M&A in SEE – strong 2015 followed by activity slowdown

Julian Gikov is Director at Raiffeisen Bank International (RBI), covering Southeast European M&A operations, where he has been involved in deals advisory for the last nine years. He has extensive investment banking experience in the energy, TMT, heavy industry, FMCG, and real estate sectors in the region, and was previously CEO of RBI’s investment banking unit in Bulgaria. In 2011, Gikov received the “Best M&A Deal in CEE” prize by the EMEA Finance magazine (UK) for consulting on a 545 million euro energy deal in Bulgaria. Prior to that, Gikov worked at KPMG – Financial Services, UBS (London) Investment Banking and Fixed Income, and Ernst & Young (Stuttgart) – Corporate Finance Advisory.

Julian Gikov, RBI

How has been M&A activity in Southeast Europe (SEE) developing this year?

After a promising year 2015 for mergers and acquisitions in Southeast Europe (SEE), M&A activity is slowing its pace as seen from the analysis of deals already announced in 2016. Last year, Raiffeisen advised on the largest deals in both Serbia and Bulgaria – the sale of Danube Food and Knjaz Milos to MEP and Advent’s sale of Kai Group to Mohawk – while in 2016 the entire SEE market hardly saw transactions of that scale. In the past couple of years, M&A activity in most SEE countries suffered to differing degrees from slower economic growth, the small size of the national consumer markets and political instability. Nevertheless, local specifics rather than common features tended to determine the main drivers of M&A in each country. Romania kept its lead as the hands down market leader in the region, supported by sound economic performance and sector maturity attracting more interest from international investors. Following a successful 2015, Bulgaria’s M&A activity this year leaves much to be desired, whereas Croatia’s political instability sharply affected deal flow. The year-end deal closings pipeline in Serbia and Slovenia would not compensate for the current slowdown.

How do you expect the M&A market in SEE to develop in the short to medium term?

Strategic international investors with solid cash position will be screening 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. In addition, with around 7 billion euro allocated for investments in Central and Southeast Europe (CSEE) by private equity firms, the region is set to benefit from increasing fundraising. At the same time, having sufficient funding, financial sponsors seem to be facing a shortage of robust targets to invest in. Key deal drivers for SEE will remain regional and national consolidation process, privatisation, restructurings, whereas M&A activity level for 2017 will reflect individual countries’ political stability and economic growth.




Stable M&A activity in Bulgaria since 2013 continued throughout subsequent years followed by a slight slowdown in 2016. The total value of M&A has been generally limited in the past several years except for single deals accounting for most of the value in each year. The average transaction value in 2015 remained at levels of around 20 million euro with declining trend in 2016.

Some of the major M&A deals in Bulgaria last year included the sale of KAI Group by Advent International to Mohawk Industries for 195 million euro, the acquisition of Blizoo Media and Broadband by M-tel from EQT for 120 million euro, the restructuring driven acquisition of NURTS by BTC for an undisclosed sum. The total value of disclosed deals in the period showed an improvement from 2014, whereas the overall number of deals in the same period showed a stable trend – 26 deals, slightly higher than in 2014.

The number and value of deals already announced in 2016 demonstrate the flagging state of M&A in the country – 10 top deals with a total value of disclosed transactions north of 450 million euro. So far, the largest deals announced this year were the significantly delayed closing of Vivacom (BTC) acquisition by Viva Telecom for a consideration of 330 million euro in August 2016, and the sale of Japanese-owned hospital operator Tokuda Group to Turkish hospital operator Acibadem for 65 million euro, whereas the presumed undisclosed value of the 50% stake in Technomarket sold by Edoardo Miroglio would have positioned it among the top deals.

In the small deals segment, Bulgaria registered the busiest M&A season within SEE – EU funded private equities such as Black Peak Capital, Empower and Neveq have completed over 15 investments in the past 12 months, aiming to capitalise on early-staged companies’ growth.

