M&A in SEE – Strong 2016 and Accelerating Investment Activity

by Julian Gikov, Aleksander Biesaga, Richard Golden, Raiffeisen Bank International

Raiffeisen Bank International AG (RBI) considers Austria as well as Central and Eastern Europe (CEE) as its home market, where it is a leading corporate and investment bank. 15 markets of the region are covered by subsidiary banks. Additionally, the Group comprises numerous other financial service providers, for instance in the fields of leasing, asset management as well as mergers and acquisitions.

In total, around 51,000 employees service 14.2 million customers through around 2,600 business outlets, the great majority of which are located in CEE. RBI has 119 billion euro of total assets and a top 5 market position in 11 countries. RBI is also present in the largest global financial centers. As part of the Investment Banking activity, RBI has been a leading M&A advisor in Austria, CEE, Russia and Turkey.

In the past couple of years, M&A activity in most countries in Southeast Europe (SEE)  as influenced by political headwinds, persistent global economic uncertainty as well as the limited size of the respective domestic markets. Romania kept its lead as the hands down market leader in the region supported by sound economic performance and sector maturity.

Following an improved 2016, in the current year Bulgaria’s M&A activity is set to outperform on the basis of robust GDP growth and political stability, whereas Croatia’s political volatility affected deal flow. The slow recovery of the Serbian economy still depresses transaction flow, whilst privatization may improve the M&A landscape. Slovenia continued its multi-year M&A activity climb on the back of improving economic outlook attracting deals in manufacturing and financial sectors. From sector perspective, in 2016 and 2017 SEE sees a surge in interest in FMCG, technology and media, and infrastructure.


The stable level of M&A activity in Bulgaria significantly accelerated in 2016 and 2017. Among numerous favourable macroeconomic factors, the rise in M&A deals value has been supported by increasing GDP growth and shrinking unemployment.

Major M&A deals in Bulgaria last year included telco BTC’s corporate restructuring driven sale to Viva Telecom for a consideration of 330 million euro, the acquisition of the largest glass container producer Drujba Staklarski Zavodi by the Portuguese group BA Vidro from Yioula as part of a regional package deal, the sale of the Japaneseowned hospital operator Tokuda Group and Citi Clinic Group by the hospital operator Acibadem, HHI Holding’s gaining control of Overgas through a capital increase, the 50% stake sale in the largest consumer electronics retailer Technomarket, the acquisition of MAN trucks distributor MVB Trucks & Bus by M-trucks. The financial institutions sector, commercial real estate and renewable energy sector shaped the small- to mid-cap transactions segment.

The number and value of deals already announced in 2017 demonstrate a significant acceleration in the country’ s M&A activity. The ten top deals had a total value of disclosed transactions north of 1,450 million euro in the first half of 2017, which is already more than the value of the entire previous year. So far, the largest deals announced this year were the closing of the consolidation driven acquisition of UBB and Interlease by KBC Group for 610 million euro, and the acquisitions of Mall Serdika and The Mall by the South-African Fund NEPI. Another indication of strengthening foreign investors’ confidence in consumer purchasing power are the acquisitions of the largest bottled water producer Devin by Belgium’s Spadel for 120 million euro, as well as the purchase of the exclusive Pepsi beverages and Prisun juices producer and distributor by the leading CEE water and beverage player KMV. In addition, British American Tabaco (BAT) acquired the most popular cigarettes brands from Bulgartabak for a price of 105 million euro.

In the past twenty months, the financial services sector was on top in terms of number of closed deals. In the banking sector, KBC’s acquisition of UBB was followed by TBI Bank’s sale to the Latvian 4finance Holding at a price of 69 million euro. The leasing sector was particularly active with the sale of Pireaus Leasing, TBI Rent, BM Leasing, and the package purchase of MKB Autopark by the French-German ADL Automotive. In the insurance sector Generali sold their life-insurance portfolio to the local competitor Saglasie, whilst AIG sold their operations to Fairfax Financial Holdings.

All real estate segments attracted significant foreign and local interest. Targets included Serdica Mall, Sofia Mall, The Mall, Sofia Airport Center, Galeria – Varna, Somat Logistic Center. Moreover, the trend was complimented by numerous acquisitions of hotels in the Black Sea resorts.

The most notable public sector investment opportunities are select pending concessions with key highlight being the rescheduled tender process for Sofia Airport.

Recent developments on the Bulgarian M&A market seem to indicate two general trends: a return of international investors in select sectors, and an increasing significance of local players. Following a few years of foreign investors interest focused on scalable export-oriented or small-to-mid cap niche players, an encouraging recent trend is the gradual recovery of trust in local purchasing power thus inbound M&A targets are increasingly players with solid positions on the domestic consumer markets. The continued robust GDP growth in 2017 and the country’s political stability are expected to support the positive momentum of M&A activity in the medium term.


