Last year delivered some surprises in global politics and economy. It was a year of unexpected voting results, which will no doubt have a serious effect on the global legal and economic landscapes in the long term. The international, regional, and Hungarian M&A market will all be affected. The question is what comes in the year ahead.
In 2016 the M&A market of the CEE region was led by the Czech Republic, Poland, and Turkey, with Hungary and Romania being next in line. The Hungarian market was reported by Ernst & Young as being stable up until the first half of 2016, with manufacturing, IT and technology, and energy and mining being the leading sectors, and with banking and financial services and real estate still doing well. The market, like in previous years, was dominated by domestic transactions, as in more than half of the deals both the seller and the buyer were Hungarian entities.
The expectations for 2017 are optimistic, as many analysts expect the year to be a turning point in the M&A market. Economists forecast a definite increase in M&A transaction volume in Hungary, especially in the field of venture capital investments.
In an interesting trend mentioned by major economists, many Hungarian mid-size companies are coming close to a generation change. In many cases there are no potential rising stars at these companies who could take over the ownership and management from the current owners, so the owners are expected to sell these companies.
On the other hand everyone is being cautious about worldwide economic expectations, arising mainly from Brexit and its potential effect on the Hungarian market. At least two major effects will have to be considered: One is the effect on Hungary of the EU-UK economic relations to be set up in the coming years and the status of EU economics following the withdrawal of the UK, especially considering the budgeting within the EU once the UK stops paying its share. Establishment of a Hungarian-British Business Council at the Hungarian Embassy in London has already been announced in order to help coordinate the presence of Hungarian companies on the British market and British companies on the Hungarian market. The aim is also to ensure that British-Hungarian commercial relations will remain intact and will not be harmed by the effects of Brexit.
The other major concern is the reallocation of currently available EU funds and establishment of a new budgeting mechanism. Several options are already being discussed in this regard. Whether the total budget is to be decreased and fewer funds allocated or the payment portion of each country staying in the EU is to be increased or some other arrangement is settled on in coming years, there will be a serious effect on the Hungarian market.
It is of course not only Brexit that will have an effect on the M&A market. The 2016 US election, the December 2016 resignation of the Italian Prime Minister, and the upcoming 2017 elections in the Netherlands, France, Germany, and China will also influence the road ahead.
By Viktoria Szilagyi, Partner, Nagy es Trocsanyi
This Article was originally published in Issue 4.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.