After spending 2011 in the red, shrinking 25 percent to EUR 1.26 billion, Romanian’s mergers and acquisitions (M&A) market is expected to grow this year if the upcoming privatizations of minority stakes in state-owned enterprises (SOEs) are successful, predicted representatives of law firm CMS Cameron McKenna.
The local M&A market saw 162 deals last year, down from 2010 when the 223 deals amounted to EUR 1.68 billion, according to the Emerging Europe: M&A Report 2011 drawn up by European law firm CMS and DealWatch, a provider of emerging M&A data.
John Fitzpatrick, partner and co-head of the corporate department at CMS Romania, said there had been a lot of protracted deals in 2011, pointing to a high risk of signature or financial closure not being reached. Furthermore, the euro zone crisis will loom over Europe and deal activity this year. However, there is a positive side to this. “The crisis has recalibrated the prices. Sellers’ asking prices were astronomical,” says Fitzpatrick.
The number of M&A deals in eight emerging Europe countries rose by 12 percent last year to 3,800 transactions, amounting to EUR 150 billion, which is a 0.8 percent yearly increase, according to DealWatch. However, the average transaction size fell by 10 percent last year, while the number of deals over EUR 1 billion dropped to 24 from 34 in 2010.
Manufacturing was the most active sector with 753 deals, making up almost 20 percent of all transactions, but mining, which includes oil and gas, was the leading sector in terms of deal value with over EUR 48 billion, accounting for almost one third of the overall market.
The emerging countries included in the report are Bulgaria, Czech Republic, Hungary, Poland, Romania, Russia, Slovakia and Ukraine.
Stable deal-making in Romania
The most targeted sectors for deals in 2011 were manufacturing, energy, agriculture, technology, media and telecommunications, and real estate, and the situation will remain generally similar this year, according to the M&A report.
Horea Popescu, partner and co-head of the corporate department at CMS Romania, said manufacturing had played a significant role in the M&A market last year, and that the listing of SOEs would support growth this year.
“If two or three of the state deals are successful we will exceed the average of last year. If not, it will be similar to last year,” predicts Popescu.
The Romanian government has already completed a successful privatization this year, selling a 15 percent stake in grid operator Transelectrica on the Bucharest Stock Exchange (BSE) in March. The secondary public offering was oversubscribed in the large investor tranche, reaching 145 percent, while in the small investor segment it soared to 279 percent. Around EUR 37.7 million was obtained from the move and the Ministry of Economy, majority shareholder in the grid operator, described it as an important step in the privatization program.
The Ministry of Economy, through the Office of State Ownership and Privatization in Industry (OPSPI), will organize initial public offerings for Hidroelectrica, Romania’s largest hydropower generator, and Nuclearelectrica, the nuclear energy generator, each issuing a 10 percent slice of new shares from the share capital. Romgaz, Romania’s largest gas producer, will also float a 15 percent stake on the BSE through an IPO. Meanwhile, a 15 percent stake in Transgaz, the natural gas transportation company, will be up for sale in an SPO. Energy transporters Transelectrica and Transgaz were listed on the BSE in 2006 and 2007.
Popescu said there was still enthusiasm on the Romanian M&A market, but the economic uncertainties in the EU and domestic political conflict may dent growth.
The report stated that although privatizations across the region are waning, Romania is pursuing a massive privatization program, agreed under a EUR 5 billion stand-by agreement made with the IMF, World Bank and European Commission.
This March, Roman Copper Corp, a company controlled by Toronto-based investment boutique Bayfront Capital Partners, fully acquired state-owned mining company Cupru Min in an open-cry auction for EUR 200.7 million, from a starting price of EUR 57.4 million. Cupru Min owns Rosia Poieni mine, with a copper deposit of around 1 billion tons. State-owned chemical producer Oltchim, the Romanian postal service, the railway freight company CFR Marfa and the national airline Tarom will also be up for sale.
Romania’s neighbors, and fellow EU members, Bulgaria and Hungary were also active in the M&A market last year. Bulgaria notched up 120 transactions, amounting to EUR 1.2 billion, up 62 percent in volume from 2010 when only 95 were sealed. Meanwhile, the Hungarian market soared 160 percent to EUR 3.93 billion in 2011, closing 137 transactions against 171 in 2010.
Most of the largest deals signed in Romania last year were in the finance and insurance sectors, which reached around EUR 700 million. This includes Austrian Erste Group Bank’s minority stake purchase (30.12 percent) in Banca Comerciala Romana (BCR), estimated to have reached EUR 514 million, making it the largest deal last year. Meanwhile a small proportion of transactions came in wholesale and retail trade, services and construction.
In Bulgaria, the largest transaction last year was the acquisition of Maritsa 3 Thermal Power Plan by US independent power producer CountourGlobal for EUR 230 million. Deals worth a total of EUR 439 million were made in manufacturing, while utilities accounted for EUR 406 million.
West of Romania, in Hungary, the largest transaction was the minority stake purchase (21.2 percent) made by the Hungarian government in oil and gas producer MOL, for EUR 1.8 billion. Top deals in manufacturing reached EUR 863 million. Deals were also closed in the food and beverage sector, in transportation and warehousing, as well as education and healthcare.
Poland outperformed other EU members in the region, sealing 516 deals amounting to EUR 17.5 billion, although this was a 16 percent fall against 2010. The largest deal was the acquisition of the mobile telephone operator Polkomtel by the Polish billionaire Zygmunt Solorz-Zak for EUR 4.8 billion. Privatizations of minority-stakes in utilities and mining companies were carried out through the Warsaw Stock Exchange, amounting to EUR 2.4 billion, while other deals were closed in telecom & IT, manufacturing and wholesale and retail trade.