Steady momentum of inbound deals in 2019 underlines CEE’s resilient appeal to international investors despite global challenges, says Mazars

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.

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.

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.