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Emerging Europe remains a magnet for international investors

Transaction trends
Feature 1: Transaction trends
Analysis of main M&A developments and trends in emerging Europe
Helen Rodwell
Helen Rodwell, Managing Partner, CEE Head of Corporate, CMS
Graham Conlon
Graham Conlon, Managing Partner, Head of Private Equity– CEE/CIS, CMS
Vladimir Zenin
Vladimir Zenin, Partner, Head of M&A, CMS Russia
Horea Popescu
Horea Popescu, Partner, Head of the Corporate, M&A and Competition, CEE, CMS Romania

Dealmakers in emerging Europe enjoyed another energetic year in 2019 as the region’s fast-growing economies outpaced their neighbours to the west. Despite a more sluggish international economy, emerging Europe remained a magnet for international investors and benefited from strong domestic demand.

Transaction volumes were down only 6.5% against the previous year and values fell partly because there were fewer megadeals. Just two came in above EUR 2bn against six in the previous year.

Helen Rodwell, corporate partner in CEE at CMS, said: “Although deal numbers were a little lower, there is a lot of anecdotal evidence that it was a very busy year and it all points to the M&A market being very buoyant in 2020.

Leading sectors

Despite a substantial drop in activity, real estate and construction remained the most active sector by transaction numbers, with 378 deals in total, and overtook mining (incl. oil  and gas) and telecoms and IT to be the highest by value. A strong driver was e-commerce, which led to an increasing demand for warehouses and distribution centres to serve markets in the West and feed growing demand for online shopping in emerging Europe. Poland boasted half of the top 20 deals in the sector, including the sale of Orbis to Accor Hotels of France. Telecoms and IT was the second largest by value and volumes, well ahead of manufacturing and reflecting the increased importance of digitalisation and digital communications. Landmark deals included the EUR 1.28bn purchase of Bulgarian Vivacom by BC Partners-backed United Group.

Seven out of the top 20 deals have been in the telecoms and IT sector, but the activity is not limited to the top end of the market. We see both multinationals and venture capital firms keenly following the region’s IT start-ups,” according to Horea Popescu, partner at CMS Romania.

The next busiest sectors were manufacturing, helped by deals in automotive and pharmaceuticals, and wholesale and retail, on the back of strong consumer demand. Graham Conlon, corporate partner in CEE at CMS, said: “Activity is very broadly spread and we’re also seeing things happen in banking and finance and energy, particularly around renewables.

Greenfield investment is also benefiting from the switch to electric vehicles, most notably from South Korea, as investors looked to step up production of cars, batteries and components in the Czech Republic, Hungary and Poland.

How countries fared

Led by Hungary, Poland and Romania, with GDP growing at more than 4%, emerging Europe left the West trailing in terms of economic growth. The Czech Republic, Slovakia and Slovenia enjoyed growth above 2%, comfortably ahead of the UK and France, while Germany flirted with recession. Projections for 2020 point to weakening growth, but with emerging European on course to lead the pack.

Graham Conlon said: “It’s difficult to paint emerging Europe with the same brush because each country is different, but overall economic performance has been much stronger than the West and most markets have done well. There is a lot of discussion about the downturn in Germany and when it might affect the region, but so far we haven’t seen any signs of it.

As a newcomer to the ranks of Europe’s developed countries, Poland boasts a large domestic market and strong consumer demand. In contrast to its buoyant economy, its stock market was one of the world’s worst performers in 2019 and at times its government clashed with the EU over the role of the state. However, investors largely ignored political concerns. Deal values rose by 68.3% to EUR 10.93bn, lifted by an increase in the number of EUR 200m-plus transactions, although deal volumes fell by 20.1% to 258.

At the other end of the spectrum, Ukraine is the country to watch in 2020 as the reforms under new president Volodymyr Zelenskiy start to kick in. Transaction activity, up 25.7%, and values, up 26.3%, were at their highest levels since 2013 and offered a glimpse of what might be to come.

The pace of economic growth in Hungary was not matched by M&A activity as transaction numbers fell 10.9% and values dropped 64.3% against the previous year, when there were two EUR 1bn-plus telecoms deals.

The Czech Republic saw deal values rise by 4.2% to EUR 5.67bn, lifted by the EUR 1.8bn takeover of gas distributor innogy Grid by a consortium led by Macquarie of Australia, although deal volumes dipped 16%.

In Slovakia volumes were close to an all-time high, up 9.3% to 59, and values more than doubled to EUR 1bn, boosted by the PPF Group’s purchase of Central European Media Enterprises and Vivendi’s purchase of M7 Group.

