In the latest CMS Emerging Europe M&A 2023/24 report, published in cooperation with EMIS, it was noted that the markets of emerging Europe[1] show exceptional resilience in the face of numerous adversities, such as geopolitical tensions or strong inflationary pressure.
The report data indicates a moderate slowdown in the overall number of transactions in the region. In 2023, there were 1,187 transactions, representing a decrease of 3.4% compared to 1,229 transactions in 2022, but also an increase compared to 2021, when 1,164 transactions were recorded. Despite lower valuations and a smaller number of large transactions, the overall transaction value remained stable from 2022 (€32.93 billion), amounting to €32.48 billion in 2023.
It is worth noting that with the stabilization of inflationary trends in the second half of the year, investor confidence revived. The transaction value each quarter showed improvement, resulting in a significant increase in the second half of 2023 (€19 billion), representing a 41% increase compared to the first half of 2023 (€13.5 billion).
Cross-border transactions, which increased in value to €30.8 billion in 2023 with a simultaneous decrease in their number by 69 compared to the previous year, deserve attention. The United States remains the most active investor in terms of the number of transactions (96), while the United Arab Emirates emerged as the leader in terms of transaction value (€3.16 billion). This was largely influenced by transactions in the telecommunications sector, including the €2.5 billion acquisition of PPF Telecom Group assets in Bulgaria, Hungary, Serbia, and Slovakia by e& (Etisalat) based in the United Arab Emirates.
“Investments from the Middle East in Central and Eastern Europe have been quite stable for many years, but in 2023 we observed a number of large transactions by investors from the Gulf region. Due to rising oil and gas prices, we expect further interest in our region as it remains attractive to investors worldwide due to sound economic fundamentals independent of short-term difficulties, such as a skilled workforce, proximity to Western Europe, low transport and labor costs, and an increasingly developed infrastructure,” says Horea Popescu, head of Transaction and Corporate Law practice in the CEE region.
Sector Diversity
The report shows extraordinary diversification of transactions without a single dominating sector. The most transactions were conducted in the telecommunications and IT sector (266), accounting for 22.4% of all transactions. The manufacturing sector followed with a share of 15.2% and the real estate and construction sector with a share of 13.3%. Although the total number of transactions in the telecommunications and IT sector decreased by 70 in 2023, their value increased by 140.3% to €9.1 billion. The manufacturing sector came in second in terms of transaction value with a total of €6.57 billion and with the largest transaction in the region, which was the takeover of Slovak U.S. Steel by Nippon Steel Corp for €2.75 billion.
The energy sector, where the largest share of transactions concerned renewable energy related to the construction of large solar and wind power plants – including the agreement of UGT Renewables with EPCG based in Montenegro on the development of a new large solar power plant – also attracted significant interest. As Central and Eastern Europe generates only 25% of its electricity from renewable sources compared to 55% from fossil fuels, the potential for further activity in this sector remains high.
Private Equity and IPOs
While the global IPO market showed signs of improvement in the second half of 2023, regional stock market debuts were rare, and their number fell from 13 in 2022 to just eight in 2023. This is also a significant drop from the peak of 60 in 2021. However, the total IPO value last year recorded a significant rebound, increasing from €40 million to €2 billion, mainly thanks to the large debut of Hidroelectrica on the Bucharest Stock Exchange, which reached a value of €1.89 billion.
Although the number of transactions involving Private Equity funds slightly decreased to 248 in 2023 compared to 289 transactions registered in 2022, their value increased by 57%, reaching a four-year high of €15.7 billion. Worth noting is the engagement of two American Private Equity funds: The Carlyle Group, which acquired Meopta-Optika in the Czech Republic for €677 million, and Advent International, which finalized the purchase of MyPOS in Bulgaria for €500 million.
Local Leaders
The standout countries in terms of M&A activity in 2023 were Poland (284 transactions worth €7.45 billion), Romania (199 transactions worth €5.54 billion), and the Czech Republic (139 transactions worth €3.73 billion). Interestingly, in Hungary, there was a decrease in the number of transactions by 11% from 64 to 57, with an almost twofold increase in their value – from €1.96 billion to €3.77 billion. Thus, Hungary achieved the highest M&A transaction value level since 2018, mainly thanks to the acquisition of Vodafone Hungary by Corvinus and 4iG for €1.64 billion.
Investor activity also increased in Ukraine, where in 2023 89 transactions worth €950 million were recorded. This reflects the growing investor involvement in the reconstruction of war-damaged infrastructure.
Outlook
“Poland remains the leading M&A market in Central and Eastern Europe with the highest number of transactions and their value. A key sector with increasing activity both in Poland and the whole region is renewable energy with many transactions in progress. We expect interest in this sector to remain high in the coming years due to the European Union’s decarbonization expectations. Also, investors perceive this sector as safe: many investment funds are interested in acquiring operational assets as they guarantee a minimum level of income,” says Sławomir Czerwiński, head of Transaction and Corporate Law practice at CMS Poland.
[1] Emerging Europe includes countries such as: Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Montenegro, Czech Republic, Estonia, Kosovo, Lithuania, Latvia, North Macedonia, Moldova, Poland, Romania, Serbia, Slovakia, Slovenia, Ukraine, and Hungary.
