After a vibrant 2016, M&A in the CEE/SEE region has slowed. This reduction in deal activity can be attributed, in part, to the impact of global political events in 2016, coupled with uncertainty over European elections in 2017 affecting sentiment in the first half of the year. Despite strong regional growth, this doubt appeared to hamper dealmaking. A total of 474 announced deals was a year-on-year fall of 55 deals. And value (€25.5bn) dropped by 35% compared with 2016.
Austria tops the table as the most-favourable market for M&A in the region. The country ranked top on all three criteria used to judge business attractiveness: openness to investment, ease of managing compliance and regulatory processes, and the quality of its infrastructure. One of the most-affluent countries in Europe, it boasts the highest GDP per capita in the region.
The Czech Republic, the region's third-biggest economy after Poland and Austria, and one of its most-developed, ranks second in favourability for M&A. Poland ranks third, following a decade in which judicious use of EU funds have helped overhaul its infrastructure. Investor concerns surrounding bureaucracy and an activist government tightening regulation on some sectors are not enough to offset the strength of its large, well-educated, and strategically positioned market.
Dealmaking within emerging markets Bulgaria and Romania is picking up pace, with the countries ranking fourth and fifth respectively. Buoyed by the strongest domestic growth in the EU, Romania's technology and tourism assets are attracting increasing attention. Meanwhile, Bulgaria benefits from its light regulation and low taxes.
The technology, media and telecommunications (TMT) sector has been one of the liveliest in terms of M&A activity for some time, with nearly two-thirds of respondents (62%) expecting it to be one of the most attractive sectors to conduct deals in 2018. CEE has a budding tech start-up scene, able to leverage high standards of technical education and funding from the EU.
More than half of those surveyed (53%) are considering acquiring or investing in a start-up in the region in the coming year. As well as burgeoning TMT start-ups, there is also increasing activity in biotech.
One of the challenges that start-ups have faced in the region is a paucity of both financing and exits for entrepreneurs but growing corporate and PE interest is starting to change this.
Almost three-quarters of our respondents believe that the fundraising environment will improve further over the next 12 months. In Poland, for example, a recent wave of funding rounds has left investors with ample dry powder and a hunger for targets. In Romania, stellar economic growth has made banks less wary of lending. Meanwhile, big corporates in Austria and Hungary are seeking more acquisitions abroad.
While cross-border deals within CEE will continue to be a major contributor to activity, the US is expected to be the largest single source of inbound acquisitions, cited by 29% of respondents, followed by European powerhouse Germany (22%). The UK comes in third in the expectation that its looming break from the EU will encourage British investors to diversify their portfolios into the growing markets of CEE. Some 13% of respondents expect China to lead the pack. Chinese companies have been increasingly active in the region in recent years, with Central Europe seen as a good-value springboard to the continent. Regional governments have competed with one another to attract investment from the world's second-biggest economy.