A key M&A trend in Bulgaria over the past several years until 2015 has been the exit of international strategic investors, with their place taken up by local players. Examples here include food retailer Delhaize, do-ityourself (DIY) retailers bauMax and Praktiker, Bayerische Landesbank, hotels Kempinski and Hilton in Sofia, metal trader Kloeckner, media group Sanoma, and renewable energy companies Bosch and Verbund. In addition to successful disposals, a number of desired exits did not take place due to a wide valuation gap or lack of sufficient buy-side interest.

A positive turn-around in the above tendency was observed in 2015, when acquisitions by international strategic investors of organically grown companies offering higher valueadded products highlighted the year, where in addition to the above mentioned US acquisition of KAI Group, Fadata attracted UK Charles Taylor and River Side, German sector leader Wiesenhof acquired stake in poultry producer Ameta, furniture retailer Aiko and Mobbo attracted an Austrian strategic investor.

The electricity sector, and the renewable energy sector in particular, was very affected as political pressure resulted in attempted regulatory changes aiming to revoke preferential terms and hence sharply increased the perception of regulatory risk. These events resulted in significant M&A activity on the secondary market towards desired exits but only a few deals were wrapped up – the disposal of the Chinese Renesola of their RES assets to Solar World Invest Fund in H1 2016, Kelag’s buyout from Raiffeisen Energy, and LukErg Renew’s purchase of Vesta’s wind assets in the earlier years. The significant current assets devaluation in the entire power market value chain seems to be the only potential deal trigger in the sector in the short to medium term.


Another encouraging sign is that the scope of industries traditionally driving M&A in Bulgaria, such as financial services, telecommunications and consumer goods, is increasing. New sectors gaining pace for M&A activity are in the first place technology, followed by healthcare and agriculture. Technology, particularly IT and business process outsourcing, has grown exceptionally well in Bulgaria during the past several years and has attracted significant levels of greenfield investment from many international players. Now, the sector seems to have reached the point at which it also becomes a driver for M&A. The IT subsegment already generated the largest deal in Bulgaria for 2014, the 207 million euro acquisition of software developer Telerik by Progress Software Corporation, and a second large deal in less than one year – the acquisition of software developer Fadata by a consortium between Riverside and UK-based Charles Taylor. At the same time, significant deals took place even earlier in the business process outsourcing subsegment, namely the acquisition of CallPoint New Europe by Telus International in 2012 and of Sofica Group by TeleTech at the beginning of 2014. Activity in the technology sector continues with the 2015 acquisition of Reward Geteways local operations by US-based Great Hill Partners for 55 million euro, the purchase of local digital marketing agency Ilyan.com by Opera Group, the acquisition of UK-based e-commerce platform eCommera with significant operations in Bulgaria by marketing and communications group Dentsu Aegis Network in June 2015, the acquisition of TelecityGroup Sofia by U.S.-based Equinox in June 2015, the acquisition of web portal Dir.bg by local Logo-Company in December 2014, the acquisition of 50% of price comparison website kabelna.com by French Selectra also in December 2014.

The large number of small- to mid-sized independent players populating a diversified range of niches in the technology sector in Bulgaria on the one hand, and the continuing strong growth of the sector and interest in it from international players on the other, give grounds for confidence that it will increasingly be a significant factor for M&A in Bulgaria going forward.

Another new member of the Bulgarian M&A club is healthcare, where 2015 saw the beginning of consolidation by local players that continued this year. In the patient care subsegment, acquisitions of Burgasmed hospital and clinic by the group affiliated to Sofiamed hospital and of Cardio Center Pontica by City Hospitals and Clinics Group were both announced in May 2015, the aforementioned acquisition of Tokuda Group by Turkish and Macedonian hospital operators, Acibadem Saglik Hizmetleri ve Ticaret AS and Acibadem Sistina Hospital respectively, and the acquisition of Bulgarian City Clinic Group by the same buyers, both announced in April 2016. In the pharmaceutical subsegment, local generics leader Sopharma group acquired control through the stock exchange of producers Rosa-Sevtopolis (2014) and Medica (May 2015) and is rumoured to be seeking acquisitions in pharmaceutical retail. The owner of another large local player, veterinary pharmaceuticals producer Huvepharma, bought back the stake held by its financial partner in 2014 while the company itself has been active as acquirer abroad. Given the present fragmentation in the segment, these few deals could be just the onset of a series of M&As.

