The resilience of the transactions market and the trust of investors in the Baltic region has proved remarkable, although figures show a 15% decrease in global mid-market M&A deals (according to the Refinitiv published M&A Review of the first half of 2022). Despite the Ukraine war and mounting global challenges the deal flow, although at a much calmer pace, continues and remains promising for the second half of the year. Looking back on the first six months, COBALT experts highlight the main trends in each of the Baltic countries.
After the record-breaking year 2021, the transaction market in Estonia continued generally strong during Q1/2022, although with a slight downward correction to previous years’ volumes following a general European wide market effect.
The transaction market has been very versatile and seen a fair mix of sales of highly valued businesses or assets with large bidding rounds organized as auctions, privately negotiated deals with strategic investors looking for greater synergy advantages or new market positions and businesses that are sold with a clear discount due to changed market conditions on specific business sectors, especially in certain retail or wholesale markets.
During the first half of this year, transactions could be seen focused continuously on start-ups and the IT-sector on a more general level, and therein investment rounds can be seen as increasingly coupled with exit possibilities also based on private M&A transactions as an alternative to the IPO-tracks. Fintech as a point of interest can be singled out with transactions such as the sale of Maksekeskus to Luminor Bank.
The current geopolitical situation and European heat waves have acted as an increasing motivator for the renewable energy sector transactions, which have been active along with the whole energy sector boosted further by covid related effects on energy use.
The health-care sector and real estate market have also been active during the last 6 months, wherein as an example Viru Keemia Grupp bought Stockmann department stores in Estonia and Latvia for 87 MEUR. The real estate market has also clearly acted as an attractive investment opportunity for local investors that have been able to materialize on their prior investment within the last few years from other business sectors.
Investors have window-shopped more prior to making investment decisions. Nevertheless, the market is full of equity looking for a place to be invested, whether it be due to sale of prior investments by local entrepreneurs, investors or institutional investors that have been able to attract considerable funds under their management. Only last year six new investment funds were established in Estonia raising close to 300 MEUR and in the end of last year it has been valued that local funds have free capital to be invested in the range of some 800 MEUR. This means that when valuations of companies better match the future prospects, i.e. a correction in general valuations on the market and/or more clarity on the future market developments emerges, the transaction market will surely see a boost from the level we could see during the last 6 months.
By Jesse Kivisaari, Managing Associate, COBALT