Major deals in Romania included a EUR 506m fund raising led by US hedge fund Coatue in robotics company UiPath, valuing the business at EUR 7bn. Deal numbers rose 10.0% and values were 50.1% lower than in 2018, when Vodafone bought Liberty Global’s operations in eastern Europe. “The increase in deals is telling for the current Romanian market. Many good assets are coming to market and that has not gone unnoticed with globally active investors,” says Horea Popescu.

Croatia saw volumes fall 17% and values up 9%, with one of the highlights being the sale of Tele2 to BC Partners-owned United Group of the Netherlands for EUR 220m. Serbia’s largest deal was the sale of Koncern Bambi to Coca-Cola, but after a EUR 1bn-plus mining privatisation in the previous year, values were down 84% and volumes by 25.4%. In Slovenia, deal numbers were slightly down at 40 and values down 31.5% at EUR 1.4bn. Financial services was a key driver for Slovenia, including the EUR 444m sale of Abanka to rival Nova KBM and the purchase by Hungary’s OTP Group of a 99.7% stake in SKB Banka from Société Générale. Among the smaller markets, deals and values were down in Bosnia and Herzegovina and Albania, while Montenegro enjoyed a rise in values despite a drop in volumes.

Bulgaria enjoyed several large deals, including the sale of Vivacom and the award of the concession to run Sofia Airport to French group Meridiam and Munich Airport. Along with a clutch of large media deals, including the sale of CME and Nova Broadcasting, they helped push values 10.9% higher overtaking 2018’s record value. The number of transactions showed a small year-on-year decline, in line with expectations.

During a challenging year, Turkey rebounded from recession at the end of 2019, putting it on track to accelerate in 2020. Deal numbers were broadly stable, however values more than halved to EUR 4.36bn against 2018, when the two largest deals alone totalled more than EUR 6bn.

Russia was one of the laggards in terms of economic growth, but its slowdown appeared to be drawing to a close as deal numbers held steady in line with the previous year at 602, while a brace of megadeals in the energy sector helped drive a substantial rise in value, up by 32.2% to EUR 35.82bn. According to Vladimir Zenin, a CMS partner in Russia, the data point to signs of recovery in deal-making activity in Russia.

Vladimir Zenin said: “Although the Russian business environment still remains largely influenced by the current geopolitical context and international pressure put on the country by the continuing sanctions, both local and international players have learnt to adapt to the ever-changing legal landscape and market conditions.” The modernisation of Russian contract law has helped increase confidence in the legal toolkit for corporate and finance transactions, he noted, adding: “Russia has always been and will remain one of the key players in the region in 2020. Located at the crossroads between Europe and Asia, the country offers a uniquely sizable platform for continued expansion into several markets in either direction.

Private equity

Now firmly planted in the financial landscape of emerging Europe, private equity continued to build on its strong roots in 2019, complementing other investors such as corporates and family offices as a source of capital. The number of transactions continued to rise and with 318 deals a new record high was set. Financial investors such as asset managers, pension and sovereign funds, supranational finance institutions and large investment banks, which complete the overall private equity category in the report, are now involved in 16.2% of all transactions. Deal values were broadly similar and included five EUR 1bn-plus deals. The largest was the EUR 1.9bn purchase of Central European Media Enterprises by PPF Group of the Czech Republic.

Activity in private equity was spread across the region, although the larger economies attracted the most attention. Private equity investment was one of the drivers behind the rise in deals in telecoms and IT, while manufacturing, wholesale and retail and energy witnessed increased activity. Real estate also remained attractive to PE players, making up 28.6% of the deals. Helen Rodwell said: “The regional eco-system is growing more sophisticated in its ability to do deals. In some countries, we talk to international funds who experience tough competition from local investors and financial groups for the best assets.

Tamás Nagy, director and co-head of private equity at the European Bank of Reconstruction and Development (EBRD), said the two standout themes for private equity in the region were the ‘bet’ on increasing consumer wealth and technology. The first manifested itself in investment in food retail, convenience products, healthcare and fitness, while the second saw continued investment in IT services, software and cable communications. There were also new opportunities triggered by disruptive technology in areas such as retail, fintech, virtual reality and digital markets for services such as logistics and travel.

Regional players used their home advantage to swoop on small and mid-sized deals as well as partnering on larger transactions. For international players such as Advent International, Apax, Goldman Sachs, CVC, Bridgepoint, KKR, BC Partners, Providence, TPG and Warburg Pincus and Blackstone, emerging Europe has become an important piece of the international investment jigsaw.

Tamás Nagy was confident that the volume of private equity investment would not be affected by a broader but mild economic slowdown. He said: “Globally speaking, private equity is sitting on ‘dry powder’ that is breaking all records. With the ultralow interest rates likely to stay for the foreseeable future, the asset class is likely to experience even more capital inflow in the near future. As global and pan-European fund managers are under pressure to deploy the funds raised, they are looking ever more broadly including at opportunities in central and eastern Europe.

