Several of the region’s markets are regarded as overbanked, and mid-sized lenders in particular are feeling the squeeze between larger competitors with economies of scale and smaller niche institutions.
Romania is one of the markets ripest for consolidation; between 80-85% of the retail banking market share is in the hands of the five largest banks, with more than 30 others competing for the remainder, says Bryan Jardine, managing partner at Wolf Theiss Romania. The large Romanian market has also seen new entrants in recent times, with US fund JC Flowers acquiring the local subsidiary of Greece’s Piraeus Bank, and Polish investment fund Getin Holding taking over the small Romanian International Bank. Overall, 35% of our respondents who have completed M&A in the business and financial services sector in the past five years have been active in Romania, the same proportion as in Poland.
The third largest business and financial services transaction was a Romanian banking deal. State-owned corporate lender EximBank agreed to acquire Banca Romaneasca from the National Bank of Greece (NBG) for €314m. The deal, if approved, will see EximBank enter the retail banking market and become one of the country’s top-ten lenders. NBG’s sale of its Romanian subsidiary is part of the ongoing process of divestments of South-Eastern European business by Greek banks following Greece’s financial crisis, which has created opportunities for domestic and international banks to increase their presence on the SEE market.
The year ended with the €180m acquisition of the Czech assets of German banking and insurance firm Wüstenrot & Württembergische by Czech Republic-based MONETA Money Bank, announced in December.
Additionally, there were two other notable transactions in the banking sector in 2019, but both were equity capital market transactions which did not count towards the year’s M&A totals. US-based Advent International listed Addiko, one of its portfolio companies on the Vienna Stock Exchange in July. The IPO raised €172m and valued Addiko, an Austrian bank active in several CEE markets, at €312m. And in November, US-based distressed asset specialist Cerberus sold a 13.5% stake in listed Austrian bank BAWAG for €420m via an accelerated bookbuild.
A few banking deals were already underway at the end of 2019 and are expected to add to the 2020 totals, for example, France's Credit Agricole is in the midst of a sale process for its Romania assets.
Other markets attracting attention include Hungary, where 42% of survey respondents say that they are looking for a deal in business and financial services, as well as Austria and the Czech Republic (33%). The skill and cost of the local labour force will be the most important factor in determining the destination, cited by 50% of those surveyed.
More than half all respondents (58%) say that IP or technology will be one of the two biggest factors in determining their next target – a sign of the growing importance of fintech in the sector.
“Fintech generally is one of the drivers of transactions,” says Markus Bruckmüller, managing partner at Wolf Theiss Slovenia. “It’s the key spot where banks will be investing, and we expect a lot of activity there.”
One such deal which is set to kick off next year is the sale of Polskie ePlatnosci (PeP), a Poland-based electronic payments company. Owners OPTeam and Innova Capita announced in December that they had appointed a financial adviser to handle the sale.
Looking forward, the insurance sub-sector is one that is likely to see increased deal activity in 2020, thanks to a few large transactions which are already in motion. French insurance giant AXA towards the end of 2019 launched a sale process for its assets in Poland, the Czech Republic and Slovakia, according to press reports.
What is the most important factor that will impact your choice of country for your next deal in business and financial services?
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 acquisition in this sector? (Select top two)
In which CEE/SEE countries have you completed an M&A deal in the last five years and most recently in business and financial services?
Where are you currently looking for new opportunities for your next M&A deal in business and financial services in the CEE/SEE region?
In June, Slovenia’s second biggest bank by assets, NKBM, which is backed by US-based private equity firm Apollo, acquired the third largest, Abanka, from the state’s Slovenian Sovereign Holding for €511m. The deal represents the latest move in the Slovenian government’s wave of privatisations, and the ongoing consolidation and clear-up of the financial sector since the country’s 2013 banking crisis, when it narrowly avoided an international bail-out. The newly merged bank will have around 22.5% of total system assets, according to Reuters.
Earlier in the year, PKO Leasing, Poland’s largest leasing company and a division of the country’s biggest bank PKO BP, acquired local peer Prime Car Management for €426m, in the second largest business and financial services deal of the year. PKO BP has been expanding and diversifying in recent years, including in the 2014 takeover of the insurance business of Nordic financial services company Nordea, and launching a CVC fund for investments in local fintech. The bank is also considering a bid for mBank, the Polish subsidiary of Germany’s Commerzbank, which is sounding out buyers as it looks to exit the Polish market. The Polish government directly and indirectly owns just over 50% of PKO BP, and the bank appears to be central to its efforts to create a “national champion” financial institution that can expand regionally. This is likely to create further opportunities for M&A in the future.