M&A activity in the agricultural segment increased in the past couple of years due to landstock accumulation. It is driven by the anticipated appreciation of agricultural land as a result of the EU-sponsored growth of Bulgarian agriculture and farming. The activity is dominated by local players. At the same time, there have been no significant M&As involving farming enterprises. Except for wheat growing, agricultural producers in Bulgaria are still extremely fragmented indicating potential for M&As in the future. Further to the sectors discussed above, expected drivers of M&A activity in the short term include further consolidation of the telecom market, the food processing sector, the restructuring of Greek banks, and to some extent privatisation. It is expected that the Bulgarian operations of Greek banks will be sold as part of the restructuring of their parents. The first step in this process is the recently finalised merger of Alpha Bank in Bulgaria into Postbank, Eurobank EFG’s Bulgarian subsidiary. At the same time, following the failed attempt to privatise freight railway transport company BDZ Cargo due to limited investor interest, the government has indicated intention to privatise some 30 smaller enterprises. These public sector opportunities are complemented by certain pending concessions with key highlight being the announced tender process for Sofia Airport, which is expected to attract major international strategic players. It should be noted, however, that attracting investor interest for many of the enterprises on the sale list may prove a challenge given their current performance or, in some cases, the chosen privatisation method.

Recent developments on the Bulgarian M&A market seem to indicate two general trends: a cautious return of international investors, and an increasing significance of local players.

Despite lowered M&A activity in the country, certain sectors of the Bulgarian economy have done particularly well and investors are already appreciating it. Although the small scale of the Bulgarian market limits the attractiveness of local business, the robust GDP growth in 2016 could be expected to have a further positive impact on M&A activity.


2015 was a success in M&A activity in Croatia with the deal value twice as high as in 2014. This turned out to be an outlier as it was preceded by a declining M&A activity in 2012-2014, whereas the number and value of deals YTD 2016 are on par with the aforementioned period. The overwhelming political instability in 2016 has contributed to the limited investment in the private sector and has practically blocked the initiated privatisation attempts in the absence of ultimate decision-making authorities.

M&As in the country are primarily driven by the private sector, with local investors playing a significant role. Key sectors driving private sector M&A are traditionally tourism and hospitality, food and consumer goods, and financial services. The list of recent deals includes several acquisitions of tourism and hotel operators, including Istraturist Umag, Adriatica.net, Hilton Imperial Hotel, Arenaturist and Imperial , mainly by local players, as well as the acquisition of cement producer Cemex’s operations in Croatia (with assets also in Bosnia, Montenegro and Serbia) by the Hungarian subsidiary of Heidelberg Cement Duna-Drava Cement, the acquisition of pharmaceutical producer Genera by Dechra Pharmaceuticals, the acquisition of UniCredit Leasing Croatia and Locat Croatia by Zagrebacka banka, and, notably, the 550 million euro acquisition by British-American Tobacco of TDR, and its vertically aligned affiliates along with retail chains iNovine and Opresa, from Adris Grupa. Local players have a significant impact on the M&A market in Croatia going forward, in particular the diversified business groups Agrokor and Adris Grupa, which are active as both buyers and sellers. The recently announced merger plan of broadband operators Optima Telecom and its competitor ISP H1 is expected to materialise in 2017.


