SECTOR SPOTLIGHT
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POLES APART
Major deals included the acquisition of the core banking business of Raiffeisen Bank’s Polish subsidiary by Bank Gospodarki Żywnościowej, owned by France’s BNP Paribas, for €775m. The deal is the latest in the Polish banking sector. Dealmaking has been driven by consolidation plays like the Raiffeisen buyout, as well as the government’s efforts to increase Polish banks’ market share, including through acquisitions by state-owned investment bodies. Financial sector investors have also been attracted to the country in order to establish operational and back-office centres – JP Morgan plans to recruit 5,000 people at its new Warsaw base. Poland’s fintech segment is also lively, capitalising on the high level of tech adoption by Polish banks and a substantial local skills pool. Indeed, Poland has become a hotspot for financial and business services investors. Some 45% of respondents active in the sector had completed a transaction in the country in the past five years, and for a quarter of those their most recent deal was in Poland. The Czech Republic ranked second, with 35% of respondents having been active in the country in the past five years and 25% having completed their most recent deal there. The insurance segment has been particularly lively, with big deals including the €155m takeover of insurer Aegon Pojistovna by Netherlands-based NN Group. Almost a third (30%) of respondents in the sector say that the Czech Republic was top of their list for new acquisitions.
SLOVENIA RISES
The €245m acquisition of Slovenia’s third-largest insurer Adriatica Slovenia by Generali CEE Holding, part of Italy’s Generali Group, ranked in the top 20 deals overall. Slovenia has seen a wave of activity in the financial sector in recent years, as the government has sold off stakes in a range of banks following the country’s 2013 banking crisis, while insurance and fund management companies have undergone consolidation. Despite occasional political hurdles, the bank sell-off process has continued to move forward.

“The successful IPO of NLB, the country’s second-largest bank, shows sufficient interest of investors and allows the bank to focus on its core business again,” says Markus Bruckmueller, partner at Wolf Theiss Slovenia. “And that was also a good sign for the upcoming privatisation of the next bank in line, Abanka.”

Elsewhere in South-Eastern Europe, one of the major drivers of M&A activity in the banking sector is the withdrawal of Greek banks from their foreign subsidiaries in the wake of the country’s financial crisis. In June 2018, the Albanian central bank cleared the acquisition of the National Bank of Greece’s subsidiary in Albania by Belgium’s KBC. NBG has also relaunched the sale of its Romanian business, after an acquisition by Hungary’s OTP fell through, while Emporiki bank and Pireaus Bank have also been selling their SEE subsidiaries.
AUSTRIAN OPPORTUNITIES
Half of all business and financial services-focused respondents are eyeing acquisitions in Austria in 2019, and a quarter consider the country the leading jurisdiction for their next deal. Nearly a third see the country as the best gateway to the region, though 45% chose the Czech Republic.

Austria is home to a range of region-wide financial and business services companies, including banks such as Erste Group and Raiffeissen and insurers Vienna Insurance Group and Uniqua.

“Austrian financial institutions have built up a large regional network and the value of the network materialises in Austria at the headquarters level,” says Horst Ebhardt.

The country’s wealth is likely to be one factor: 64% of respondents say that GDP per capita and economic growth would influence their choice of location for their next acquisition. Some 64% cited a stable regulatory and legal framework, which was the leading single factor influencing decision-making, cited by 30%. But favourable taxation remained the single biggest factor, cited by 79% of respondents.
What are the factors that will most impact your choice of country for your next deal in this sector?
EYES ON THE FUTURE
The most important drivers for future acquisitions in the business and financial services sector will be the target’s customer base, cited by 86% of respondents, followed by the target’s IP/technology (58%). Technology in the financial services arena is essential in reaching new customers and building revenue from existing ones, as well as managing risk.