We explore the dealmaking environment in seven key sectors in the CEE
Generating €2.1bn of M&A activity in 2019, the business and financial services ranked fifth by value, taking up 11% of total value across all sectors. The 72 deals in the sector accounted for 15% of deal volume in the region. The costs of investment in new technology, the demands of macroprudential regulation under international and domestic legislation, and government measures including asset taxes and the promotion of local ownership are all factors driving consolidation in the regional financial sector.
The Czech Republic is seen as the most appealing country for survey respondents’ next deal in the sector, with 69% saying they are looking at targets in the country, followed by Romania and Bulgaria (both 50%). Income growth in the relatively affluent Czech Republic and Romania’s large market and rapid economic expansion are doubtless attracting attention, while Bulgaria has a sizeable tourism industry and is a low-tax, light-regulation base for business across SEE and beyond.
While the tourism sector is growing rapidly in some countries in the region – Croatia being the prime example – the largest deals in the sector in 2019 demonstrated the appeal of the domestic consumer market in the region, thanks largely to high levels of employment and robust wage growth.
“In the Czech Republic the sector has become more attractive in the last few years as we have seen a significant increase in wages, meaning there is much bigger consumer buying power,” says Robert Pelikán, counsel at Wolf Theiss’s Prague office. “The retail market is among those attracting more attention.”
The largest deal of the year in the sector was hotel group Accor's 1.2bn sale of an 85.8% stake in Polish hotel chain Orbis to AccorInvest, an investment group in which Accor is a minority shareholder.
The second largest was another Polish deal, the sale of a 10.67% stake in Poland-based AmRest, the largest restaurant group in the region, for €310m to Mexican investment group Finaccess Servicios Corporativos from Luxembourg-based investment holding Gosha Holdings.
The two next largest deals of the year in the sector were both PE exits in Serbia by the same firm, regionally focused PE firm Mid Europa Partners. Mid Europa sold Serbian food company Bambi to Coca-Cola Hellenic Bottling Company, one of the world’s largest anchor bottlers, for €260m and iconic mineral water company Knjaz Milos to a joint venture of Czech counterpart KMV and PepsiCo for €210m.
Mid Europa’s two exits to trade buyers in Serbia prove the investment potential in the consumer and leisure sector in CEE/SEE, where a range of regional companies have grown to the sort of ticket size that PE investors seek.
Perhaps unsurprisingly, target customer base is the most important driver for investors considering their next acquisition, cited by 69% of respondents as among the top two factors at play. Target brand (50%) was also important. Bambi is a case in point, with brands that are recognised across the former Yugoslavia.
For investors looking to tap into the region’s consumer market, choosing the right gateway for regional expansion is key. More than half of sector respondents (52%) to this year’s survey highlight Poland as the main gateway for regional expansion – up from 15% in 2018, a sign of the country’s ascendency. As the largest market, with a population of 38 million, Poland is a natural entry point for consumer players.
In which CEE/SEE countries have you completed an M&A deal in the last five years and most recently in consumer and leisure?
Where are you currently looking for new opportunities for your next M&A deal in consumer and leisure in the CEE/SEE region?
Some 43% of respondents say that the level of economic growth or GDP per capita will be the most important factor in their choice of country for their next deal in consumer and leisure. Given the sector’s close link to domestic spending power and consumer confidence, this may seem low, but many targets are fairly export-oriented, whether in goods (for example FMCGs) or services (tourism), and thus less dependent on the domestic economy of the country in question.
A stable regulatory and legal framework is regarded as the second most important factor in their choice of country for their next deal in the sector, cited by 23% of respondents. While the sector is not as heavily regulated as some (telecoms and energy come to mind), complex supply chains in particular require clear legal infrastructure, including over contract enforcement.
Investors will be keeping an eye on the uncertain international economic climate, as downturns can have a negative impact on incomes and consumer confidence. But Ileana Glodeanu, partner at Wolf Theiss Romania, argues that the sector is less likely to be affected by falling growth than others and cites patchy infrastructure and fragmented markets as bigger challenges in the medium term.