Although the government enacted legislative changes in 2013 to facilitate privatisation, so far it has had limited success. The attempted privatisations of Hrvatska Postanska Banka, Croatia Airlines, rail freight carrier HZ Cargo, shipping company Jadroplov and certain state-owned hotels and resorts failed to attract investor interest due to their financial condition and the aggressive terms sought by the Croatian government, while the outcome of the sale process for fertiliser producer Petrokemija is still uncertain. Furthermore, no progress was made in relation to the announced privatisation of a number of other companies including sea and river ports and Hrvatska Lutrija. Recent successful deals include the privatisation of insurer Croatia Osiguranje and the concession deal for the Zagreb Airport. The planned IPO of a 25% stake in the national electricity company Hrvatska elektroprivreda (HEP) is expected to attract significant interest. In May 2016, as part of public debt reduction initiatives, the interim government removed from the ‘’strategic list’’ 8 state-owned entities, which are now set for potential privatisation. Some are with good chances of raising significant interest among international investors – food producer Podravka, electrical equipment producer Koncar, marina operator ACI, Croatia Banka.

Going forward, it could be expected that the M&A activity observed so far in 2016 will be supported by continued GDP growth after the economy reached a turning point in 2014. Croatia’s accession to the EU is expected to have a positive impact by increasing investor confidence and providing access to EU funding in the longer run, expected to benefit in particular sectors such as construction. The ongoing consolidation and privatisation in the tourism and hospitality sector are another driver of M&A activity. At the same time, privatisation in other sectors does not seem likely to play a significant role for M&As in the near term.


Romania is by far the leader in M&A activity in SEE, accounting for more than a quarter of the number of deals in the region. M&A levels in 2013 and 2014 marked a significant increase compared to the preceding years. Year 2015 was marked by lower number of deals, but doubled value of disclosed transactions, whereas analysis of deals already announced this year suggests M&A activity slowing down on par with the rest of SEE region. M&As are taking place in many sectors of the economy – financial services, real estate, transportation and consumer goods being among the main drivers. IT and agriculture too saw some landmark deals indicating the potential of these segments for the future.

Deals in the banking and insurance sectors represent the major part of recent M&A activity, including the acquisition of Volksbank Romania by Banca Transilvania (in 2014), the acquisition of Millenium Bank Romania by OTP Bank Romania (in 2014), the acquisition of both the retail and the corporate business divisions of RBS by UniCredit Tiriac Bank (in 2013-14), the acquisition of the retail division of Citibank Romania by Raiffeisen Bank (in 2013), the acquisition of MKB Nextebank by Axxess Capital (in 2013), the acquisition of EURECO’s life and pension operations by Aegon (in 2013), and the acquisition of a 55% stake in Banca Comerciala Carpatica by Nextebank announced in January 2016. Furthermore, according to public announcements, the deal involving Cyprus Popular Bank owned Marfin Bank is expected to take place shortly. The sector is likely to continue to generate M&As, driven by disposals of the local operations of, on the one hand, Greek banks in the context of the restructuring of the Greek banking system, and on the other hand, certain international banks such as Credit Agricole and Intesa Saopaolo as part of their strategy to exit markets where they have been unable to achieve a certain scale. However, deals involving Greek banks may be delayed by reorganisation and mergers that need to take place beforehand.

Another sector which accounted for a significant part of the recent M&A activity in Romania is transportation and related services, with the acquisition of United Shipping Agency by Chinese-owned Nidera in 2014, and the acquisition of North Star Shipping and Minmetal by U.S.-based ADM announced in May 2015. The sector is likely to attract further deals; intermodal transport in particular has been named as one of the areas of interest of Chinese investors, and infrastructure is one of the priorities of the Chinese CEE Investment Corporation, which has set aside $500 million for investment in 16 countries in CEE, including Romania, in the next two-three years and is in the process of increasing the committed funds.