Non-domestic players have faced political challenges in some CEE countries in recent years as governments have looked to raise the proportion of assets in local hands, but this process has slowed. Rising costs of technology and regulatory pressure are likely to see continued consolidation in coming years, with the bigger players able to use economies of scale and rising interest rates to their advantage, while smaller banks struggle.
Which country do you consider to be the best gateway for expansion in the CEE/SEE region?
What are/will be the main drivers for your next M&A deal in this sector in the CEE/SEE region?
Please specify in which of the following countries you have completed an M&A deal in the last five years and in which country you completed your most recent deal
In which country/ies are you currently looking for new opportunities?
We explore the dealmaking environment in seven key sectors in the CEE
BUSINESS AND FINANCIAL SERVICES
Business and financial services accounted for 17% of total deal value in CEE in 2018, with transactions totalling €3.6bn. The sector saw 86 deals, 19% of total volume, second only to the industrials and chemicals sector. This compared to 86 deals worth €6.56bn in 2017, a bumper year for the industry.
BUSINESS AND FINANCIAL SERVICES M&A, 2012-2018
CHINA LOOKS EAST
Activity has been supported by rising incomes in most countries (double digit growth in Hungary, for example); a favourable interest rate environment; and relatively low inflation. The region’s tourism sector is lively: countries such as Croatia and Austria are now well-established destinations, while the industry is seen as particularly promising for economies including Bosnia and Romania.

However, in 2018 inflation started to climb in some countries, while rates were raised in countries including the Czech Republic and Romania.
The only top-10 deal in the sector was the acquisition of a 95.42% stake in Slovenian white goods manufacturer Gorenje by China’s Hisense Electric Co. for €262m. Gorenje, listed in Slovenia and Poland, has become a Slovenian success story, exporting across Europe and beyond, but shareholders were starting to become concerned with lower profitability. Hisense was one of several Chinese potential suitors for the company. Chinese companies have increasingly seen CEE as an ideal entry point to the European market, given moderate costs and lower barriers to entry. "The Gorenje/Hisense transaction should be a clear signal that further strategic moves will be made by the Chinese in our markets in the years to come," notes Laura Struc, partner at Wolf Theiss Slovenia.

Also moving the dial was Croatia’s Adris Grupa, with its €228m acquisition of hotel group HUP Zagreb, which owns hotels in the Croatian capital and Dubrovnik, a tourist honeypot on the Adriatic coast. Croatia expects a record year for tourism in 2018, following 17.4m arrivals in 2017, and the country has had some success in boosting winter tourism in what has traditionally been a heavily seasonal market.
Please specify in which of the following countries you have completed an M&A deal in the last five years and in which country you completed your most recent deal
In which country/ies are you currently looking for new opportunities?
REGIONAL PLAYERS
Half of all consumer and leisure investors have completed a deal in Poland in the past five years, and 45% made their most recent transaction in the country, the largest market in the region. A population of 38 million and robust growth mean that 48% of respondents are looking for new opportunities in the sector in Poland, with 26% seeing it as the most important market for their next deal.

This is despite concerns about the government’s regulation of the retail sector, including a partial ban on Sunday trading and potential increases in taxes on shopping centres and restrictions on alcohol sales. The suspension of a planned retail tax following an EU ruling has eased pressure, though the move may be temporary. Competition in the Polish retail sector is already fierce. Nonetheless, scope for the growth of modern retail is considerable. Poland has one of the highest densities of shops per head in the EU, indicating a relatively low level of consolidation.

The Czech Republic and Austria are also firmly on the radar of nearly half of all sector investors: 23% say that they consider the former the most important market for the next deal, with 26% citing the latter. The relative affluence of the markets is an advantage for consumer companies, while both countries are popular tourist destinations. Some 40% of respondents say that the Czech Republic would be the best gateway for regional expansion in the sector, with 35% seeing Austria as preferable.
GROWTH IS KEY
The level of economic growth and GDP per capita were cited as the most important factor behind respondents’ choice of country for their next deal, with 78% overall saying that it would have an impact on their decision – 40% say it was the most important factor. And while 83% say that investment-favourable regulation would be a factor, only 4% selected it as the most important aspect. This tallies with ongoing investment in jurisdictions that have tightened regulation of retailing. However, nearly two-thirds of respondents say that they would take a stable legal and regulatory framework into consideration, with 22% saying that it would be the most important factor.

