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In the entire region relatively small transactions prevail. Their average value was about EUR60m in the first six months of 2015, considerably lower than in the whole of Europe. A total of 237 mergers and acquisitions transactions were done between January and June 2015 in Central and Eastern Europe, that is to say, the number fell by 32 per cent as compared to the corresponding period of 2014. Their value was about 49 per cent lower than a year earlier. There were 58 transactions registered in Poland (7 per cent increase), while their value was nearly twice as high as last year. The data was presented in the „European M&A Outlook” prepared by CMS, an international law firm, in cooperation with Mergermarket, which specializes in the collection of data on mergers and acquisitions.
Anxiety spreads to some
The decrease both in the number and value of transactions mainly reflected the EU embargo on Russia and the war in Ukraine. The restrictions imposed following the annexation of Crimea significantly curbed the number of mergers and acquisitions involving foreign companies in Russia. According to the report, Russia saw a mere 14 such transactions in the first half of 2015, with a total value of EUR2.6bn. The survey conducted for the report implies that no increase in activity in the mergers and acquisitions market should be expected either in Russia or Ukraine until the conflict is resolved.
As many as 53 per cent of respondents believe that the souring US-Russia and EU-Russia relations inhibit the M&A market in Central and Eastern Europe. Respondents who share this viewpoint argue, among others, that following the embargo, interest in the entire region has dropped and in addition, investment risk has increased. On the other hand, 24 per cent of respondents estimate that the deterioration of the US and EU relations with Russia has a positive impact on transactions throughout the region, as investors’ interest is shifting from Russia and Ukraine to other countries.
Voices can be heard that maintaining the embargo will affect the financial health of companies, and this will allow foreign investors to purchase assets cheaply. “Investors to a lesser and lesser extent perceive Central and Eastern Europe as a homogenous region, while focusing their attention on selected markets, for example Poland, the Czech Republic and Slovakia”, says Andrew Kozlowski, the head of CMS in Central and Eastern Europe.
Central and Eastern Europe continues to account for a small fragment of the European mergers and acquisitions market. According to the authors of the report, following an increase of 17 per cent in the first six months of 2015, the value of this market amounted to EUR417.9bn. The Old Continent witnessed 2,831 M&A transactions at that time (a decrease of 14 per cent compared with the first six months of 2014). It is worth mentioning that the value of M&A transactions in the CEE region in the first six months was significantly lower than in Spain (following a decline of 36 per cent it stood at EUR19.1bn) and Italy (following a rise of nearly 100 per cent it stood at EUR 25.6bn).
According to the representatives of foreign companies and corporations, interest in the region on the part of private equity funds will continue to grow because they can achieve a higher rate of return than in Western Europe. They have been active in that market in recent years, and now – following the restructuring of the acquired companies – they are getting ready to withdraw from the investments. The funds’ opinions on investment opportunities in the Polish market vary. Whereas some, such as EQT Partners, are voting „no” with their feet and are winding up their branches in Poland while moving investment management to offices in other countries, others, such as CVC Capital Partners and Innova Capital, have spotted a chance for subsequent M&As which are interesting from their point of view.
The post-privatization era
Over the years, acquisitions stemming from the privatization of state-owned companies have been the driving force behind the M&A market in Central and Eastern Europe. They have offered the highest value and attracted the interest of both industry investors and private equity funds. Those transactions are about to come to an end in a number of countries. “In the near future the market may be dominated by M&A on medium-scale”, predicts Andrew Kozlowski.
The sale by the Slovak government of a 49 per cent of stake in Slovak Telecom – the incumbent telecom operator – was the largest privatization transaction in the region in the first six months of the year. As a result of closing the EUR900m acquisition, the Slovak operator came under the full control of Deutsche Telekom. A government takeover of Nova KBM, a Slovenian bank, was another large privatization transaction. The funds managed by Apollo Global Management purchased it for EUR250m in cooperation with the European Bank for Reconstruction and Development.
In May, the sale of 100 per cent of TK Telekom shares was announced in Poland. Netia, the largest alternative Polish telecom operator, purchased it from PKP SA for PLN222m. Already in July PKP declared its intention to sell PKP Energetyka to funds managed by CVC Capital Partners for PLN1.41bn (transaction value taking into account the acquired debt – PLN1.97bn).
Privatization-related acquisitions are slowly being replaced by transactions related to the purchase of companies from their founders which, for example, due to their age try to capitalize the business they created. According to experts, the value of such a transaction – with a few exceptions – tends to range from EUR20m to EUR100m.
The sale of TVN by the ITI Group and Canal+ is an example of a transaction that deviates from the above price range. The US Scripps Networks Interactive paid EUR584m for a 100 per cent stake in N-Vision, which directly and indirectly, through Polish Television Holding, holds a 52.7 per cent stake in TVN’s share capital.
A 76 per cent stake of 3S, a Polish telecommunication operator, was sold by the founders of the company and PCC SE. The purchaser – funds managed by Enterprise Investors – paid PLN86m (EUR22m), competing, among others, with funds managed by EQT and Innova Capital. Similar transactions also took place in other CEE countries. In August, the existing owners of Fornetti, a producer of frozen dough bakery with its own network of bakeries operating in Hungary, Bulgaria and Romania, sold the company to Aryzta, a Swiss food group. According to the Zephyr database, owned by the Bureau ven Dijk, the deal was worth EUR60m.
Time to reap the profits
Central and Eastern Europe is also starting to move into transactions in which previously acquired companies are sold. The reason could be the desire to capitalize profits on investments and a change in the strategy of the previous owner, for example, due to company restructuring. One example is the sale of 63 per cent of Pekaes shares by companies from the Kulczyk Holding group, reported in July. The expected value of the transaction is PLN280m. The funds managed by Innova Capital will be the purchaser.
In turn, the funds managed by Advent International sold Partner in Pet Food, a Hungarian manufacturer of pet food. The funds managed by Pamplona Capital Management purchased the company in a EUR315m transaction in April. In 2011, Advent paid EUR188m to Provimi group for the Hungarian company.
This group of transactions also includes the sale of Vltava-Labe-Press, a Czech publishing house, announced in August. The funds managed by Czech Penta Investment are to purchase it from the previous owner – a German publishing house, Verlagsgruppe Passau, which is changing its strategy and intends to concentrate on the domestic market. According to the Zephyr database, the transaction value is EUR60m.