The real estate sector saw two of the largest recent deals in Romania: the 148 million euro acquisition of Floreasca City Center, owner of Promenada Mall in Bucharest, by New Europe Property Investments (NEPI), and the 95 million euro acquisition of a 35% stake in hotel operator Societatea Companiilor Hoteliere Grand by Strabag, both in 2014. M&As in the sector continue in 2015, dominated by several investors, the most important being the South-African investment fund NEPI, Globalworth, controlled by Greek businessman Ioannis Papalekas, Cyprus-registered Secure Property Investment & Development (CPDI), and Czech real estate developer CTP. Recent transactions represent consolidation in the sector by these players challenging the position of the incumbent main players CA Immo and Immofinanz. The ongoing disposal by banks of large portfolios of non-performing loans, many of which used to finance real estate projects, is a factor further supporting M&As in real estate as it brings opportunities for bargain deals in the sector. A major anticipated deal is Immofinanz’s intended sale of European logistics sites, three of which are located in Romania.

Other recent big deals in Romania include the announced in January 2016 acquisition of dairy products producer Albalact by the French Groupe Lactalis for 90 million euro, the 100 million euro acquisition of the second largest medical services operator in Romania, Regina Maria (August 2015) and consequently Pondera Hospital (June 2016), by Mid Europa Partners as a result of the pursued market consolidation strategy by the fund, the acquisition of suppliers of goods and services for agriculture Comfert and Redoxim by Irish Origin Enterpises in July 2015, the acquisition of tissue paper producer Pehart Tec by Abris Capital Partners in May 2015, the acquisition of mineral water bottler Rio Bucovina by Polish soft drinks company Maspex Wadovice in August 2015, the acquisition of 42 fuel stations by MOL from ENI in February 2015, the acquisition of gas distribution company Congaz by GDF Suez Energy Romania in 2014, the acquisition of the Romanian operations of DIY chain bauMax by Leroy Merlin in 2014, and the acquisition of metal products manufacturer Cromsteel Industries by ASO Siderurgica in 2014. In the electricity sector, following Electrica’s successful IPO, other power distribution companies are expected to attempt full or partial exit in 2017. In addition, a number of smaller deals were announced in various sectors, involving both international and local acquirers. Private equity firms retain their interest in Romania, with Mid Europa Partners, Carlyle Group, Montagu, PPF Investments, Abris Capital and Axxess Capital making new investments in the country in the past few years.

In addition to the mature economic sectors, which account for the major part of M&As in Romania, new sectors with the potential to generate M&A growth are emerging. One such sector is technology. A high profile, large ticket deal which took place in 2014 was the $500 million acquisition by Facebook of monetisation platform LiveRail, a company co-founded by two Romanian and one British individuals and having a development office in the town of Cluj-Napoca. The deal signifies the success of the technology sector in the country in general – one of the fastest growing sectors as the country is now considered among the most attractive global destinations for IT and business process outsourcing. Another more recent deal announced in March 2016 was the acquisition of an 87% stake in Realmedia Network, which owns imobiliare.ro, an online platform for real estate intermediary services, by Swiss bidder Ringier AG. Although greenfield investment by large international players tends to be the preferred method of tapping the favourable conditions for technology business in Romania, several local software developers and e-commerce companies have reached a scale that could attract the interest of international investors. Such companies include Bitdefender, Siveco, TotalSoft, Gersim, Mobile Distribution, F64 Studio and PC Garage.

Another sector which holds promise for M&A growth in the future is agriculture. The sector has become increasingly attractive due to low costs and good quality of agricultural land. Large international players have already entered land ownership and farming in Romania, including financial giants Assicurazioni Generali and Rabobank, German investment funds Germanagrar and Agrarius, Danish Ingelby and FirstFarms, Dutch DN Agrar, and Lebanese Maria Group. Investment fund Insights Investments through its vehicle Alisa Farming, investment fund Spearhead International, as well as multinational group Martifer, are in the top 10 of landowners in Romania with landstock of 14,000 to 25,000 ha. Nevertheless, there are also large local agricultural players such as Interagro, Grup Racova, Comcereal Dolj and Agricost. Furthermore, although it is still dominated by small and medium players, the animal farming subsegment of the agricultural sector already has some local players of its own which have reached an attractive size, including Transavia, Agricola and Kosarom. Apparently, there are both interest and room for further consolidation in the sector which set the stage for future M&A.

