INTRODUCTION
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The dealmaking mood in Central and Eastern Europe is confident as we enter 2019. Despite a drop in values and volumes over the past year, the experience of investors has been overwhelmingly positive, with 99% of respondents saying that their past experiences of doing business in the region would encourage them to invest again. "It would simply be a mistake to sell the positive prospects of the CEE short," says Zoltan Faludi, partner at Wolf Theiss Hungary, "and neither we nor our clients are doing so."

There are a number of factors underpinning this confidence, including the robust economic growth seen in many of the CEE countries. Most have largely recovered from the long hangover of the global economic crisis, even if their performance is not as stellar as it was in the mid-2000s. Investors also remark on the region’s competitiveness, based on relatively low costs, a skilled labour force, and geographical location. Relative political stability and access to EU markets are also important factors, with most countries surveyed either EU members or aspirants.

Hungary is proving to be a popular destination – 91% of investors in the country say that they would invest in the country again, the highest level in the region. The country has become a centre for the automotive industry, thanks to its location and affordable, highly skilled workforce, and has also positioned itself as a regional energy centre. Despite the government’s clashes with EU institutions, investors also favour Hungary’s political stability.

Austria and the Czech Republic also rank highly, with 78% and 70% of respondents, respectively, saying that they would invest in these countries again. Austria has the second-highest GDP and the highest GDP per capita (at PPP) of the countries covered, while the Czech Republic ranks third and second respectively on these measures, which partly explains their enduring appeal.

After some years of steady if unspectacular growth region-wide, 70% of respondents say that the fundraising environment for deals in 2018 remained on a par with 2017. Bank financing has traditionally predominated in CEE, with relatively shallow and illiquid capital markets, but the PE and VC segments have become increasingly lively.

The tech, media and telecoms (TMT) sector is seen as the most attractive for dealmaking in 2019, cited by more than two-thirds of respondents. The CEE/SEE has long supported a dynamic ecosystem for technology companies from start-ups to multinational outsourcing arms, with excellent levels of technical education and a multi-lingual workforce giving the region considerable competitive advantages. Global M&A in the sector has also had a knockon effect on CEE, while media buyouts by growing regional players are another factor driving activity. However, privatisation of telecommunication companies in the Western Balkans continues to be held up.

Our respondents see hotspot sectors consumer and leisure (cited by 52%) and pharmaceuticals, medical and biotech (34%) as particularly promising.

While investors are overwhelmingly positive about their experience doing business in CEE, some feel that the current wave of M&A may be peaking, and activity could slow beyond 2020. There are looming risks from uncertainty surrounding the eurozone and the impact of Brexit, cited by 84% of respondents as one of the biggest challenges in implementing their CEE strategy. "While there will certainly be some factors beyond the control of anyone," says Luka Tadic-Colic, partner at Wolf Theiss Croatia, "the last recession toughened our investor base and we feel that they are able to cope with whatever the upcoming challenges may be."
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