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The CEE region saw a healthy level of dealmaking prior to the outbreak of coronavirus, but saw a fall in March as M&A across Europe began to slow. The region saw a clear decline by value, although fared better than other parts of Europe, while the deal count fell to its lowest point in several years.
A total of 84 deals valued at EUR 5.4bn were conducted in 1Q20 - a 8.6% decline compared to the same period in 2019 (111 deals, EUR 5.9bn). By deal count, the region saw its lowest quarterly result since 2Q12, with March registering just 15 deals, a drop from 38 and 31 transactions in February and January, respectively.
However, there is cautious optimism from dealmakers about the region's M&A landscape for 5 reasons:
1. Deals are postponed, but won’t lapse
M&A looks set to see a further decrease in 2Q20, due to the lockdown across Europe with most projects slowed down and the possibility of deal signings being postponed until June, according to the sources. Most deals are not expected to lapse, offering dealmakers some cautious optimism.
2. Real estate mega deals
Real estate was the highest performing sector by value with EUR 2.5bn for four deals accounting for a 46.3% of the CEE market share. This was achieved thanks to two deals above the EUR 1bn mark with the acquisitions of Residomo and Goodman Group logistics portfolio.
3. Energy and non-food retailing restructuring deals will boost future activity
Energy, Mining & Utilities, the leading sector of 2019, saw just three deals for a disclosed EUR 10m value. However, the energy sector, as well as restructuring deals in non-food retailing, could see an uptick once the situation improves, according to Mergermarket intelligence.
4. Private equity buyouts target CEE
Six private equity deals targeting CEE were announced during Q1 accounting for a disclosed EUR 55m; the lowest number of deals in a quarter since 3Q17 (seven). Despite the clear downturn, the largest deal saw TA Associates Management invest EUR 55m for a 75% stake in into Netrisk.hu, a Hungarian online insurance broker . Other buyouts were intra-CEE deals, including Belarus based Zubr Capital investing in Myfin Group, local banking products company, and Poland’s Value4Capital investment in Doktor24 Medicina in Hungary.Czech Republic continues seeing private equity investors’ activity and the country could see more interest in the second half of the year, with potentially attractive targets in online education.
5. CEE’s foreign investor-friendly policies
Foreign interest continued to drive M&A in Q1 with 39 deals valued at EUR 4.2bn. Starting with Residomo, other inbound investments included EUR 1bn sale of AXA CEE operations to UNIQA in Austria and Singapore-based GLP’s EUR 1bn acquisition of Goodman Group portfolio. China, meanwhile, could become more active into the region once the situation improves, as it looks to pursue its Belt and Road Initiative. The region’s investor-friendly policies, low manufacturing costs and growing economies could be a gateway for Chinese companies hoping to expand further into Europe.
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