Privatisation will not be a significant contributor to M&A activity in Romania in the near future. Excluding the privatisation of minority interests through the stock exchange, the main pending privatisations are limited to the sale of postal operator Posta Romania, where a deal is being negotiated with the single bidder, Belgian Bpost, and that of the national freight railway transport company CFR Marfa, for which the government decided to change the strategy to listing on the stock exchange in 2016 after a failed deal with Grup Feroviar Roman in 2013. Except for chemical producer Oltchim, which will potentially be up for sale in three years after carrying out a restructuring plan, at present there are no other significant privatisation targets.

The excellent economic performance of Romania in the recent years, with real GDP growth of around 3.5% on average over 2013-2015 and expectations of around 4% expansion in 2016, and the larger scale of its market compared to the relatively fragmented markets of its neighbours, seem to make it a good place for M&A in the foreseeable future. Sustained interest on the part of financial sponsors conveys confidence that doing business in the country can generate good returns for investors. The strength of Romania’s M&A market is underpinned by the fact that deals are generated by many sectors across the economy, with new sectors emerging as further M&A drivers. Non-reliance on privatization, which is an unsustainable and problem-ridden source of M&A, renders a further advantage. Overall, there are sound reasons to expect that Romania will continue to be the M&A leader in SEE in the short to medium term.


M&A activity in Serbia was at relatively low levels during the past five years compared to its neighbours, except for certain large deals which dominated the M&A landscape – the 575 million euro acquisition of Danube Foods Group by Mid Europa Partners in 2015, the 1 billion euro acquisition of Serbia Broadband by KKR from Mid Europa Partners in 2013, and the 950 million euro acquisition of retailer Delta Maxi by Delhaize Group in 2011.

In addition to these landmark deals in the food and beverage and telecommunication sectors, smaller deals, including certain addon acquisitions by Serbia Broadband, took place. Another sector which contributed to M&A activity in the country was financial services, with acquisition of the insurer  XA Zivotno Osiguranie by Vienna Insurance Group announced in July 2016, the acquisition of the Serbian operations of Italian Findomestic Banka by OTP (in 2015), the acquisition of the SEE network of Hypo Group Alpe Adria by Advent International and the European Bank for Reconstruction and Development (EBRD) (in 2015), the acquisition of minority interests in insurance group Delta Generali Osiguranje by Generali (in 2014), the acquisition of AIK Banka by local MK Group (in 2014), and the acquisition of KBC Banka by Telenor (in 2013). Serbia Privatisation has so far had little impact on M&A activity in Serbia. The list of successful recent privatisations is limited to the sale of Cacanska Banka to Turkey’s Halkbank in January 2015, the sale of 49% of flag carrier JAT Airways to UAE-based Etihad Airways in August 2013, and the sale of winery Vrsacki Vinogradi to a Chinese consortium in July 2013. In addition, the sale of steel products producer Zelezara Smederevo is expected to be completed this year, as the government accepted the 46 million euro offer of China’s Hebei Iron & Steel Co in April 2016.

The privatisation of Serbia’s large state-owned sector is recognised as a strategic priority for the country. As part of broad economic reforms, the government has adopted an ambitious privatisation programme encompassing more than 500 enterprises and employing a variety of privatisation methods. Special protection from debt enforcement has been granted to 17 enterprises to ensure their successful restructuring in view of privatisation, including pharmaceutical producer Galenika, publisher Politika, trucks producer FAP, agricultural company Poljoprivredna Korporacija Beograd, refinery HIP Petrohemija, nonferrous metals producer RTB Bor, textiles producer Yumco, tires producer Trayal, bus producer Ikarbus, lubricants producer FAM, coal mine Resavica, cable producer Kablovi Jagodina, and industrial equipment producer Prva Petoletka. To support the reform of state controlled business, the World Bank provided a 100 million euro loan to Serbia in March 2015.