Croatia continues to experience elevated levels of deal making activity especially in the mid-sized segment with 2016 being a record-breaking year in terms of M&A volume, up by 24% from 2015. This stable performance is underpinned by a continuously improving economic situation. At the same time it should be noted that although the number of deals continued to increase, the deal value sunk by over 20% in 2016. The overwhelming political instability in 2016 has contributed to the limited investment in the private sector and has practically blocked the initiated privatisation attempts.

Key industries driving private sector M&A are traditionally tourism and hospitality, real estate, food and consumer goods, financial services as well as energy. The largest deals materialized in the commercial real estate sector with the acquisition of Arena Centar by the South-African fund NEPI for consideration of 237.5 million euro, as well as the takeover of City Center One Zagreb by Morgan Stanley RE at a value of 220 million euro.

There has been increasing activity in the energy sector as investors in renewable energy sources have faced damaging regulatory changes. This has resulted in a number of distressed asset sales and significantly halted the development of new wind farms.

Financial services is the sector that featured arguably the largest Croatian deal of 2016, when Societe Generale decided to sell Splitska Banka to OTP banka Hrvatska.

In addition, the government has recently restarted the restructuring process of fertilizer producer Petrokemija. Additional potential transactions include a planned repurchase of MOL’s stake in the oil and gas company INA by the Croatian government as well as the potential coinciding sale of a 25% stake in the national utility HEP. Other state-owned companies earmarked for privatisation are food producer Podravka, electrical equipment producer Koncar, marina operator ACI, Croatia Banka as well as the port of the northern Adriatic city of Rijeka.

Going forward, it could be expected that the M&A activity will rebound due to the positive development in GDP growth. Furthermore, Croatia’s accession to the EU is expected to have a positive impact by increasing investor confidence and providing access to long-term EU funding, which is likely to particularly benefit construction-related sectors. The ongoing consolidation and privatisation in the tourism and hospitality sector is another driver of M&A activity.


Romania is the leader in M&A activity within SEE, accounting for more than a third of the number of deals in the region. M&A activity is taking place in many sectors of the economy – financial services, real estate, transportation and consumer goods being among the main drivers. The interest of financial sponsors is growing from year to year, whereas private equity funds backed deals made up over half of the total deal value in 2016.

Deals in the energy sector represent the major part of recent M&A activity, including the acquisition of a 51% stake in KMG International, owner of Rompetrol, by CEFC China Energy Company for 596 million euro. Another high profile transaction in the power sector involved Allianz Capital Partners which acquired a 30% stake in the power and gas distribution system operator E.ON Distributie Romania from E.ON for a total consideration of 270 million euro.

A sector which accounted for a significant part of recent M&A activity is wholesale and retail. The acquisition of Profi Rom Food by Mid Europa Partners for 533 million euro was the largest Romanian deal in 2016. Other sizeable transactions included the acquisitions of dairy products producers Albalact and S.C Covalact S.A. by the French Groupe Lactalis.

The real estate sector saw two of the largest ten deals in Romania in 2016: the 100 million euro acquisition of Shopping City Sibiu by New Europe Property Investments (NEPI), and the 50 million euro acquisition of Metropolis Center by the Czech PPF Group NV.

Healthcare remains a particularly busy segment driven chiefly by private equity investments. Following Mid Europa’s acquisition of Regina Maria, a network of clinics and hospitals, the fund has purchased a number of addon investments, including Ponderas Hospital, Almedica Berlin Prahova and Ixia Medica.

Another promising sector is agriculture, where interest and room for further consolidation in the sector exists, which can set the stage for future M&A. We can already observe the above trends materialising as two sizable deals took place in 2016 and 2017. In August 2016 Iri Forest Assets acquired Prokon Hit Timber for a consideration of 40 million euro In May 2017, PHI Group, a US company, acquired a 51% stake in Maxagro.

Privatisation may well again 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 include to the sale of postal operator Posta Romania, the national freight railway transport company CFR Marfa with planned SE listing, the chemical producer Oltchim which will potentially be up for sale again after carrying out a restructuring plan, Bucharest Airports, Constanta Sea Port and the salt producer Salrom.

The excellent economic performance of Romania in the recent years seems to make it an attractive destination 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 privatisation which is an unsustainable and problemridden source of M&A renders a further advantage.


M&A activity in Serbia still lacks volumes and depths compared to neighboring countries, as 2016 and 2017 did not see any single large-scaled deals. Midcap transactions included SBB’s addon acquisition of competitive telecom operator IKOM, a consolidation driven purchase of the dairy producer Niska Mlekara by the largest sector player Imlek, AXA’s exit from their life- and non-life insurance business to Vienna Insurance Group and the takeover of the sugar producer te-To Senta by its Serbian rival Sunoko.