Still, the sector is continuing to attract international investment. US-based PE giant Blackstone, for instance, made an undisclosed investment in 2019 in Romania’s Superbet, an online gambling operator.
What is the most important factor that will impact your choice of country for your next deal in consumer and leisure?
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 acquisition in this sector? (Select top two)
The consumer and leisure sector saw more deals than any other in the region in 2019, with 105 deals accounting for 22% of deal volume. These were predominantly small and mid-sized transactions, with a total value of €2.8bn, 14% of the value in the region overall.
“We continue to see an increase in consumer and leisure sector deals in CEE/SEE,” says Ileana Glodeanu, partner at Wolf Theiss Romania. “The trend started some years ago, and I think it will continue, as companies need to open new markets. CEE/SEE is quite a large consumer market."
Given the size and importance of the assets in question, the sector tends to attract big-ticket deals, and in 2019 it accounted for almost a quarter (24%) of deal value regionwide – €4.7bn. By contrast, the 40 transactions clocked accounted for just 9% of total volume.
One of the few mining deals in 2019 also happened to be among the largest deals in EMU of the year. China-based metal ore miner Zijin Mining Group announced a €215m acquisition of Timok, a copper mine in Serbia, from US-based Freeport-McMoRan in early November.
Czech deals light the way
What is the most important factor that will impact your choice of country for your next deal in energy mining and utilities?
In which CEE/SEE countries have you completed an M&A deal in the last five years and most recently in energy, mining and utilities?
Where are you currently looking for new opportunities for your next M&A deal in energy mining and utilities in the CEE/SEE region?
The two top deals in the region were both in the energy sector – unusually, they were for the same asset. In 2019, a 50.04% stake in Czech gas distribution firm Innogy Grid twice changed hands. First, it was taken over by German firm RWE as part of a larger set of asset swaps between RWE and domestic peer E.ON. Then, it was sold to a consortium led by Australia’s Macquarie Infrastructure. The consortium was already a minority shareholder in the asset and exercised pre-emption rights to buy it outright, with a view to support the expansion of Innogy’s GasNet gas distribution network with long-term institutional capital. Both transactions were worth around €1.8bn.
Another substantial Czech-focused transaction saw Liechtenstein-based Sev.en Energy AG acquire two coal-fired power plants in the country from French electric services company Alpiq for €280m.
Czech electricity company CEZ looked set to have secured the €335m sale of its Bulgarian assets to insurance and financial group Eurohold Bulgaria in June 2019, which would have been one of the top ten deals of the year regionwide. However, in October, Bulgaria’s competition regulator blocked the acquisition on the grounds that it would hinder competition as Eurohold has substantial market share in insurance guarantees, which are required in the Bulgarian energy trading activities of the target companies.
Which country do you consider to be the best gateway for expansion in the CEE/SEE region?
Bulgaria’s energy sector experienced a difficult few years in the middle of the decade, with retroactive cuts to renewable energy feed-in tariffs and the near-bankruptcy of the state energy holding company. But it has recovered strongly in recent years, with multiple transactions in renewable energy, says Richard Clegg, partner at Wolf Theiss Bulgaria. A deal with Azerbaijan’s SOCAR to import 1 billion cubic metres of natural gas a year from the country's Shah Deniz II field, which will entail considerable investments in infrastructure, could add additional momentum, he says.
Romania also saw retroactive cuts to support for renewable energy projects, some of which are now coming to market as distressed assets.
2020 should also see CEZ and Italy’s Enel complete the sale processes for their respective Romanian assets, both of which include renewables.
As many as 30 bidders were interested in CEZ’s portfolio, says Jardine, who sees a “mini-renaissance” in the Romanian renewables sector, with solar assets also coming into the market. Following consultation, the government has also amended royalties legislation that threatened to hold back promising development of offshore oil and gas in the Black Sea.
Finally, the long-awaited IPO of state-owned hydro company Hidroelectrica may at last move forward in 2020, providing a boost both to the company and the Bucharest Stock Exchange.