Region-wide, opportunities for the consumer and leisure sector come from sustained income growth and increasing demand among consumers for a modern retail experience. Beyond Poland, countries including Serbia have considerable potential for mall and hypermarket development. Investors in the Adriatic region are also watching Sberbank’s expected sale of its stake in Croatian retail and agriculture company Agrokor. The company was saved from bankruptcy by the Croatian government in 2017, and owns supermarkets across the region, including in Serbia, Bosnia, and Slovenia, where it took over retailer Mercator in 2014.
What are the factors that will most impact your choice of country for your next deal in this sector?
Which country do you consider to be the best gateway for expansion in the CEE/SEE region?
What are/will be the main drivers for your next M&A deal in this sector in the CEE/SEE region?
CONSUMER AND LEISURE
The consumer and leisure sector accounted for 8% of deals by value in 2018, with transactions totalling €1.7bn. The 80 deals represented 18% of the total, making this the third most active sector for the year. Activity has dropped considerably compared with recent years: in 2017, there were 107 deals worth a total of €3.051bn, and in 2016, 123 deals worth €10.404bn.
CONSUMER AND LEISURE M&A, 2012-2018
The year’s biggest deal in the sector was the acquisition of a 50.2% stake in utility company Polenergia by Dominika Kulczyk, one of Poland’s richest individuals. Polenergia is an electricity producer, generating power from conventional and renewable resources, with eight operating onshore wind parks in Poland and 185MW of projects under development. The company is also involved in electricity distribution and trading, energy storage and photovoltaics. Kulczyk then launched a bid for the remaining stake in Polenergia, valuing it at €209m, and has ambitions to make the company a major player in energy in Poland and abroad.

In total, Poland saw deals worth nearly €2bn in the energy, mining and utilities sector in 2018. Another top-20 transaction saw the Polish Development Fund (PFR) group, through its PFR Ventures, invest €209m in a 910-megawatt unit at the Jaworzno thermal power plant operated by Tauron Polska Energia, in which the state has a substantial stake. The deal is a concrete example of the Polish government’s continuing commitment to coal and coal power, despite opposition from the EU and domestic critics. Yet, as the Polenergia transaction shows, legislation is also favourable to renewable energy development. After a two-year period in which the government cooled on renewables, there is new momentum behind the segment, with parliament easing restrictions on investment. Half of our respondents now see Poland as the best gateway to the CEE energy sector.

Overall, 15% of energy, mining and utilities respondents completed their most recent transaction in Poland, with more than a third having invested in the country over the past five years. A quarter of respondents have invested in Romania over the past half-decade, the same proportion as in the Czech Republic, where 15% reported they had completed their most recent deal.
In the Czech Republic, energy was once a major driver of M&A, but activity has slowed as investors have turned their attention to other sectors, according to Jitka Logesova, partner at Wolf Theiss Czech Republic. Only 6% of respondents see it as the most important country for their next energy, mining and utilities investment, and 13% overall are considering it.

By contrast, Poland is set to remain popular, with 38% of respondents looking for a deal there, and 19% considering it the most important jurisdiction for the coming period. Romania, Serbia, and Austria also rank fairly highly: in each case, 13% of respondents see the countries as the most important location for future energy, mining and utilities deals.
POLAND’S ENERGY BOOST
ROMANIA’S POTENTIAL
What are the factors that will most impact your choice of country for your next deal in this sector?
Please specify in which of the following countries you have completed an M&A deal in the last five years and in which country you completed your most recent deal
In which country/ies are you currently looking for new opportunities?
Romania’s size, growth rates and diversified energy sector are all draws for investors. The country operates one of the few nuclear power plants in South-Eastern Europe at Cernavoda but also generates more than 40% of its electricity from renewable sources, including hydro and wind.

Romania produces enough natural gas to cover most of its domestic demand and crude oil to meet 40% of its needs. This could be further boosted by the development of offshore fields operated by ExxonMobil and OMV, though there are concerns about a new “offshore law” that raises fiscal burdens on producers, potentially deterring future exploration.

