This may in part be due to the steady rate of deal volume in the region (481 deals in both 2018 and 2019) against the background of a global drop-off. And while overall value for CEE/SEE M&A fell 17 percent in 2019 to EUR 19.6 billion, this was less steep than the 23 percent drop in M&A value in Western Europe over the same period.
Horst Ebhardt, partner at Wolf Theiss Austria, explains how this trend is likely to continue as new markets are continually discovered in the region: “The CEE/SEE region’s economic growth has outstripped that of Western Europe for several years, and many markets remain under-penetrated and underdeveloped in sectors ranging from infrastructure to healthcare, from modern retail to tourism.”
A new destination takes the top spot
The rise of Poland as a gateway to the region has seen the country overtake Austria as the leading investment destination by deal value in 2019, with deals worth EUR 11.6bn in total.
As both the largest economy in CEE/SEE and its most populous country, Poland has seen unbroken economic growth for almost three decades and is expected to see continued robust growth in 2020. “Most of our clients see Poland as a safe harbour in the event of a general slowdown,” says Tomasz Stasiak, the co-managing partner of Wolf Theiss Poland. “We are perceived as a stable and developed economy.”
Most attractive sector
The consumer and leisure sector saw the most activity in 2019 in terms of deal volume, accounting for 22 percent. Meanwhile, TMT matched the expectations from last year’s report by proving itself as best-performing sector by value. The TMT sector had an exceptional year, registering the highest total annual value for the sector in the CEE/SEE region on record (since 1998).
Entering 2020, these sectors continue to attract the most attention: both were cited by 38 percent of respondents as sectors in which they are likely to invest, closely followed by industrials and chemicals (34 percent) and PMB (33 percent).
PE interest continues to rise
The growth of PE interest in the region has been a noticeable trend in recent years. Nearly eight in ten (78% percent) of PEs surveyed said they were expecting to make an acquisition in the CEE/SEE region in the coming two years. There are more companies of size to attract private equities than there were a decade ago and it seems likely that dealmaking momentum will continue.
Romania, the sleeping giant
The second-most populous country in CEE/SEE, and the fourth largest in overall GDP, Romania has been something of a sleeping giant. But the past few years have seen stellar economic growth, reaching 7 percent in 2017. This will moderate to around 4 percent in 2019/20, still an impressively high rate. The fall of the left-leaning government in 2019 has led to the installation of a right-of-centre government that is expected to be more pro-business but may have limited space to implement new policies before new elections in 2020 or 2021.
The re-election of President Klaus Iohannis in autumn 2019 should provide a thread of constancy and help continue the country’s process of strengthening institutions and anticorruption efforts. Romania ranked highly among respondents for its level of openness to investment and its level of infrastructure. Sectors of particular interest include PMB, where demand for hospitals is growing countrywide, and consolidation is ongoing in the pharmacy segment.
Real estate is seeing “tremendous development across all asset classes”, says Bryan Jardine, managing partner at Wolf Theiss Romania, though transport infrastructure continues to lag behind Western European standards; a frustration in a large country at the crossroads of CEE and SEE. Meanwhile, the fragmented banking sector is ripe for consolidation – a process that is edging forward.