What are/will be the main drivers for your next acquisition in this sector? (Select top two)
Looking forward, a majority (54%) of investors in EMU are looking at new opportunities in Poland, and 42% see it as a gateway to the region. The country has become a major regional player in LNG since the completion of the Swinoujscie terminal on the Baltic Sea in 2015. There are ongoing efforts to improve gas infrastructure connectivity across CEE/SEE. Investment in coal energy, which generates 80% of the country’s electricity, has raised criticism from the EU but helped reduce dependence on imported sources.
Across the region, some 42% of sector respondents say that the level of infrastructure will be the single most important factor in determining their next target country for a deal in the EMU sector, and 69% said that a target’s physical assets are the most important factor behind a specific acquisition.
Ukraine is one of the countries making the biggest progress in these areas, and in liberalising its energy market – partly in response to the country’s conflict with Russia.
“The gas transportation sector is developing at great speed,” says Taras Dumych, managing partner at Wolf Theiss Ukraine. “Ukraine is unbundling its state-owned gas transport operator, and international investors are looking at co-managing gas transport system operators. Renewables are developing really quickly as well, with investors often using the transmission infrastructure of nearby nuclear power plants.”
With resources ranging from coal to crude oil to lithium, and growing import and transit infrastructure linking regions as far afield as Russia, the US, and the Middle East, the energy, mining, and utilities (EMU) sector is one of the mainstays of the CEE/SEE economy. Indeed, in some jurisdictions, EMU investments dominate the dealmaking landscape.
The sector saw 83 transactions in 2019, accounting for 17% of overall deal volume. Total value, however, was a relatively modest €827m, 4% of the total, reflecting a large number of small- and medium-sized deals, but also a number of greenfield investments by those already present in the region.
The single biggest deal of 2019 only squeaked into the top 20 largest deals overall. The €218m deal saw Sweden-based Granges, a manufacturer of aluminium for the heat exchange industry, aquire Poland's Impexmetal.
What is the most important factor that will impact your choice of country for your next deal in industrials and chemicals (including automotive)?
Regionwide, a target’s market share/position is the most important factor for the industrials sector, cited by 61% of respondents. The sector tends to attract more strategic than financial investors, partly because of the often highly technical nature of the businesses. Nonetheless, PE firms are present in the sector, and may be increasingly active if the European manufacturing slowdown sees distressed assets in CEE/SEE come onto the market.
Looking at 2020, deal value could easily top 2019’s. Already, a sale process is underway for Erber Group, an Austrian company active in the field of food and feed safety, focusing on natural feed additives. The transaction could fetch over €700m, according to press reports.
Hungary also has a growing chemicals sector. In June, Hungarian energy and refining company MOL Group announced its largest-ever organic investment, a €1.2bn polyol complex at its Tiszaujvaros site. The project is backed by the Hungarian government, which has a minority stake in MOL. K&P Chem, which manufactures products for the cosmetic industry, is due to open a new €16.5m plant in Szolnok next year. While these greenfield projects do not feature in M&A data, they are indicative of investor appetite and asset development that should have a knock-on effect across the industry.
The automotive sector has been a major driver of Hungary’s recent strong economic growth, with German carmakers in particular investing heavily. The German manufacturing slowdown in 2019 had some impact, with Daimler putting on hold an expansion programme, and Audi reducing headcount. However, a long-term greenfield investment in eastern Hungary by BMW is going ahead.
The Hungarian government has created a particularly favourable environment for manufacturing investment, deploying a range of tax incentives, and has pared back the administrative burden on businesses through e-government initiatives. The central bank’s policy of remaining outside the eurozone does create some currency risk, however, with the forint weakening significantly in 2019.
In which CEE/SEE countries have you completed an M&A deal in the last five years and most recently in industrials and chemicals (including automotive)?
Where are you currently looking for new opportunities for your next M&A deal in industrials and chemicals (including automotive) in the CEE/SEE region?
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 acquisition in this sector? (Select top two)
Bulgaria and Czech Republic attract attention
Over the past year, the Czech Republic and Austria were the countries in which respondents had done deals most recently, and Austria is the preferred gateway for regional expansion for 40%, more than any other country. Austria has a well-established high-tech manufacturing sector, and the presence of the Baumgarten gas hub and large Schewechat refinery are advantages to be leveraged by downstream industries.
The Czech Republic is also likely to attract attention in the coming years, along with Bulgaria – 46% of respondents say they looking for opportunities in each country. The Czech Republic has a long history of manufacturing, boasting globally competitive companies such as automaker Skoda, and leverages its geographical position at the heart of Europe and excellent infrastructure. Bulgaria benefits from a low-tax regime and relatively low costs, as well as business-friendly legislation – though labour costs are now rising.