The single public asset transaction was the sale of the state-owned steel mill company Zelezara Smederevo after the government acceptance of the 46 million euro bid from China’s Hebei Iron & Steel Co.

In 2017 transactional activity highlights the intended majority stake acquisition in sugar producer Sunoko by the Austrianbased Agrana from MK Group. The dealflow is complemented by the increase to a majority ownership of Napred razvoj in the country’s largest construction company Energoprojekt Holding. In addition, GTC acquired Belgrade Business Center, whilst the Serbian food concern Swisslion acquired the winemaker Vršački Vinogradi. The data storage and imaging services company Data Outsourcing Centre d.o.o. was taken over by the leading US NYSElisted data management player Iron Mountain – despite the relatively small size the transaction highlights IT sector attractiveness in the inbound M&A radar.

The Serbian government is currently making another attempt to privatise the Belgrade airport.

Other state-owned enterprises for which privatisation procedures are in preparation include the insurer Dunav Osiguranje and Komercijalna banka.

In addition, after a process of restructuring and debt-for-equity swaps, several other large state-owned companies now have good prospects to be more attractive to investors and may soon be on the privatization agenda – e.g. the pharmaceutical producer Galenika, whose privatization attempt failed in the first quarter of 2017. Metals producer RTB Bor and agricultural company PKB are among the most tangable privatization options. Some smaller state owned companies expected to be placed for sale in a longer term include the bus producer Ikarbus,, the rubber manufacturer Tigar, the furniture producer Simpo and the bus company Lasta.

One of the reasons for the low level of M&As in Serbia so far was that the country has been slow to emerge from the long recession while growth continued to be depressed due to public spending cuts. The situation is gradually improving as the economic recovery marked by country’s real GDP growth turning positive in 2015 and approaching 3% in 2016 and 2017.

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.


The total transaction value in Slovenia in 2016 amounted to 1.076 million euro, up 6% from 2015. Industrial sector, banking restructuring, private equity in-bound investment and privatisation are the key M&A drivers in Slovenia. Due in part to the very limited ability of local banks to offer acquisition finance at present, private M&A activity is primarily driven by international and regional investors.

The largest share of transactions in 2016 was traditionally made up by the industrial/manufacturing segment. In the No 1 transaction on the market, Japanese paints player Kansai acquired Helios Group for a total consideration of 678 million euro. Other deals in the sector included the privatisation of the auto parts producer Cimos, which was sold to Italian TCH Cogerne group for a consideration of 110 million euro, as well as the acquisition of a 76% stake in ETI Elektroelement, a provider of electrical products and services, by Andlinger & Company, a US PE fund, for a consideration of 28 million euro.

A number of deals in the financial services sector has taken place in the past 20 months (2016 – 2017YTD) with private equity capital driving the bulk of transactions. Earlier in 2015, Apollo and EBRD acquired NKBM (Nova Kreditna Banka Maribor d.d) for a consideration of 250 million euro. Subsequent to this purchase, the buyers have are implementing a strategy to consolidate the market. In October 2016 NKBM, in turn, announced the purchase of KBS banka, from Austria’s Raiffeisen Bank International. The deal represented a second transaction between RBI and Apollo in the Slovenian market, with the latter having first acquired Raiffeisen Banka d.d., RBI’s Slovenian unit back in December 2015. In March 2017, Apollo Global announced the acquisition of Summit Leasing, a leasing company, from Sumitomo Corporation.

Slovenia is also rapidly becoming a darling of private equities with an unprecedented activity levels in recent years. Apart from the above mentioned transactions that had a PE backing, AGIC Capital, the China-based PE, acquired Fotona d.o.o., a company engaged in the development and manufacture of laser systems for medical applications. CEE Equity Partners have acquired an 84% stake in Javna Razsvetljava / Enlux, a company engaged in providing lightning systems. In September 2016, one of Slovenia’s largest food retailers, Mercator, continued its restructuring efforts by conducting the sale of its subsidiary Intersport, a sporting goods retailer, to Enterprise Investors, the Poland-based private equity firm.

However, Slovenia still has a relatively large state-owned sector. The government plans to privatise a further 80 enterprises. However, it plans to retain significant influence (25% + 1 of the shares) in 23 of these, including energy company Petrol, gas supplier Geoplin, household appliances maker Gorenje, holding company Sava, steel group SIJ, gaming company Hit, national lottery company Loterija Slovenije, petrochemical company Nafta Lendava and reinsurer Pozavarovalnica Sava.

In addition to privatisation, a number of companies controlled by one or more banks also are for sale as a result of debt restructuring implemented during the past few years.

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 a recent example was the freezing of sales process of the country’s leading logistics company Intereuropa.

The strengthening of the country’s financial infrastructure following the restructuring of the banking sector has already improved the investment climate and boosted the interest of international investors. The positive macroeconomic outlook will further boost private M&A activity which is already at high levels across many sectors.

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