IT, retail, real estate deals to dominate M&A scene in SEE

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Robin Jowitt,
EY Capital Transformation Leader, CSE

How did the M&A market in Southeast Europe (SEE) evolve over the past decade?

In the past couple of years, M&A activity in most SEE countries suffered to a different degree from the small size of the national consumer markets and political instability. Nevertheless, we saw M&A deals in Southeast Europe steadily growing over the last ten years. 2014 has seen a decrease in most of the countries in the region excluding Romania while in 2015, 2016 and 2017 we see more of a steady state of growth. We estimate the SEE market size at about 6 billion dollars.

Which are the main factors influencing its development?

In the last years European economy has returned to a steady growth. With local SEE economies being much dependent on the state of European economy we have seen a positive correlation with transactions in the region. Strategic investors have been dominating and forming the M&A market in SEE. Together with this a lot of regional investors keep looking for new markets and contribute to the development of the region – Acibadem buying into the health sector in Bulgaria is a good example. There have also been great local success stories such as SBB and Danube Foods in Serbia which drive others to pursue investment opportunities. Last but not least lots of local businesses are getting to the stage of maturity and founders are looking to monetize their hard work in surviving the recession and delivering good businesses. Successful local businesses will continue to form and have a greater impact over the M&A market in the region.

What are your estimates regarding the volume and number of deals in the region in 2017 and in the next years?

Following on the trend from the last years I expect deals to go for similar numbers (5.5 – 6 billion dollars) but definitely increasing in size.

Which sectors are most active in terms of M&A deals? Do you see any new sectors emerging as leaders?

According to the most recent M&A Barometer published by EY, in the first half of 2017 each country in SEE had its own favored industry, however real estate, manufacturing and retail were most active sectors in the region. IT has been traditionally very active in the countries of SEE being very international in its core and therefore very open to transaction activity. Traditionally IT sector closes a large number of smaller deals and I expect IT to continue to grow in the future. Another growing sector is Retail & Consumer Products (RCP) – in line with growing consumption and disposable income I expect RCP deals to also increase.

Real estate will also have a boom as office and commercial space will be required for growing regional businesses.

On which markets in the region do you see untapped growth potential?

Strategic investors with solid cash position will continue to screen the SEE market for consolidation opportunities going forward, whilst interest would be dominantly limited to sector national champions or high value-added niche product companies. Former Yugoslav states, excluding EU countries and smaller markets, will become the next growth frontier. As local companies continue to grow they will more often appear on the radar of acquirers. Romania will keep its position as the main market in SEE. Private equity will continue to provide opportunities for consolidation activity in the region and will continue to seek to back good management teams.