To the south, after a turbulent period in which renewables legislation was retroactively changed and government energy companies came under severe pressure, the government has restored stability. Opportunities come from electricity liberalisation, secondary transactions for renewables assets and the development of a regional gas hub. Exploration of offshore hydrocarbons is ongoing, and in August 2018, Australia’s Woodside agreed to buy a stake in an offshore exploration block from Shell.
Which country do you consider to be the best gateway for expansion in the CEE/SEE region?
BACKING THE BALKANS
There is also scope for growth in the Western Balkans. Serbia is understood to have substantial mineral resources. Rio Tinto has a promising lithium-borate project in the country, while, in 2018, the government picked China’s ZiJin Mining Group as a strategic partner for the troubled but resource-rich mining company RTB Bor.

Wind power development is in its fairly early stages in Serbia, but the European Investment Bank has agreed to fund its first large-scale wind farms. In Bosnia, construction permit issues have held back development of a promising energy sector, but hydroelectric power has attracted investment.

In the coming years, respondents will be on the lookout for distressed assets for sale, with 44% saying that this will be the most important factor behind the choice of country for their next deal, and 69% saying that it will have an impact on their decision. The availability of infrastructure was also cited as a factor by 69% of respondents. Potential buyers are seeking targets with attractive physical assets (cited by 94%) and attractive valuations (50%).
What are/will be the main drivers for your next M&A deal in this sector in the CEE/SEE region?
ENERGY, MINING AND UTILITIES
The energy, mining, and utilities sector generated total deal value of €1.26bn in 2018, accounting for 6% of the regional total, with 29 deals representing 7% of overall volume. This represented a drop from 24 deals worth €1.806m in 2017.
ENERGY, MINING AND UTILITIES M&A, 2012-2018
AUSTRIA HEADS INDUSTRIALS
Austria tops the table, with several major transactions completed or agreed in 2018. Half of all sector respondents have completed a transaction in the country over the past five years, and 45% made their last deal in Austria. More than three-fifths of respondents are looking for new opportunities in Austria, with 31% saying that it is the most important jurisdiction. As a result, 60% see it as the best gateway for expansion in CEE, ahead of Poland and the Czech Republic (both 15%).

In June 2018, US PE fund Advent International agreed to acquire Austria’s Jenbacher, a manufacturer of gas engines, as part of a €3.25bn deal to purchase GE’s industrial gas engine business.

The single biggest completed deal was the €1.1bn acquisition of ZKW Group, an Austrian manufacturer of lights and electronics for the automotive industry, by Korea’s LG Electronics (taking 70%) and its parent company LG Corp (with 30%). The deal is LG’s largest acquisition to date, and indicative of the strength of Austria’s technically advanced manufacturing companies.
“ZKW had been on the radar of Chinese and Far Eastern bidders for the last two or three years,” says Horst Ebhardt, partner at Wolf Theiss Austria and head of the firm’s corporate/M&A team. “It is an example of a medium-sized Austrian company that is highly specialised in the automotive sector and benefits from attractive manufacturing locations in Poland and Slovakia.”

The sale is also indicative of how succession is moving in some of Austria’s family–owned businesses, with the company’s elderly owner selling to a major global corporate.

Another top-10 deal in the industrials sector saw Mayr Melnhof Karton, an Austrian paper and packaging producer, acquire Tannpapier, the world’s leading producer of tipping paper for the cigarette industry, for €350m. Tannpapier, also an Austrian company, was owned by Eurasia Invest Holding and generates sales of around €230m a year.

