“Right now, there is a bit of press around Hungary, for a variety of reasons,” says Kinstellar Partner Anthony O’Connor. “Some of that is related to the perceived tension between Hungary and the EU and the fact that the EU seems to be trying to tie certain expectations it has of Hungary to the funding it is due to receive.”
The EU, facing political opposition from Poland and Hungary around the stimulus package aimed at providing pandemic relief to the member states, is still considering various political options to solve the recent deadlock emerging from the situation. O’Connor, however, believes that this can be de-coupled from foreign investors’ appetite for Hungarian M&A opportunities. “To a large extent, there is a seeming friction which is currently receiving press coverage – it has not, for now, reduced the appetite of investors for deal-making in Hungary.”
What can have a more practical effect on deals and investment activity, he says, is the existence of some of the measures put in place earlier in the year. “When the pandemic started, the government passed laws calling for screening of certain types of investments from certain types of investors or in some particular sectors,” O’Connor reports. “These measures have continued and, while they have yet to block any deals, they have caused some of our clients to ask for clarification on whether and to what extent they might pose a threat to closing a deal.” Noting that other European governments have also turned to similar tools, O’Connor does not expect the measures to stall deals in Hungary significantly, saying that “some people may have been less inclined to look at Hungary as a place for their investments, but in our experience there has been no real threat here, rather an issue around managing perceptions and charting a course through any concerns raised by clients.”
Several recent deals support O’Connor’s report that opportunities remain, including GTT Communications' recent USD 2.15 billion sale of its infrastructure business to I Squared Capital (on which, O'Connor points out, Kinstellar advised) and the sale of Dutch insurer Aegon’s assets to Vienna Insurance Group via a bidding process. “Both deals had a cross border element,” he says, “but with a significant asset value in Hungary.”
Other than the VIG-Aegon transaction, which O’Connor describes as “the really big one for Q4,” he reports that there is “strong foreign investment interest to be sure, mainly in renewables, especially solar, although we are still doing deals for clients involving more traditional energy sector assets.” In addition, he says, “aside from that, the banking and finance sector is very active – there are some opportunities we expect to come to market soon." Investors are also active in the healthcare and technology sectors, he says.
Finally, even with all the activity in Hungary, O’Connor still describes the back half of 2020 as mostly “stop and start in M&A." According to him, "the market was very enthusiastic in September, looking forward to a strong last quarter, but in the period leading up to the recent lockdown, the market was more cautious.” The good news, in the end, is that deals are being done, he says, “even if not at the usual pace and volume."