One of the largest possible deals, the privatisation of Telekom Srbija has not taken place as the highest price offer, submitted by an unnamed US investment fund, was lower than expected by the government. Subsequently, the government announced in December 2015 it would abandon its sale plan and would be seeking professional management for the company, intending to establish a more favourable market position for it. This was the second attempt at the privatisation of Telekom Srbija after the government turned down the sole binding bid received from Telekom Austria as part of a tender process in 2011 to which financial investors were not admitted.

Other state-owned enterprises for which privatisation procedures are in preparation include the Belgrade Airport, which following the recent selection of a financial adviser has good chances to be launched in H1 2017, insurer Dunav Osiguranje, and Serbia’s largest bank Komercijalna banka, considered a very attractive asset, for the sale of which the government already appointed a financial advisor.

In addition, the state plans to put up for sale a minority stake in the national electricity company Elektroprivreda Srbije (EPS). As part of a standby agreement with the IMF, the government has committed to reorganise EPS, with the spin-off of the power supply and power distribution operations as the first step already completed in July.

In the private sector, a major transaction for H2 2016 is expected to be Austria’s Agrana purchase of a majority stake in the Serbian top sugar producer Sunoco from local MK Group.

One of the reasons for the low level of M&As in Serbia so far was that the country had been slow to emerge from the long recession while growth continued to be depressed due to public spending cuts. The situation is expected to improve with an economic recovery that started last year with the country’s GDP returning to growth of 0.5% in 2015, backed by forecasts ranging between 2.5% and 3.0% for this and next year. At the same time, the signing of the 1.2 billion euro standby agreement with the IMF in February 2015 and the government’s accompanying commitment to reforms have sent a strong signal that the country is on the right track and can become attractive for investors in the near future. In the private sector, food and retail are expected to continue to drive M&A, joined by technology and software development which are increasingly attractive. Several privatisation targets hold significant promise and are expected to further boost M&As; however, the sale of the majority of state-owned enterprises included in the government’s privatisation plan present considerable challenge as their financial turnaround may prove unfeasible.


Slovenia had fairly stable levels of M&A activity during 2011-2015 with a growing number of deals each year, however 2016 seems to be less promising as the number of deals that have been announced so far in the first 8 months of the year are 2.5 times lower than the full-year number in 2015.

Privatisation and banking sector restructuring are the key drivers of M&A in Slovenia at present, while the private sector is generating an increasing number of smaller deals.

Slovenia still has a relatively large state-owned sector, despite the successful recent privatisation of, among others, the second largest Slovenian bank NKBM, airport Aerodrom Ljubljana, coatings producer Helios Domzale, automotive parts producer Letrika, medical lasers producer Fotona and ski equipment manufacturer Elan. In April 2015, the government proposed a strategy envisaging the privatisation of a further 80 enterprises. However, it plans to retain significant influence (25% + 1 share) in 23 of these, which are deemed as “important”, including energy company Petrol, gas supplier Geoplin, household appliances maker Gorenje, holding company Sava, steel group SIJ, gaming company Hit, national lottery Loterija Slovenije, petrochemical company Nafta Lendava and reinsurer Pozavarovalnica Sava. The remaining 57 state-owned interests for which the strategy envisages complete disposal include the Central Securities Clearing Corporation (KDD), poultry Perutnina Ptuj, footwear manufacturer Peko, and dairy Pomurske mlekarne. At the same time, the state will retain its interest in certain enterprises defined as “strategic” by the privatisation strategy, including the main electricity players and operators of transports and logistics infrastructure, as well as postal operator Posta Slovenije, Pension Fund Management (KAD), insurers Zavarovalnica Triglav and Modra Zavarovalnica, Export and Development Bank (SID), aluminium producer Talum, and pharmaceutical producer Krka.

