South Eastern European M&A saw an uptick in the first half of 2018 compared to 2H17, with dealmakers outlining signs of improved in investor sentiment in Turkey, Greece and Cyprus, based also on the prospects of a long-term recovery in their economies.

In all three countries, M&A activity is expected to build momentum well into 2019, those polled by this news service said. In Greece and Cyprus, structural governmental reforms as part of earlier international lending agreements have created a more stable investor climate for deals, they said. Corporate bank loan restructuring moves are also set to trigger more M&A and even some IPOs, in all three countries.

Energy and transport are among the hottest sectors, dealmakers added.

The EUR 6.78bn worth of deals for the three countries during 1H18 was 16.1% up on the EUR 5.83bn registered for the same period of 2017, according to Mergermarket data. Deal size was bigger as 1H18 saw 46 deals, 15 fewer than those registered in 1H17, almost 25% less in terms of deal count than 1H17.

The growing momentum is also borne out by a strong 2Q, with a total of EUR 5.07bn as the lion’s share of the year’s transactions, the highest 2H since 2014 for SEE.

The largest deal of 1H saw Turkey’s Deniz Yatirim (99.85% stake) sold by Russia’s Sberbank to Emirates NBD for EUR 2.72bn. Meanwhile, the second biggest deal of the region was Turkey’s transport player, UN Ro-Ro Isletmeleri, sold by Esas Holding and Actera Group to Denmark’s DFDS for EUR 950m. The top Greek deal, and the fourth largest in the region, was the EUR 375m sale of First Data Corporation’s card processing businesses to Italy’s SIA SpA.

Turkey

The 24 June elections put a brake on earlier signs of acceleration of M&A, and markets saw the Turkish lira plunging around 20% earlier that month against major currencies mainly due to domestic turmoil. Whilst the landslide victory of Erdoğan came as little surprise, with the election out of the way the country should see some stability, despite the political uncertainties of what human rights organizations have dubbed a “climate of fear”, observers added.

Long-term strategic investors familiar with the market are nonetheless optimistic, with more realistic valuations and both local and international PEs are still active in the market, dealmakers said.

Turkven and Actera are the most active PEs in Turkey on both the investment and exit front, two of the bankers added. Turkven floated Medical Park on Borsa Istanbul in February and Actera is exploring options to list its portfolio company Standard Profil on the London Stock Exchange (LSE), as reported.

Distressed Turkish companies will be seeking restructuring in 2H, one local and an international banker said. Yildiz Holding and Dogus Holding are looking to dispose non-core assets in the in energy, construction and food industry as part of their debt restructuring efforts, as reported. Yildiz Holding previously floated its grocer business Sok Marketler raising EUR 445m and is also exploring options for its supplier of magnesia and refractory products Kumas Manyezit, this news service reported.

Energy and transport industries could attract equity capital, both added, citing the sale of U.N. Ro-Ro to DFDS, the second biggest Turkish deal, as an example. EWE AG, The German energy company, is disposing of its Turkish business and talks are underway with potential bidders, this news service reported.

There is more optimism for IPOs as stability is brought to the markets, dealmakers added. The year has seen a total of eight IPOs and an SPO, which includes Aselsan (SPO), Enerjisa, Medical Park and Sok Marketler, after a mere three in 2017 in the pre-election period. The DeFacto, Beymen and Penta IPOs were, however, cancelled due to low domestic and international demand.

Greece

Greek deals are set to see improved sentiment as the country leaves its MoU with international lenders. Last month, leftist prime minister Alexis Tipras even donned a tie when the country was given the green light to become semi-independent in a summer deal which includes a 10-year extension on EUR 96bn of bailout loans and a EUR 15bn final bailout tranche.

Investors will feel more comfortable on the back of the exit, which comes with built-in programmes to keep structural reforms on track, one of the bankers and a local analyst said.

The country has some strong energy, transport and consumer companies with good growth prospects, two bankers and the analyst said.

Companies such as snack goods maker Chipita, which has the majority of its growth outside of Greece are an example cited by the bankers.

Chipita had planned an IPO on the LSE, but has deferred it until market sentiment improves, and could see bidder interest for a sale option, as reported. Mondelez International [NASDAQ:MDLZ], the US multinational confectionery player, is ready to pay EUR 1.5bn for Chipita, while PepsiCo [NASDAQ: PEP], is reportedly expected to submit a bid via Frito Lay.

The success story of Energean Oil & Gas [LON:ENOG], a recently listed Greek-owned company focused on the gas market in Israel, was also cited by several dealmakers as heralding a driving force of Greek companies engaging in M&A or IPOs in the energy sector. Energean listed at GBP 4.55 per share for a market capitalisation of GBP 695m (USD 968m) earlier this year.

The privatization of oil refiner Hellenic Petroleum is another example of a flagship deal for the country, a source close to the government said. Five expressions of interest were received but only Glencore Energy and UKVitol Holding have gone through to the next round, as reported on 3 July.

The privatization of Public Gas Corporation (DEPA) is also expected to kick off later this summer. The government holds 65% in DEPA via Hellenic Republic Development Asset Fund (HRDAF) , while Hellenic Petroleum [ATH:ELPE] owns the rest. DEPA is a key pillar in the Greek and regional gas market, the same source said.

The Greek government has gained considerable momentum this year with privatisastions and looks to send a clear message to investors through those flagship sales, he said. HRADF is also expecting to launch a tender for the privatization of a 30% stake in Athens International Airport (AIA), in 2H18, as reported.

Restructuring of NPLs has led to the consolidation in the fisheries sector. For example, on 22 June Andromeda, active in Greece and Spain, acquired a 74.34% stake in Nireus Aquaculture. The fisheries had been taken under the control of Piraeus Bank [ASE:TPEIR], Alpha Bank[ASE:ALPHA], Eurobank [ASE:EUROB] and the National Bank of Greece [ASE:ETE]. This was the eighth largest deal in the SEE region.

Cyprus

Cyprus scored low in deal volume and size in 1H, but is nonetheless witnessing increased M&A activity, driven by the country’s return to economic growth and a recovery of the banking sector, Anastasios Antoniou, partner at Cyprus law firm Antoniou McCollum & Co and a regional banker said.

One of the most significant recent deals is the recently agreed upon merger of the second and third largest banks in the island, Cyprus Cooperative Bank (CCB) and Hellenic Bank, they noted.

Telecoms is also on the move. The sale of Cyprus state-controlled, Greece-based Cyta Hellas Telecommunication for EUR 11m to the Greek arm of Vodafone was the tenth biggest deal in the region.

The tourism sector will continue to spearhead deal activity and to offer opportunities for investors, Antoniou said. The planned City of Dreams Mediterranean casino resort is an example of growing positive investor sentiment on the island, he said. The EUR 550m development by Hong Kong-based Melco International Resorts and Entertainment is expected to be Europe's largest casino resort, according to reports.

Another notable trend in the wake of Brexit is the growth in non-EU companies opting for Cyprus as an EU hub, which could lead to M&A in the country in some cases, Antoniou said.

by Elaine Green, Erdinc Ergenc and Katka Krosnar with analytics by Mary Tasouli

Elaine Green Editor Mergermarket

Elaine Green is Editor - EMEA Bureaus at Mergermarket and is responsible for managing the Bureaus in Europe and Middle East and African (EMEA) as well as being Global Head of Shipping. She has been with the company since its inception in 2000 and is an experienced reporter, editor and manager having worked both within the group and at wide range of other European publications. Her qualifications include a Master’s in Business Administration (MBA).