In November 2018, the Japanese press reported that Osaka-based Daikin Industries would acquire Austrian refrigerator and deep freezer maker AHT Cooling Systems for around $885m, from a UK investment fund. Another example of an Austrian company with a world-leading position in a niche market, AHT produces display refrigerators for supermarkets, particularly in Europe.
MOBILITY MOVES
What are the factors that will most impact your choice of country for your next deal in this sector?
The automotive industry has flourished in CEE over the past two decades. In some cases, this has been through acquisition by international companies of existing factories, and in others by greenfield investments. Renault’s Romanian subsidiary Dacia is one of the country’s great success stories, and has developed a local supply cluster of component manufacturers, while FDI by German automakers has been a key driver of Hungary’s economic growth. Bulgaria has nearly 150 component suppliers, one of the country’s fastest-growing industries, building everything from engine parts to automotive software.

These companies are now faced with the challenge of adapting to changing technology, particularly electric and autonomous vehicles: Korea’s LG Chem is developing Europe’s largest electric car battery factory in Poland.

“The automotive sector is still very, very vibrant,” says Joanna Wajdzik, associate at Wolf Theiss Poland. “A lot of Polish automotive suppliers are getting into electric batteries and electric car components.”

Economic growth and GDP per capita are the most important factor for respondents in the industrials and chemicals sector – cited by 35% as the single most important issue, and 81% as a factor that they take into account. However, an economic slowdown in the region may have a cooling effect on investment in manufacturing, particularly if it is linked to lower growth in the eurozone. The level of infrastructure is also an important factor (cited by 65% overall). EU-funded upgrades to roads and railways have proved a boon for many countries in the region, but countries like Romania and Bosnia still lag behind.

Respondents say that the main driver behind how they choose their next target will be regional distribution channels (58%), followed by its market share (42%).
POLE POSITION
Nearly half of all respondents investing in the sector are considering new opportunities in Poland, though only 7% consider it the most important country for them in the future. The country’s relatively low costs, integration into European supply chains (particularly supplying Germany), and large workforce and domestic market are all competitive advantages. Some 38% of respondents are looking into acquisitions in the Czech Republic, which has long been one of the leading industrial centres of the region.

The eighth-biggest deal overall was the €300m acquisition of Polish vehicle manufacturer Solaris Bus & Coach by Construcciones y Auxiliar de Ferrocarriles, a Spanish manufacturer of railway vehicles and equipment.
Please specify in which of the following countries you have completed an M&A deal in the last five years and in which country you completed your most recent deal
In which country/ies are you currently looking for new opportunities?
Which country do you consider to be the best gateway for expansion in the CEE/SEE region?
What are/will be the main drivers for your next M&A deal in this sector in the CEE/SEE region?
INDUSTRIALS AND CHEMICALS
Long one of the strongest sectors in CEE, the industrials and chemicals sector saw the strongest activity by volume in 2018. There were 94 deals worth a total of €6.119bn, accounting for 29% of value and 21% of volume. This represented a raise from 125 deals totalling €3.147bn in 2017.
INDUSTRIALS AND CHEMICALS M&A, 2012-2018
BIG DEALS
Value was substantially boosted by the year’s second-biggest acquisition, the €1.9bn takeover of Zentiva, the Czech-based European generics arm of Sanofi, by US PE fund Advent International Corporation. Advent has considerable experience in both the pharma sector and in carve-outs, and aims to build Zentiva into “a new, independent, European generics leader,” including through investments in manufacturing capacity.

Another top-20 deal saw Austria’s Boehringer Ingelheim acquire ViraTherapeutics, a biopharmaceutical company specialising in the development of oncolytic viral therapies, for €210m.
REGIONAL PMB HUBS
Poland's PMB sector has been a major target of dealmaking activity over the past five years, with half of respondents investing in the sector having completed a deal in the country and a quarter having made their last transaction there. Some 30% of respondents had invested in Austria in the past half-decade, and 25% in both Romania and the Czech Republic.

Going forward, half of respondents are seeking opportunities in Poland, 44% in the Czech Republic and 38% in both Romania and Austria. Austria and Poland are seen as the most important markets for the coming years, both cited by nearly a third of respondents. More than half see Austria as the best gateway to regional expansion in PMB, while a quarter choose Poland.

While regional markets are significant, some investors in the region’s PMB are looking for global market share, leveraging the low cost, highly skilled environment that CEE offers.