“Over the past few years there has been steady investment in the Bulgarian industrials and chemicals sector, which is a strong driver of the economy,” says Anna Rizova, managing partner at Wolf Theiss Bulgaria. “On the one hand you have big industrials, which have been investing in new facilities or expanding existing ones. At the same time, Bulgaria has strong engineering potential, and we have seen smaller Bulgarian enterprises open up production, offering new technological solutions and growing steadily.”
With access to the EU – the world’s largest single market – a base of legacy industries built up over decades, and a growing range of innovative manufacturers, the industrials and chemicals sector has long been a mainstay of the CEE/SEE economy.
The heavily regulated and highly technical nature of the sector means that investors tend to be specialised and barriers to entry high, so sector transaction values can fluctuate from year to year.
Demand is driven by demographic change and rising incomes, while access to EU markets and targets ranging from large legacy pharma companies to newer innovative companies are attracting attention on the production side.
The largest deal in 2019 saw Swiss pharmaceutical company Acino International acquire a portfolio of assets based in the CIS, Middle East and Africa from Japan’s Takeda Pharmaceuticals for €181m. The deal sees Acino acquire the rights to a range of Takeda’s drugs in Ukraine, and a manufacturing and supply agreement for Takeda to manufacture products on behalf of Acino.
Just before year-end, Germany-based STADA made the acquisition of the prescription and consumer health business of Biopharma, another Ukrainian pharma business. While the deal’s terms were not disclosed, it marks “one of the largest financial investments in the Ukrainian pharmaceutical sector to date”, according to STADA. STADA has been active in the region – earlier in the year, it acquired Czech consumer health company Walmark for an undisclosed sum from regionally focused PE firm Mid Europa Partners.
In this knowledge-intensive sector, skill and cost of the labour force is by a large margin as the most important factor affecting dealmakers’ choice of the country where they will seek out their next deal, cited by 59% of respondents. A stable regulatory and legal framework is however also important (17%). Similarly, in choosing specific targets, dealmakers are seeking those with strong IP or technology (cited by 69%).
“It’s really the research and hardcore scientific work that is very often the deal driver in my experience,” says Florian Kusznier, partner at Wolf Theiss Austria office.
Poland and the Czech Republic vie for the position of favoured gateway to the region, each cited by 35% of respondents. Poland benefits from its position as the largest market, while the Czech Republic’s relative affluence and location are advantages.

“In Poland, some of the large international pharma companies are undergoing internal restructuring,” says Jacek Michalski, a partner at Wolf Theiss Poland. “A second interesting feature we see is a growing interest from both strategic and private equity investors into start-ups involved in medical or biotech activities.”
In which CEE/SEE countries have you completed an M&A deal in the last five years and most recently in pharmaceuticals, medical and biotech?
Where are you currently looking for new opportunities for your next M&A deal in pharmaceuticals, medical and biotech in the CEE/SEE region?
Particularly in fast developing areas such as biotech and medical technology, investors will need to keep track of evolving regulatory and compliance regimes. The EU Medical Device Regulation enters into force in May 2020 and will introduce new concepts, definitions, classification rules and procedural requirements for medical device software. In Romania, meanwhile, the competition authority has taken a hawkish stance towards pharma companies, handing out substantial fines in some places, while national and regional authorities all over the world are taking an increasingly watchful eye over multinational pharma companies and medical trials in particular.
“It’s a regulated sector which requires significant expertise on the part of the investors,” says Kusznier. “When it comes to payment and reimbursement of health services, cost is still quite a state-driven factor, which means that investors will need to understand how the business model works, and will need to familiarise themselves with the regulations first.”
What is the most important factor that will impact your choice of country for your next deal in pharmaceuticals, medical and biotech?
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 acquisition in this sector? (Select top two)
While there were no other deals with disclosed transaction value in 2019 of an equivalent size to the Acino deal, activity is still lively behind the scenes. In November, Romania’s competition authorities approved the sale of hospital operator Materna Care to Regina Maria, Romania’s largest integrated healthcare services operator. The terms of the deal were not disclosed. The buyer in that deal, Regina Maria, is itself undergoing a sale process.
