Aligned with global trends, Romania’s M&A market suffered an apparently steady slowdown in terms of deal numbers in 2022, and not much has changed in the first quarter of 2023. While experts were expecting 2023 to suddenly jump back to 2021 levels, in reality, the well-known global factors having contributed to the slowdown of the market are not dialing back just yet.
However, an interesting keynote is being reported by market analysts: in terms of deal volume and value, 2022 has been a record-breaking year for Romania. The same trend was also visible in funding rounds: fewer overall rounds completed, but the highest values recorded thus far, with investors focusing on series rounds and established companies, and less on seed or pre-series rounds in emerging entities.
In the context of global turmoil, it is worth asking which industries are still capable of producing record-breaking deals in 2023. We expect technology to maintain its leading position in Romania, despite the global challenges faced by this industry, with energy, power, and utilities continuing to rise. Healthcare and various industrial products are also solid contenders in creating some stability in the market. A particular concern is raised by real estate transactions, a sector where we have been witnessing a continuous decline, which most factors indicate should continue in 2023.
In this context, the market is also looking at the Romanian legislator to further reform the applicable legal framework, which in Romania is still lagging in terms of investor-friendly mechanics. We are continuously battling a playing field of, on one hand, outdated legislation, and, on the other one, legislative volatility and lack of predictability.
We are happy to note the recent amendments to the legal framework on Romanian companies and companies’ registrar formalities, which are a step in the right direction, towards digitalization and reducing bureaucracy. Some of the highlights include (1) the simplification of registration formalities, thus removing the obligation to submit a series of forms and documents that needlessly prolonged the timing required for incorporating a company (e.g., name reservation, affidavits given by founders, management, and the first auditors respectively, specimen signatures given by management, or declarations of accepting the mandate by the directors, managers, or members of the management or supervisory board); (2) implementing online accessibility for all registration formalities for companies using electronic means of identification and electronic means of communication; as well as (3) a more straightforward merger or de-merger process that removes the competence of the tribunal, thus at long last making the process more predictable and, hopefully, to be resolved more quickly (previously, the expected timeline for implementing a merger or de-merger process was between four and six months).
Finally, a particular challenge we foresee in the coming year in terms of completing investments relates to the newly implemented foreign direct investments (FDI) screening provisions. The FDI screening legislation was passed in April 2022, but it wasn’t until November that the secondary legislation regulating the FDI Screening Commission was passed. The thresholds and sensitive sectors that fall under the umbrella of FDI screening are broad and vague enough at this point to potentially qualify most transactions under this regulatory approval. Moreover, not only traditional transactions but also new investments, including greenfield investments, are subject to prior screening.
Given that the expected timeline for FDI screening can take up to 135 days, a lot of M&A deals will now face prolonged periods of time between signing and closing due to a standstill obligation being provided for, thus creating further pressure and market uncertainty. There is a strong need for further tailoring of the applicable framework to allow for a smoother screening and more integration with the dynamics demands of such deals.
By Cristina Man, Partner and Co-Head of Tech M&A, Stratulat Albulescu
This article was originally published in Issue 10.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.