“Growing globally is our primary expansion strategy,” say the finance director of an Indian pharmaceutical company which invested in Poland. “We are particularly interested in nano-biotechnology and blood serum, which are very promising technologies. The target is able to design simple and affordable protocols through which we could get to a wider population and benefit from cell therapy without the added cost and complexity. These sensitive technologies will highlight us and we will then be globally recognised for bringing new innovative technologies to the sector.”

Romania’s relatively large and aging population is also driving growing demand for pharmaceutical products. The pharmaceutical market grew by 17% in the first quarter of 2018, year-on-year, and is worth nearly €3.2bn annually.
Please specify in which of the following countries you have completed an M&A deal in the last five years and in which country you completed your most recent deal
In which country/ies are you currently looking for new opportunities?
DEAL DRIVERS
Looking at their next acquisition, investors in this knowledge-intensive industry see the skill and cost of the local labour force as the single most important factor – cited by 44% of respondents – followed by the level of infrastructure (25%) and economic growth and GDP per capita (19%).

Intellectual property and technology will be the most important factors in choosing a specific target, cited by nearly two-thirds of respondents, followed by the target’s market share and position (56%). Brand is regarded as relatively unimportant, suggesting that innovative new companies will not necessarily suffer from a lack of visibility.

“Technology could transform our portfolio and add significant value to it,” say the partner of a German PE firm investing in the regional PMB sector. “Our portfolio needs a major shift in its skill and technology set in order to survive in both the short and long run. The technology will give new avenues for growth and help to deal with accelerating changes.”
What are the factors that will most impact your choice of country for your next deal in this sector?
Which country do you consider to be the best gateway for expansion in the CEE/SEE region?
What are/will be the main drivers for your next M&A deal in this sector in the CEE/SEE region?
PHARMA, MEDICAL AND BIOTECH
Successful local pharmaceutical companies building on decades of experience, growing demand from aging and increasingly affluent populations, and access to the highly-regulated EU market create a strong operating environment for CEE’s pharma, medical, and biotech (PMB) industry.

The sector ranked fourth in total deal value, with €2.209bn in transactions representing 17% of the total. The 24 deals accounted for 6% of volume. While volume was on a par with the previous year, PMB was one of the few sectors to see an increase in value in 2018, up from €1.077bn in 2017.
PHARMA, MEDICAL AND BIOTECH M&A, 2012-2018
REAL ESTATE AND CONSTRUCTION
With growing demand from individuals, companies, and institutional investors, the real estate sector has performed strongly in many CEE countries in 2018, and the outlook for 2019 seems similarly bright.
It is therefore perhaps surprising that the sector saw a considerable drop in transaction activity in 2018, with 28 transactions worth a total of €2.20bn, compared to 44 and €6.17bn in 2017. While there were real estate crunches in a number of countries following the 2008 economic crisis, the risk of a repeat is fairly low.
TECH, MEDIA, AND TELECOMS M&A, 2012-2018
DEAL DRIVERS
Overall, real estate and construction accounted for 6% of deal value and 6% of deal volume in 2018. Sector drivers include urbanisation, the growth in modern retail space, and the demand for purpose-built office space for companies relocating to and expanding in the region. Furthermore, in a low interest-rate environment, where regional stock exchanges are illiquid and volatile, property is a favoured investment vehicle.

“It’s like an alternative way to invest for people who wish to minimise risk,” says Katarina Bielikova, counsel at Wolf Theiss Slovakia. “Yields have become too small when you buy bonds, but decent property will have yield of four to five percent in Slovakia. And this will be the case as long as interest rates stay as low as they currently are.”

The biggest deal in the sector was the €758m acquisition of a 26% stake in Austria’s CA Immobilien Anlagen (aka CA Immo) by US-based private investment outfit Starwood Capital Group, from Austrian real estate investor Immofinanz. Starwood became the anchor investor in CA Immo, which develops real estate in Central Europe, and is listed on the Vienna Stock Exchange.