As part of the privatisation programme in progress, the Slovenian state has sold the provider of airline maintenance services Adria Airways Tehnika in November 2015, hygiene and tissue paper producer Paloma in June 2016, national air carrier Adria Airways in January 2016, brewery Pivovarna Lasko to Heineken in two stakes in 2015 and 2016, food producer Zito to Podravka in 2015. In addition, the binding offer for automotive parts producer Cimos submitted by Palladio Finanziara has been accepted in July 2016, with the deal expected to be finalised in September this year.

The upcoming planned privatisations include Nova Ljubljanska Banka (in 2017), and the bank resulting from the merger of Abanka Vipa and Banka Celje (in 2019). Notwithstanding the success track record in privatisation so far, the largest potential deal in Slovenia for 2015, the privatisation of Telekom Slovenje, recently failed. Following a formal tender process, in April 2016, the government received a single binding bid from UK-based private equity fund Cinven. However, after the offer was unfavourably modified in May, the government assessed the bid as unacceptable, while the bidder recently announced that it was no longer interested in the deal. Suggested reasons for the limited interest in the tender include legal and regulatory risks faced by the incumbent telco, as well as a valuation gap given other present opportunities for international strategic players. The privatisation authority, Slovenian state asset holding company SDH, announced it will refocus on effective management of Telekom Slovenje’s assets and operations in the near term. It could be expected that a new privatisation attempt will be made in due course after the government reconsiders the terms.

In addition to privatisation, a number of companies controlled by one or more banks too are for sale as a result of debt restructuring in the past few years. The fast credit expansion in Slovenia prior to the onset of the global financial crisis in 2008 left many enterprises overleveraged during the ensuing economic recession. The resulting defaults necessitated debt restructuring across the economy whereby lender banks accepted debt to equity swaps and became major equity holders in the Slovenian economy. At present, the banking system is taking measures to restore its stability, which include disposal of equity participations. The landmark deal in this category was the sale of 80.75% of food retailer Mercator to Croatian group Agrokor for 261 million euro in 2014. However, the sale of companies controlled by banks is often hindered by their significant indebtedness and the unwillingness of the shareholders to book losses as a result of the disposal, where most recent example was the freezing of sales process of the country’s leading logistics company Intereuropa.

A further effect of the difficulties faced by banks in Slovenia at present are the announced plans of owners to sell Gorenjska Banka and Sberbank Banka. These intended disposals add to the M&A pipeline in the country, although the deals have not yet progressed due to apparent lack of investor interest. However one transaction in the banking sector that actually took place this year was the sale of Raiffeisen Banka to US-based private equity house Apollo Global Management, closed in June 2016.

Although the large deals in Slovenia were mainly due to privatisation, the private sector consistently generated the majority of the deals, albeit of smaller size. Recent private deals include the acquisition of telco Amis by Telekom Austria, acquisition of mobile and fixed services operator Debitel telekomunikacije by Telekom Slovenje, acquisition of mobile operator Tusmobil by Telemach, acquisition of wood panel producer LIP Bohinj by Hasslacher, and acquisition of metals and plastics processor Iskra ISD by KJK Capital Oy. Key sectors for private deals have been telecommunications and manufacturing. Due in part to the very limited ability of local banks to offer acquisition finance at present, private M&A activity in Slovenia is primarily driven by international and regional investors.

Given the significant equity investments of Slovenian banks in local enterprises, disposals by the private banking sector are expected to be the main driver of M&A activity in the country in the short term. The strengthening of the country’s financial infrastructure following the restructuring of the banking sector is hoped to improve the investment climate in general and boost the interest of international investors. The resumed economic growth in 2014 and 2015 of around 3.0% is expected to continue at about 2.2% this and next year. The positive macroeconomic outlook will benefit private M&A activity which is already providing a solid baseline level of deals across many sectors. At the same time, pending privatisations are likely to contribute key deals in terms of size.


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