Romanian biotech companies and medically focused tech companies which overlap between PMB and TMT, are also developing strongly, says Ileana Glodeanu, partner at Wolf Theiss Romania.
Half of PMB investors surveyed are now looking for new opportunities in Romania, more than any other country in the region, while 44% are looking into the Czech Republic.
“Romania’s a large market, with an aging population that is underserved with medical services,” adds Glodeanu. “There is a need for new hospitals, and the market is not as mature as in Poland or Austria. That provides plenty of opportunities. There is also a need for consolidation in the pharma sector, and we’ve seen major players that have taken part in large transactions looking to do that.”
The pharma, medical, and biotech (PMB) sector has become one of the region’s quiet successes. Headline activity was fairly modest in 2019, with 39 deals worth €306m accounting for 2% of deal value and 8% of deal volume, yet there were a number of significant deals in the sector, and, volume-wise, 2019 was the highest year on record for the PMB sector in the region.
Following significant cooling in the wake of the global economic crisis a decade ago, the real estate and construction sector in CEE/SEE has undergone a renaissance in recent years. Income growth, a shortage of modern properties in all asset classes, relatively low interest rates, and EU funding for infrastructure have all played a role.
The sector saw 30 M&A transactions worth a total of €2.3bn in 2019, accounting for 12% of overall value and 6% of volume, down slightly from 33 deals worth €2.7bn in 2018.
Emerging regional hubs
Looking forward, 50% of investors in real estate and construction regionwide say that the level of infrastructure will be the most important factor in determining their next deal destination. They are no longer looking to Austria as a gateway of expansion, with Poland being preferred by 45% of respondents.
Romania and Bulgaria are attracting the most attention as destinations for the next M&A deal for investors, both cited by 58% of respondents.
Romania’s deep 2009 recession flipped what was a booming real estate sector into contraction, but rapid economic growth has restored momentum in this large and strategically located market.
“Institutional fund money that had not been seen in the Romanian real estate sector has started to enter the fray here,” says Jardine. “We’re starting to see tremendous development across all asset classes in Bucharest and secondary and tertiary cities.”
Jardine adds that the shared services, BPO, and back office operations being established in Romania entail considerable office space demand.
On the construction side, Romania’s transport infrastructure development has historically lagged behind that of the rest of Europe. This has arguably constrained broader economic development given the country’s size and geographical location. Progress on important rail and road projects such as the Autostrada Transilvania and Bucharest-Craiova motorway has been stop-start, and successive governments have struggled to develop and execute a clear transport infrastructure strategy.
To the south, Bulgaria saw a property boom in the mid-2000s fuelled partly by speculation and retail investors, followed by a long slump, which continued as banks grappled with distressed real estate assets. Following several years of steady economic growth, the sector is now resurgent. Top-end office developments by developers including Raiffeisen Real Estate are addressing a long-term shortage in Sofia, though the middle of the market is still feeling a squeeze from tenants’ preference for lower costs.
“We’ve been very busy with real estate work for international investors,” says Richard Clegg, partner at Wolf Theiss Bulgaria. “The market is split – for operational properties we have investments from regional real estate groups from Central Europe. And on distressed assets, and assets that need refinancing, we have activity from hedge funds from the UK and US.”
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 acquisition in this sector? (Select top two)
In which CEE/SEE countries have you completed an M&A deal in the last five years and most recently in real estate and construction?
Where are you currently looking for new opportunities for your next M&A deal in real estate and construction in the CEE/SEE region?
What is the most important factor that will impact your choice of country for your next deal in real estate and construction?
Race for Polish assets
Among the largest deals of the year across all sectors was US-based Madison International Realty’s acquisition of a controlling stake in Poland-based Capital Park for €455m. The seller, UK-based investor Patron Capital Partners, retains a minority stake in the business, along with pension and other investment funds also holding small stakes. The deal gives Madison exposure to Capital Park’s 304,000sqm of lettable area with a value of around €580m.
Poland, the region’s largest market, continues to see investor interest outstrip supply of investable projects. The country’s emergence as the leading gateway to the region for many businesses is helping stoke demand.
“We see a lot of equity on the Polish market, and projects fully funded by equity,” says Grzegorz Skowronski, partner at Wolf Theiss Warsaw. “We also see yield compression, and a shift to investors who like to keep their assets for a longer period. There are more and more portfolio transactions, which show that investor appetite is huge.”