The transaction gives Starwood a share in a growing regional real estate portfolio, in a move that reflects Austria’s role as a centre for CEE real estate investment, and the strength of the region’s property market.

“These are large listed companies and they invest all over the region in large-scale real estate,” says Horst Ebhardt. “So if somebody comes in and buys a share in the Austrian holding company on the stock exchange, like Starwood did, it reflects not only a strong Austria-based company but also growing regional economy.”
REGIONS FOR REAL ESTATE
Indeed, two-thirds of our respondents say that Austria is the best gateway to expansion in CEE real estate and construction. Half have completed a deal there in the past five years, with 45% active in the Czech Republic, 35% in Poland, and 25% in Romania, which has had one of the most dynamic real estate markets in the region in recent years, following a deep recession in 2009. "We are planning on real estate continuing to be a major economic activity throughout CEE in 2019," says Grzegorz Skowronski, counsel at Wolf Theiss Poland.

Over half of respondents are looking for opportunities in Austria, with a third seeing it as the most important country in the region for a potential acquisition. The Czech Republic also features strongly, with 47% of respondents seeking targets and 27% prioritising the country as a location. A third of sector investors are looking at Poland and more than a quarter Bulgaria.

Bulgaria’s 2000s real estate boom was followed by a post-2008 crash, after which there were several years of stagnation, with few signs of green shoots. However, with the economy growing at a steady clip and investors looking to build their presence in the country, the market has at last picked up, driven in particular by retail real estate, which has attracted investment from as far afield as South Africa.

“Office demand is mainly driven by BPO and IT sectors who are expanding, with new players coming to Bulgaria, but also other businesses which are able to afford much better premises for larger teams,” says Richard Clegg.

“We might see some transactions where office space is interesting for some private equity investors and shared service concerns.”

Real estate is also seeing lively activity in the Western Balkans; in Serbia it has been a key driver of M&A. Both Serbia and Bosnia have attracted investment from the Middle East, though complex construction permit procedures and complications over property restitution and ownership are constraints on development in Bosnia and Albania.
Which country do you consider to be the best gateway for expansion in the CEE/SEE region?
DISTRESSED DRIVERS
Distressed property sales will continue to be part of the market, with investors eyeing opportunities on the Albanian coast, as well as in Bulgaria, as banks divest NPL portfolios. Restructuring potential will be a main driver for future M&A for nearly half of all respondents, with attractive valuation a main factor for two-fifths.

In selecting a country for their next transaction, 40% of investors consider the availability of distressed assets to be the most important factor, and 73% say that it will influence their decision.
What are/will be the main drivers for your next M&A deal in this sector in the CEE/SEE region?
Please specify in which of the following countries you have completed an M&A deal in the last five years and in which country you completed your most recent deal
In which country/ies are you currently looking for new opportunities?
What are the factors that will most impact your choice of country for your next deal in this sector?
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TECH, MEDIA AND TELECOMS
An exceptionally dynamic tech start-up environment, buyouts of major regional telcos and media consolidation are all factors that see TMT continue to be a central driver of CEE M&A. The sector accounted for 18% overall value in 2018, with transactions worth €3.772bn. TMT topped the value table largely thanks to the €2.8bn acquisition of Telenor’s CEE assets by Netherlands-based investment company PPF Group, controlled by Czech entrepreneur Petr Kellner, one of the biggest deals of the year in CEE.
Overall value was down slightly from 2017, when transactions totalled €3.78bn, but volumes dropped from 73 to 71. Nonetheless, the sector sees lively activity in smaller-scale transactions that do not meet Mergermarket’s $5m threshold.
TECH, MEDIA, AND TELECOMS M&A, 2012-2018
START-UP CENTRAL
Tech start-ups have thrived thanks to the region’s historically excellent technical education, which has made CEE a magnet for business process outsourcing (BPO) and knowledge process outsourcing (KPO) for many years. The growing availability of EU-backed funds over the past decade has helped spark a start-up boom. Where once education and the private sector operated in silos, the Czech Technical University in Prague now has its own start-up incubator, while Slovakia has a university dedicated to digital education.

