Although the number of deals declined between May and August, as opposed to the first four months (which can be explained by the fact of this period being the holiday season),the value of 18 out of the 67 deals (details that have been published) are valued at EUR370m.
The largest was the acquisition of the subsidiaries of First Data Baltics by France’s Worldline SA., Europe’s leading payment and transactional services company. This transaction was valued at EUR73m. Gilles Grapinet, CEO of Worldline S.A., said that they have the leading role in the payments industry in the fast developing Baltic countries and that he is confident that they will be able to offer their clients, the largest Nordic banks, the next generation of payment services.
Baltic Retail Properties UAB of Lithuania acquired 7 Store Sites of Estonia for EUR6m, and East Capital of the Netherlands acquired VGP Park Nehatu of Estonia for EUR55m. Vitol Netherlands B.V. Group. acquired Latvian shipping company shares JCS Latvijas Kugnieciba for EUR50m.
In this period 28 M&A deals were announced, in which the target and buyer were from the same country. By country, Estonia had been most active between May and August with 14 transactions, Latvia eight and Lithuania six.
Of the number of deals, 28 involved an outside-region party, whilst 11 were inter-region. In this period, which represents a slight drop on the first four months, the Prudentia Report states that “we are cautious that he interest for Baltic companies has in any way decreased in the eyes of foreign investors. Moreover, the overall statistics show the opposite-there is still an increasing interest for the Baltic companies.”
In May-August the most popular sectors were industrial and commercial services (25 per cent of deals), IT services (15 per cent), real estate (16 per cent) and manufacturing (13 per cent).
The majority (73 per cent) of investors was represented by corporate strategic bodies with institutional investors accounting for 15 per cent. Individuals made up 9 per cent and 3 per cent were unaccounted for.
Geographically, till August 2017 there was a parity between Baltic and foreign investors with 72 apiece. This is contrasted to the same period in 2016 when 111 Baltic and 76 foreign investors were represented. The number of deals dropped from 187 to 144.
Lithuania is also making some headway in streamlining its competition laws to make mergers and acquisitions more straightforward to investors. The draft amendments proposed by the Economy Ministry generally increases the limits for any merger or takeover that needs to be referred to the regulatory authorities (the Lithuanian Competition Council, LKT). The proposed limit is EUR2m an increase from EUR1.45m. When large companies are being merged or consolidated the limit is proposed to be EUR20m from EUR14.5m. The amendments await the ratification of the Lithuanian government and parliament.
The redefinition of the ownership of merger-related parties is to be set at 50 per cent (from 30 per cent previously) in a company and multiple consolidations undertaken by the same bodies in the course of two years are to be treated as one transaction.
Simona Tolsyte at PwC told Baltic media “Until now the law lacked clarity. We have taken court rulings and European Commission best practices so that the new provision makes things much clearer for the competition regulator.”.
Retro fitting is also included, that is to say, considering the previous year’s financial records. It is estimated that had the proposed amendments been in force from 2012-2016 then 20 per cent of mergers would have by-passed the LKT scrutiny. Ieva Racickaite , chief communications specialist at LKT said “The changes encompass a wide set of provisions regulating company mergers and acquisitions, if enacted they will make things far easier.”
Rasa Zasciurinskaite, lawyer at Cobalt, told the Baltic Course “It is open for discussion whether the increase in the turnover threshold will lessen the administrative burden (for merging companies).” Vytautas Plunksnis of the Lithuania’s Investor Association said that “It is paradoxical that a foreigner willing to acquire more than five percent of shares in a Lithuanian company has to be cleared first by special agencies due to national security concerns. These tweaks to the competition law seem to me insignificant.” He continued ‘The LKT should concentrate on the process of reviewing consolidation and acquisition requests. The process takes just too long in Lithuania. It is simpler in neighboring Latvia and Estonia.”
The wider picture
On November 6th the Baltic finance ministers signed a memorandum of understanding to create a pan-Baltic capital market. The three states agreed to harmonize capital market regulations and reduce investment obstacles.
Toomas Tõniste, Estonian Finance Minister, said “Building a well-functioning capital market should be our common purpose and implementing only a few isolated and local measures will not suffice. Hopefully this memorandum is an important step bringing co-ordinated activities and measures towards a joint capital market, attracting local market and foreign investors.”
Dana Reizniece-Ozola, Latvian Finance Minister, stressed the IPO angle. “We expect to multiply the number of new IPOs in our equity market and to mobilize our local investment by pension funds and other institutional investors. All these measures together should lead to the long-term objective achieving the emerging market status that would further facilitate capital inflows and deepen access to finance.”
Vilius Šapoka, Lithuanian Finance Minister, stated, “This memorandum is an example of good co-operation among the three Baltic states. It is gratifying that the Lithuanian and EBRD initiative on covered bonds and the securitization regulatory framework has been expanded into the Baltic capital markets development project.”
There is no set deadline for commencing but one of the first projects will be the creation of a legal framework for the pan-Baltic covered bond. The project is supported by the European Commission and the European Bank for Reconstruction and Development (RBRD) and, according to Reuters, 2018 is the hoped-for date. EBRD figures out the outstanding residential mortgage total for the Baltics at EUR17bn, compared with Hungary at EUR14.8bn and Slovakia at EUR19.7bn.
Jacek Kubas, Principal in the EBRD Local Currency and Capital Markets team, said that a secondary aim of the project was to “help and support small and medium sized enterprises’ access to capital markets.” This is especially characteristic of the Baltics, where small and medium sized enterprises form 99.8 per cent of all enterprises and employ 78 per cent of all employees, Reuters stated.