their lowest level in five years, at €9.99bn, down from €13bn in 2021. Private equity investors were involved in half the top 10 deals.

US investors were once again the most active foreign investor from outside the region, as the number of US deals rose from 103 in 2021 to 126. The US was also the leading source of foreign investment, with €3.49bn of deals, though that was down from the previous year’s high of €8.67bn.

This year the CMS annual M&A report did not include Russia or Turkey.