Meanwhile, BPO and KPO in the region is moving up the value chain: for example, JP Morgan is opening an operations centre in Poland employing 5,000 people. This dovetails with Poland’s development of one of Europe’s leading fintech sectors, supported by demand from banks that have been early adopters of new banking technology since the 1990s.
HEAD IN THE CLOUD
Respondents to our survey expect cloud technology to be the most appealing sub-sector for acquisitions in CEE in 2019, with two-fifths of those surveyed citing the segment. Managed services – for example, outsourced IT services including shared services – are also expected to attract investment, as are companies specialising in advertising technology.

The Czech Republic is seen as the leading country for new targets: 52% of respondents are looking for acquisitions there, with 33% considering it the leading jurisdiction for their next deal. Nearly half of respondents are looking for targets in Austria, with 23% prioritising the country.

“Investors are attracted to the Czech Republic on an industry basis, and you’ll see more and more activity in the TMT sector,” says Katerina Kulhankova, associate at Wolf Theiss Czech Republic. “We hope to see a great increase in foreign investment in the upcoming years. We have been seeing a lot of people from the US starting their blockchain activities in the Czech Republic. I believe that we are the right market for this kind of thing.”

Perhaps surprisingly given their relative market size, almost as many investors are looking to Bulgaria (29%) as Poland (32%), but this is also testament to the strength of the Bulgarian outsourcing and start-up sectors, backed by successful venture capital funds such as Neveq.

Bulgaria also competes strongly on price, and the skill and cost of the local labour force is the most important factor determining the choice of country for respondents’ next deal, cited by nearly three-quarters.

In Bosnia, which has lagged behind much of the rest of the region in economic development, IT is the fastest-growing sector, according to Nikolaus Paul, partner at Wolf Theiss Austria and Bosnia/Herzegovina, with software developers focused on the US market blossoming. He notes, "This sector is clearly going to be a big part of the future of Bosnia and Herzegovina." Naturally, target IP and technology is the main driver for choice of target – cited by 87% of respondents – but market share/position is also significant (45%).

Austria is seen as the leading gateway to TMT expansion in CEE by two-thirds of respondents, though a quarter chose Poland. The Polish government has a strong focus on developing technology businesses, and leveraging the large domestic market, with the aim of becoming the regional leader.
What are the factors that will most impact your choice of country for your next deal in this sector?
TELECOS CONVERGE
Consolidation between telecoms and media companies is set to be a continued trend in the region, as big telecoms players look to become full-service media providers, a process in which T-Mobile has taken the lead in Austria, including through its 2017 acquisition of the Austrian business of Liberty Global in 2017.

“There is probably, down the line, going to be acquisition of big media, especially the digital platforms and paid TV platforms, by one or two of the major telecom players,” says Ron Given, partner at Wolf Theiss Poland. This process may help broaden the revenues and margins of telecoms companies which have been under pressure to keep prices low due to competition and regulatory control, eroding average revenue per user.

The media segment saw one of the biggest deals in the Balkan region in 2018. PE fund BC Partners bought a majority stake in Netherlands-based United Group from KKR, another PE player, which will retain a minority stake. United Group is Serbia’s largest cable company and is also active in Slovenia, Bosnia, and Montenegro, and provides a range of TV and telecoms services across the region.

Serbia’s incumbent telco, Telekom Srbija, remains in state hands despite previous attempts to privatise it, as does Slovenian counterpart Telekom Slovenije. According to market commentators, a new sale launch is expected for 2019. But in Bosnia telcos HT Eronet and BH Telekom have been put through due diligence procedures in preparation for privatisation, and once a new government is in place following the 2018 election, the process may roll forward.
Which country do you consider to be the best gateway for expansion in the CEE/SEE region?
Please specify in which of the following countries you have completed an M&A deal in the last five years and in which country you completed your most recent deal
In which country/ies are you currently looking for new opportunities?
What are/will be the main drivers for your next M&A deal in this sector in the CEE/SEE region?
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