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Meaning of M&A in CEE

Meaning of M&A in CEE

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Horea Popescu, Managing Partner of CMS Bucharest and Head of CMS’s Corporate M&A Practice in CEE Looks Back at an Unusual Year.

Following a strong start in 2020, dealmakers in the M&A sector did their best to adapt to the abrupt change of circumstances caused by the COVID-19 pandemic. Throughout the year, the market managed a gradual comeback, but the question remains whether this can be maintained across CEE’s industries and sectors in the face of further restrictions – especially as the new variant strain of COVID-19 spreads.

Overall, the region responded quickly and firmly to the pandemic, and the economic effects were not as severe as they might have been. However, as detailed in CMS’s Emerging Europe M&A Report, published in cooperation with EMIS, many deals that had been contemplated or even initiated did not happen. Last year, we saw M&A deal volume drop by 12.9% and total deal value plummet by 16%.

The most obvious initial impact of the global pandemic was the sudden economic uncertainty, which led to valuations losing their reliability. This abrupt doubt resulted in seller uncertainty, which in turn affected seller behavior. As a result, the deals that did proceed took far longer than usual to close.

Furthermore, the general global economic uncertainty that was present before the outbreak of the pandemic was responsible for some hesitancy regarding government intervention. However, once governments stepped in with support packages, the situation stabilized for many individuals and businesses. The implementation of these government relief packages helped to clear the view, especially when it came to identifying which sectors and industries would be hardest hit and which stood the best chances of experiencing little or no impact.

Breakdown by Sector

Although most sectors saw a decrease in deal activity, the burden was not equally spread. According to the findings of our report, despite Manufacturing and Wholesale & Retail being hit particularly hard, the General Services and Food & Beverage sectors saw much smaller decreases in deal numbers. Real Estate and Energy saw some large deals in specific countries, like Romania, while mergers and acquisitions in Services, Food & Beverage, and Education & Healthcare appeared to be most recession-proof, demonstrating only a minimal decrease in volume and value in 2020.

Although Real Estate & Construction dropped into second place as volumes and values fell, across the region the sector remained committed to pursuing M&A activity. One area of intense activity was logistics and warehousing, driven by the ongoing growth of e-commerce.

The Telecoms & IT sector actually benefitted from the effects of the pandemic. Pandemic restrictions directly resulted in an increase in the digitalization process that was already underway. Accelerated digitalization has now cut across all sectors, as many businesses have realized that flexible working is a necessity rather than a mere perk.

As a result, across CEE, Telecoms & IT overtook Real Estate & Construction as the most active sector in 2020, recording 282 deals with a total value of EUR 11.65 billion. The largest Telecoms & IT deal was the EUR 3.7 billion purchase of Polish mobile operator Play Communications by France’s Iliad, while the listing of Allegro, Poland’s equivalent of eBay, saw it become the biggest company on the Warsaw Stock Exchange. In fact, Poland saw growth in 2020 in terms of both deal volume (9.3%) and value (6.6%) – the only CEE country to do so.

The financial sector also enjoyed an increase in deals and managed to rank in third place by value. This was certainly helped by the sector experiencing some of the region’s largest transactions, including Uniqa Insurance of Austria’s purchase of AXA’s regional businesses. Partially driven by sector consolidation, financial services deal activity also benefitted from strong global interest in payment services. This resulted in transactions such as Nets’ acquisition of Polskie ePlatnosci and Innova Capital’s acquisition of the Romanian operations of PayPoint Services. The sale of the Romanian business of insolvent Wirecard to payment service provider SIBS also resulted in a new entrant into the regional market.

Breakdown by Country

In the Czech Republic, volumes fell by 24.7%, with the 51.7% drop in values reflecting the lack of any deal exceeding EUR 1 billion, even though such sizeable transactions had become common in previous years. In Slovakia, following a record year in 2019, volumes dropped by 49.2% to 30, and values were down by 75.6%. Meanwhile, interest in Romania remained robust, with transaction numbers down by just 4.9% and values down by 6.9%. These figures were bolstered by the EUR 1.2 billion purchase of CEZ’s assets by Australia’s Macquarie Infrastructure and Real Assets. Deal numbers in Bulgaria were down by only 10%, though values showed a near 78.1% fall as only two transactions managed to reach the EUR 100 million threshold, compared with five such deals in 2019.

