Forgo, Damjanovic & Partners Partner Zoltan Forgo talks about M&A in Hungary in 2025.
CEELM: What would be your bet at the start of the year – will 2025 see more, fewer, or the same level of activity in terms of M&A in Hungary?
Forgo: In general, market participants reported a slowing M&A market in 2024 due to high interest rates, high inflation, shrinking corporate profits, and no actual GDP growth.
The general market outlook for 2025 is cautiously positive, relying primarily on better GDP growth forecasts for Hungary, lower interest rates generally in Europe, and the potential end of the war between Russia and Ukraine.
Having said that, 2024 was a great year for our M&A practice. Before all, we acted on the high-profile FoxPost sale to CVC Capital and EMMA Capital, probably the largest private market deal in 2024 in Hungary, and advised on a number of transactions in the PV and healthcare industries. Regarding our M&A practice, we remain confident that we can replicate the successes of 2023 and 2024. Already in the pipeline, there are significant transactions in the PV, food supplement, healthcare, and IT industries.
CEELM: What do you believe will be the main factors determining the results at the end of the year?
Forgo: A possible peace accord in Ukraine in the first half of 2025 could be a very significant factor for foreign investors in deciding about Hungarian acquisitions. This is relevant for the whole market, and especially for those targets with potential/actual business in Ukraine and Russia.
The easing tension between the EU and Hungary could also be a potentially positive factor, however, it is unlikely to happen in 2025.
What is a relatively new phenomenon and is growing in significance is the acquisition of foreign companies by mature Hungarian companies in several sectors, such as building developers and sponsors, and players in the pharmaceutical, banking, and car manufacturing sectors. Also, Hungary-based VC and PE companies are eager to look for investment opportunities in other CEE countries. This may present an opportunity for Hungarian M&A legal advisers with well-established contacts in other CEE countries to act as lead counsel on such transactions.
CEELM: Are there any pieces of legislation on the horizon that you are keeping an eye on as potentially impacting the M&A market in 2025?
Forgo: The termination of the extra-profit tax on pharmaceutical producers in 2025 is likely to add to the attractiveness of Hungarian targets in this area. However, the negative change in any areas typically subject to such extra-profit tax, such as banking, telecommunications, oil, and retail FMCG stores would have the opposite effect. The food supplement market is booming, and the activity is fully liberalized. However, a negative change in the use of distribution channels, such as forcing these products into pharmacies, would destroy the significant value of such companies. Such a possible change is looked at by the legislators from time to time.
In general, in Hungary, there is an increased risk of state intervention through taxes or other legislation, which makes Western European buyers particularly careful with the Hungarian market.
CEELM: Who do you expect to be the buyers in Hungary in 2025?
Forgo: For smaller transactions, such as EUR 1-10 million, we expect the market to be dominated by Hungarian strategic companies that add to their product and service portfolio through established businesses. In the range of EUR 10-50 million, the market will continue to be dominated by foreign strategic investors or PE investors who are adding Hungary as a new geographical reach to their existing portfolio companies, such as the purchase of the Hungarian PUDO company FoxPost in 2024 by CVC/EMMA/Packet or the purchase of food supplement player Vitaplus by PE-backed CERES.
Other than that, PE investors are not expected to be very active, given that Hungary is quite a small market, resulting in smaller targets.
CEE investors are expected to increase their activity in Hungary, especially those from the Czech Republic and Romania.
CEELM: What do you expect will be the most attractive targets in Hungary in 2025, and what will make them so?
Forgo: New energy companies, such as solar power companies, and infrastructure developers in the energy sector will remain attractive, and the considerable growth in these areas is expected to continue. IT companies can also be typical targets due to their scalability, especially those that do not have a high concentration of Hungary-based or government-related customers.
As the food supplement market continues to grow, mature food supplement companies will remain interesting targets for foreign strategic investors, typically for Western European investors.
This article was originally published in Issue 12.1 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