Moreover, there is increased interest from East Asia-based investors looking at logistics and office buildings in Poland, Skowronski added. There is considerable scope for development in the modern retail sector, where penetration is still below Western European levels. The country has become something of a safe haven for regional investors in recent years, and Polish property has thereby become a natural asset for those seeking security.
The TMT sector had an exceptional year, registering the highest total annual value for the sector in the CEE/SEE region on record (since 1998).
A globally competitive tech sector, big-ticket deals on major telcos, and media consolidation are driving factors behind CEE/SEE’s vibrant TMT investment landscape.
The sector has long been one of the leading focuses for dealmaking in the region and looks set to remain a magnet for M&A in the foreseeable future. Annual deal value rose to €4.9bn, up 37% above 2018’s totals, due largely to two €1bn+ deals announced towards the end of the year.
Unsurprisingly, IP and technology will be the leading driver for respondents’ next deals in TMT, cited by 94%. Target market share and position is also important, however, chosen by 44% of respondents.
In spite of the healthy overall value figure, a considerable amount of deal activity is concentrated in smaller ticket-size deals for tech start-ups. Volume has held up very well, with 87 deals accounting for 18% of the total regionwide, making TMT the second busiest sector in terms of volume, behind only the consumer and leisure sector. The robust tech segment in CEE/SEE leverages a tradition of strong technical education, optimal location, a growing range of capital sources including EU-backed VC and seed finance, and labour costs that, despite rising rapidly in recent years, are still lower than relative to North America or Western Europe. These factors have long supported a flourishing BPO sector. This has developed into higher-value propositions in recent years, with several major multinational companies moving back-office functions to the region.
What is the most important factor that will impact your choice of country for your next deal in technology, media and telecommunications?
Looking forward, the roll-out of 5G mobile technology is starting to take centre stage across the region, which is already reshaping business strategy, including consolidation on the infrastructure side.
“The big topic is 5G and spectrum. We're starting to see moves in a number of EU countries, such as Poland and Austria, around infrastructure sharing and spectrum-sharing, given the huge costs involved,” says Richard Clegg, partner at Wolf Theiss Bulgaria. “We’re seeing a lot more focus on the infrastructure of the telco business rather than the services side.”
Other areas seeing growing activity include fintech companies, with banks looking for bolt-on acquisitions to enhance their tech offerings.
Which country do you consider to be the best gateway for expansion in the CEE/SEE region?
In which CEE/SEE countries have you completed an M&A deal in the last five years and most recently in technology, media and telecommunications?
Where are you currently looking for new opportunities for your next M&A deal in technology, media and telecommunications in the CEE/SEE region?
What are/will be the main drivers for your next acquisition in this sector? (Select top two)
Convergence and consolidation
Three of the largest deals of the year were in the TMT sector. The largest deal in the sector and the third largest overall was a local PE deal—in November Czech fund PPF announced the acquisition of Prague Stock Exchange-listed Central European Media Enterprises (CME) for €1.5 billion. CME operates television broadcasting in Bulgaria, Czech Republic, Romania, Slovakia and Slovenia and the deal, pending approval by the regulator, is expected to complete in mid-2020.
The second largest TMT deal announced in 2019 would see Netherlands-based pan-Balkan media and telecom company United Group acquire Bulgaria’s Vivacom for €1.2 billion. The deal, subject to merger control review, is expected to close in Q2 2020.
United Group, which is backed by UK-based PE firm BC Partners, is expanding aggressively in the region, and is also awaiting the results of a phase 2 investigation by Croatia's competition authority into its €220m acquisition of the Croatian assets of Swedish mobile operator Tele2 and is reportedly interested in acquiring Telekom Romania.
Romania attracts attention
Respondents increasingly see Poland (57%) rather than Austria (29%) as the best gateway to the region for TMT, a trend we see in several other sectors. But Romania is attracting the most attention for 2020, with 50% of investors surveyed looking for targets in the country. Several Romanian-founded tech companies have now achieved global prominence; in 2019, robotic process automation company UiPath raised $568m in series D financing. This valued the company at $7bn overall, making it one of the region’s four privately held tech worth more than $2bn. UiPath is headquartered in New York, but its operations are predominantly in Romania.
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