Foreign and regional

One of the factors blamed for falling deals in western Europe was retrenchment by US investors, but this was not the experience in emerging Europe where Americans were enthusiastic participants. The US was a clear leader in the league table of overseas investors by transaction numbers, with 122 deals, nearly half as many more than in the previous year.

By value, US investments were in line with the previous year, although at EUR 5.84bn, it lagged behind China which more than doubled its investment to EUR 6.38bn. China was also involved in more deals than the previous year as its presence in the region steadily grows.

The UK’s decision to withdraw from the EU appeared to have little impact on its companies’ investment plans. Deal numbers showed a healthy increase (+9%). Helen Rodwell said: “Many decisions around Brexit were made some time ago, so we don’t anticipate any real impact. If anything, it will be positive for the region and we’ve already seen banks moving some of their back-office operations across.

Germany, Austria, France and Spain each did more deals, highlighting the continued importance of western Europe as a source of capital. Asia’s growing importance was marked by a big rise in investment from Japan and Singapore, and a string of projects emanating from South Korea. In several countries, South Korean investors were involved in multiple top ten deals.

The number of cross-border deals was 14.6% higher at 1,163 while the value of those deals dipped by 4.4% to just over EUR 51bn. Meanwhile, domestic deal volumes were 26.3% lower at 795 and their total value down 21.3% at EUR 21.3bn. Russia, Poland, Turkey and the Czech Republic were the busiest regional investors, however Russia was the only one to notably increase investment. As companies grow in size and confidence, their ability to do international deals increases and growing numbers have set their sights beyond their domestic boundaries.

Among the region’s companies that have established themselves as global players is Hungarian oil and gas company MOL Group, active in more than 30 countries and with an international workforce of 26,000 people. During 2019, among many other transactions, it bought Aurora, a German plastic compounding company and a leader in recycled compounds, and took stakes in Azerbaijan’s supergiant ACG oil field and the BTC pipeline.

Key drivers for international expansion, explained András Bányai, head of M&A at MOL Group, included access to new markets and to know-how and technology not currently available in emerging Europe. He said: “Our competitors from central and eastern Europe and our wider region are often active participants on the broader international M&A landscape, while for cultural reasons they can also be allies in various M&A opportunities. However, overall in western Europe we predominantly compete against truly global players or against international companies that can come from any corner of the world.” 

Deal drivers

One of the brakes on M&A activity is a lack of available attractive assets that in turn pushes up valuations. There are some signs that this may be changing as sellers mull over the prospect of a slowdown and consider the merits of agreeing a disposal now rather than risk prices coming down in the future. Graham Conlon said: “Succession deals are in vogue where owners of businesses set up in the 1990s are looking to retire and sell out. Anticipation of this kind of deal has been growing for many years and it now looks to be providing more M&A opportunities.

Another driver is corporate restructuring, either to keep ahead of rapidly changing markets or in anticipation of a more challenging period ahead. The corporate carve-out of a non-core businesses to focus on the remaining core creates opportunities for bolt-on acquisitions or the creation of a standalone company.

Attractions and obstacles

The pace of growth in emerging Europe and the rising purchasing power of its population has grabbed the attention of investors across the globe. It is no longer a target solely because of its proximity to western markets. Graham Conlon said: “The region’s attractions are increasing. It has a highly educated and skilled workforce, can provide goods and services to the West at lower cost, and offers greater growth opportunities.

It is a well-established source of talented computer programmers and IT entrepreneurs. Not only do they provide a pool of labour for the technology sector, they also produce a steady flow of start-ups, some of which have joined the ranks of global technology unicorns.

This success has driven down unemployment to historic lows, creating problems of its own through higher wages and a shortage of labour in some areas. Helen Rodwell said: “Investors have to be mindful that they cannot just build a factory even if the location is right because they need people to work in it. This is a very serious issue and has set alarm bells ringing.


If Germany’s economic challenges have cast a shadow, it has yet to block out the bright spots in emerging Europe. Similarly, international uncertainty over the cat-and-mouse trade game between the US and China has had little direct impact. The region’s regulators, banks, private equity firms and companies are better prepared for turbulence than last time round. Dealmakers remain busy as corporate investors and private equity companies seek growth opportunities for their cash piles.

Helen Rodwell said: “We believe there may be some slowdown in economic growth, but even if that is the case, we don’t see any dramatic fall in M&A activity because these markets are independent and self-contained. If anything, a slower start to 2020 might even stimulate M&A activity as vendors’ minds focus on getting deals done sooner rather than later, and investors who have been waiting on the side lines step into the fray.

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