Investing in CEE: Inbound M&A Report 2019/2020

20 March 2020

A steady momentum of inbound deals in 2019 underlines CEE’s resilient appeal to international investors despite global challenges

The M&A market in Central and Eastern Europe including Russia (CEE) recorded 726 deals in 2019, the same number as in 2018, displaying resilience in the face of global economic headwinds, according to a new report published by Mazars in association with Mergermarket.

The report, Investing in CEE: Inbound M&A Report 2019/2020, offers an overview of inbound M&A activity in the CEE region throughout 2019 and looks ahead to the challenges and opportunities in the coming months.

Of the 726 M&A deals in CEE last year, 40% were inbound deals from outside the CEE region – a figure on par with the past four years. This highlights the continued attractiveness of the region to international investors, in spite of a global downturn.

In contrast, to deal volume, the total public deal value for CEE fell 12% in 2019 to €42.3 billion. This may indicate fewer big-ticket deals, but it is worth noting that the headline figure does not include transactions with publicly undisclosed values, including two investments in a liquified natural gas (LNG) project in the Russian arctic, which are likely to have been substantial.

A unique combination of strategic advantages continues to make CEE appealing to investors, with the region’s economic diversification proving to be one of its main strengths. “Location is a clear competitive advantage, with the more developed economies of Western Europe on one side, and the fast-growing markets of Asia and the Middle East on the other. For many investors, the region brings some of the benefits of both,” explains Michel Kiviatkowski, CEE Leader of Financial Advisory Services at Mazars.

Although investors cannot wholly overlook challenges to deal-making, the majority of those come from outside of the region. One of the region’s greatest strengths, its strong connections with markets in other regions, also makes it more vulnerable to global shocks such as the outbreak of Covid-19.

Nonetheless, the region’s strong fundamentals mean it is well-placed for a quick recovery once the dust settles.

Further key findings from the report include:

  • As the most populous market and largest economy in the region, Russia once again leads the way for regional dealmaking, even with sanctions still in place. The deal value remained steady at €21.5 billion across 167 deals – up from 159 the previous year. Four of the top ten deals in the region and three of the top five took place in Russia, including the year’s largest transaction, which saw Japan Arctic LNG take a 10% stake in the Arctic LNG 2 project for €2.6 billion.
  • In terms of inbound activity, Poland rose to the number one leading destination in 2019. The country saw 65 bids, up from 51 in 2018. This was accompanied by a rise in deal value which increased more than twofold, from €1.9 billion to €4.6 billion.
  • CEE’s strong industrials sector continued to attract the most inbound deals at 56. However, these were mostly small and mid-sized transactions, totaling €1.1 billion, down from €5.5 billion the year before. Energy and utilities remained the top sector for value, with a total inbound deal value of just under €7.6 billion, up from €7.4 billion in 2018, reflective of the large ticket sizes of transactions in this sector.
  • Both international and regional private equity firms are attracted to the region – at a time of slow growth and low yields in many developed countries, CEE offers much-sought-after value as businesses reach maturity or consolidate. Private equity activity continues to grow, with a total of 69 buyouts in the region in 2019, two more than 2018.

The M&A landscape in Romania

After a difficult transition to a free-market economy, in recent years the country has become one of the region’s success stories, with buoyant growth and diversifying economy. One of the biggest markets in ECE, natural resources including oil and offshore gas, and a strategic location are all competitive advantages.

Romania’s M&A volume rose 61% in 2019 to 50 deals, from 31 deals in 2018. Value also increased, by 45% to €815 million.

Deal-making performance was better than expected at the beginning of 2019. The economy performed well – the European slowdown was felt, but not to such a great extent, with domestic consumption being still one of the main drivers. The largest deal of 2019 happened in the second quarter of the year, with the National Bank of Greece’s - €314 million sale to EximBank of a 99.28% stake in Banca Românească. I believe that this is another example of the ongoing consolidation in the Romanian banking market.”, mentioned Răzvan Butucaru, Partner, Financial Services & Advisory Leader, Mazars Romania.

Median valuations in CEE remain consistently lower than in Western Europe. In 2019, the median EV/EBITDA multiple in CEE was 7.81x compared to 10.91x in Western Europe. Generally, this suggests that CEE companies remain undervalued, particularly compared to their Western European peers.

The indicative valuation gap should not be a surprise. As with pricing for many services and products, you pay more in Western Europe than in CEE,” says Butucaru. “It’s a good thing as it allows investors who buy assets in CEE to have more money to invest after the acquisition, which is what CEE economies need to close the valuation gap.”, he adds. The CEE market needs to catch up and it is doing so fast. This being indicated also by the median multiple in CEE which rose in 2019, from 6.74x in 2018, while in Western Europe it fell from 11.55x over the same period.

The start of 2020 proved to be a challenging one, leaders from all over the world now dealing with the significant effects of Covid-19, a virus that is threatening both our personal and business life.

The outbreak of Covid-19, which was characterized as a pandemic, will have an impact on the M&A market due to the economic consequences. There is already a slowdown in the activity of numerous industries, the hardest hit ones right now being hospitality & leisure, transport & logistics, and restaurants. However, there are also some other sectors, that registered a significant increase in sales – mostly the food & beverages and pharmaceuticals.

Europe-wide, the healthcare and pharmaceuticals sector had the highest median multiple between 2018 and 2019, at 16.7x, followed by real estate (14.91x) and technology (13.86x). Transport and logistics (8.25x), construction (8.65x), and energy and utilities (9.07x) have the lowest multiples. How these will evolve in 2020 is to be seen.

“This year is all about overcoming the challenges thrown our way and share the best practices within our business communities. Together, we will be prepared for the next wave of transformations.”, mentioned Răzvan Butucaru, Partner, Financial Services & Advisory Leader, Mazars Romania.


Media Contact

Emilia Popa, Head of Marketing and Communication, Mazars Romania | +40741.111.042

About Mazars

Mazars is an internationally integrated partnership, specializing in audit, accountancy, advisory, tax and legal services. Operating in 91 countries and territories around the world, we draw on the expertise of 40,400 professionals – 24,400 in the Mazars integrated partnership and 16,000 via the Mazars North America Alliance – to assist clients of all sizes at every stage in their development.

In Romania, Mazars has 25 years of experience in audit, tax advisory, financial advisory services, HR Advisory and accounting & payroll services. The local team has 230 professionals. |

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