Despite these dramatic figures, the region was able to respond much better than it would have done 10 or 15 years ago. Economically, CEE is stronger, and its governments have more money to provide support where it is needed most. The region is more digitally adapted than it was, and people were able to work from home almost seamlessly, without any major impact on economic activity.

Outlook for 2021

In 2021, there are two areas that will be especially strong. Technology & E-commerce are proving very exciting and we have already seen how these sectors can create so-called “unicorns,” worth more than EUR 1 billion. The other key sector is Renewable Energy, as, despite the general turbulence, money is still pouring into green and clean energy. This is not unique to CEE, but reflects a widespread commitment to renewables across the board.

Towards the end of 2020, people rushed to sign deals that they had been unable to complete earlier in the year. This trend picked up in the autumn, and there remains a decent pipeline of activity in most countries, which is a good sign for 2021. Although it may be too early to assess the long-term impact of the pandemic, as far as M&A goes, the underlying trends that were driving deals at the start of 2020 have not gone away, and in many cases they have only gathered pent-up momentum. It appears that investors and advisers have remained busy during the crisis and are braced for activity to accelerate this year. Ultimately, whether we see a V-shaped or U-shaped recovery, the signs point to 2021 being significantly busier than 2020.

Despite the upheaval over the last year, it appears that M&A activity in the CEE region is resilient enough to absorb the shocks, and deal activity in some sectors and countries is set to return to previous levels in the near future.

This Article was originally published in Issue 8.1 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Czech Republic Knowledge Partner

HAVEL & PARTNERS, attorneys-at-law, with offices in Prague, Brno, Bratislava, Pilsen, Olomouc, and Ostrava, has a team of 220 lawyers, tax advisors and 500 employees in total, is the largest independent law firm in Central Europe.

Our clients include large international companies, leading Czech and Slovak firms, including strategic state-owned companies and public sector authorities, as well as medium-size businesses, individual entrepreneurs, and investors. We advise approximately 100 of the Fortune 500 companies, and almost 50 of the Czech Top 100 companies. HAVEL & PARTNERS currently provides its services to a total of 2,000 clients. We have the most comprehensive international support available to both Czech and Slovak law firms. We provide legal and tax advice in 12 world languages in more than 90 countries around the globe. Up to 70 % of the transactions we deal with involve an international aspect.

HAVEL & PARTNERS was named the best law firm operating in the Czech Republic by the prestigious British rating agencies Chambers and Partners (2020) and Who’s Who Legal (2018, 2019). It is also the most successful law firm, providing the most comprehensive legal services in the Czech Republic and Slovakia, based on the total number of all nominations and awards in all years of the Law Firm of the Year awards. The firm became the absolute winner of this competition four times in the last six years, receiving the main award Domestic Law Firm of the Year in the Czech Republic (2015, 2017, 2018, 2020) and ranking as one of the most recommended law firms in all categories of law. Our company is also a three-time winner of the Law Firm of the Year award for Best Client Services (2015, 2016, 2019). In the field of M&A, HAVEL & PARTNERS is the best law firm in the Czech Republic based on the annual International Advisory Experts awards (2018, 2019). In Slovakia, it also won the prestigious global M&A Today Awards (2013–2018) for Mergers & Acquisitions six times in a row, and repeatedly won first place in the ranking by Lawyer International Legal 100 (2017, 2018). Prestigious international rating agencies EMIS DealWatch and Mergermarket have ranked HAVEL & PARTNERS among the leading law firms by the number of transactions completed in the entire CEE region since 2009. Based on annual awards of the Acquisition International magazine, HAVEL & PARTNERS has become the Law Firm of the Year 2019 in the M&A category in the CEE region.

Firm's website: https://www.havelpartners.cz/en/

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