by Eugenia Kirilov
Last year, M&A transactions in CSEE grew by 11% from 2010 in terms of the volume of the deals and increased by 48% in estimated value, Ernst & Young said in its M&A Barometer 2011 Central and Southeast Europe.
On a global scale, the sector got off to a strong start but ended up with only a modest 3% growth in global M&A transaction volume from the very dull 2010, according to data from consultancy Dealogic.
In Europe, just like elsewhere in the world, the M&A game had a good go in the first half but declined in the second one when the European debt crisis and worries about the US economy scared investors away.
Players were all present in the field – companies with large piles of cash on hand, record-low interest rates in banks and myriads of undervalued firms ready to be snapped up but ‘nobody wanted to dance’, as KPMG partner Dan Tiemann put it.
According to the Ernst & Young report, four countries in the CSEE region saw a decline in M&A activity last year: the Czech Republic, Greece, Slovenia and Croatia.
Referring to the M&A business in the Czech Republic in 2011, law firm CMS said it was more active than in 2010 with the market driven mainly by restructuring transactions but the instability and slow economic growth in the eurozone had a negative effect on it.
The M&A game in the CSEE region was led by Turkey, Poland and Romania in 2011, with Turkey leading the way in terms of deal volume with 272 transactions closed, followed by Poland with 254 and Romania with 120.
The number of completed deals in CSEE last year was 1,116 with a combined estimated value of 49.5 billion U.S. dollars (40.3 billion euro), Ernst & Young said.
Based on the estimated value, Poland ranked first among the region’s markets with 21.2 billion U.S. dollars worth of deals closed in 2011, while Turkey came in second with 13.7 billion U.S. dollars and Czech Republic third with 4.2 billion U.S. dollars. The 6.55 billion U.S. dollar acquisition of Polish mobile telephony operator Polkomtel was the country’s largest deal in 2011 as well as the largest M&A transaction in the region in the review period.
Worries about the sovereign debt crisis in the eurozone and slower economic growth resulted in a low value of the largest deals in Romania, pushing the value of the country’s M&A market down by 28% in 2011, although the number of transactions increased by 5.0% from 2010, Ernst & Young said.
Regional partners accounted for 57% of the number of M&A deals closed in CSEE last year, when strategic investors dominated the game with 76% of all deals wrapped up in the region. Manufacturing took centre stage as the most attractive target industry in the region, while telecommunications and media transactions in terms of volume sealed last year.
Poland, Hungary, the Czech Republic, Greece and Croatia recorded the greatest number of M&A transactions between local partners among the CSEE countries in 2011, Ernst & Young said.
According to CMS law firm’s Emerging Europe: M&A Report 2011 covering Albania, Belarus, Bosnia-Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Kosovo, Latvia, Lithuania, Macedonia, Moldova, Montenegro, Poland, Romania,Russia, Serbia, Slovakia, Slovenia and Ukraine, the risk of deals not reaching the agreement or the completion stage was high last year in central and eastern Europe (CEE). Financing was constrained and bank lending more cautious in the region in 2011, causing deals to be long-drawn. The report also noted the substantial interest in the region shown by major private equity firms like KKR, BC Partners, and Apax Partners, mainly for targets in Poland. It also found specific trends in the Bulgarian M&A market.
Among the key specifics of the M&A market in the region in 2011, CMS highlighted the following: domestic players replaced global investors who exited mainly key sectors like energy, banking & financial and media; debt restructuring was the main driving force behind most deals in the private sector and most of the M&A targets were small-and-medium sized enterprises.
The CMS law firm expects these trends to be carried over into 2012, when it anticipates fewer deals closed than last year, mainly due to uncertainties in Europe and the strained financial resources of local players.
Ernst & Young said the U.S. business was the most active investor in the CSEE region last year, closing 46 M&A deals, followed by the UK with 33 and Germany with 31.
Although markets seemed supportive of large M&A deals in the first half of 2011, scrapped transactions in Europe reached a record high number from January to early November last year according to data from Dealogic. Its report cited increased volatility and investor concerns over potential buys leading to 293 deals worth a combined 131.3 billion U.S. dollars being dropped in 2011. This figure, the highest since 2008, is double the one recorded in 2010, making Europe the top target region for dropped M&A moves last year, with nearly a third of the total number of withdrawn deals globally, again a record high.
Seven of the biggest deals closed in 2011 were announced before August of that year when markets in Europe saw the sharpest fall since October 2008. As the crisis in Europe deepened, investors adopted gradually a wait-and-see attitude, Bloomberg quoted Paul Parker, global head of M&A at Barclays Plc in New York, as saying.
As regards hostile takeovers, 2011 was one of the least hostile periods in the last seven years, according to investment consultancy Mergermarket. Globally, hostile deals accounted for 6.8% of the total value of all public transactions in 2011, while a year earlier they made up slightly over half of all transactions. Hostile offers accounted for 49.8% of the value of unsolicited offers made last year, with 32 transactions valued at 4.5 billion U.S. dollars.
CMS said it sees the crisis in eurozone not only acting as a constraining factor for deals in 2011, but also bringing attention to the importance of diversity of risk profiles across the CEE region. Although the crisis could hurt the deal environment, it is expected to lead to restructuring, asset sales and privatisation transactions in CEE in 2012, CMS concluded.