Many M&A practitioners are optimistic and predict a better year, higher deal values and volumes.
We think that better will not be distributed evenly. Some countries and regions will fare well and outperform others. It is fairly safe to assume that South East Europe and Bulgaria in particular will face headwinds. The unfavourable factors include negligible economic growth and risk of recession in the EU/Eurozone’s larger Western European economies, which are the main trading partners and investors in the region, tax increases, trade restrictions such as tariffs, stricter FDI and merger control regimes, etc.
Where predictions are uncertain, the best law firms will prepare for as many as possible eventualities, strive to excel in execution, and work to manage the related risks.
By and large, dealmaking in Bulgaria will be influenced by the prevailing local context:
- political instability, disfunctional Parliament and sporadic and delayed lawmaking;
- most of the regulators function beyond their term of office, thus they will continue to be inactive and inert, often open to political influence
- variables like interest rates, inflation, leverage, capital markets, GDP growth, will have less impact (unlike in the US and Western Europe)
– opportunistic deals will dominate over strategic acquisitions (more mid- and small-market M&A advisors enter the market and actively promote local businesses internationally)
– valuation gaps will persist
– consolidation in industries will be slow paced and many will miss the momentum to grow inorganically and expand exponentially: as an example the booming local bicycle production totally lost momentum in 2023-2024 and largely remained a near shoring low margin appendix to the Western brands they serviced – growth and profitability sunk dramatically after their sponsors ruthlessly cut their orders.
By Pavel Hristov and Dragomir Stefanov, Partners, Hristov & Partners
