M&As go AWOL from local market

Newsroom 07/12/2009 | 16:32

The local M&A market was strongly hit by the current crisis this year, with a significant fall in value compared to recent years being the main feature. The negative impact of the crisis is not specific to the Romanian economy alone. “In the local economy’s boom period – from 2005 to 2007 – the Romanian transactional market was about 4 to 5 percent of GDP, while this indicator dropped to 2.5 percent in 2008. As for 2009, it will probably reach around 1 percent or less,” said Radu Stoicoviciu, partner and head of the M&A department at PricewaterhouseCoopers Romania (PwC). According to him, the Romanian M&A market (exclusively the “private to private” transactions) will be around EUR 1 billion this year. He added that it was difficult to estimate its value because in some major transactions (such as Patriciu’s exit from Rompetrol) the price has not been disclosed. “The market contraction will probably be 60 to 70 percent, after it posted a decrease of about 40 percent in 2008 on 2007,” said Stoicoviciu.

But Gabriel Zbarcea, managing partner of Tuca Zbarcea & Asociatii, said, “If we exclude regional transactions, the local M&A market dropped at least three times on 2008, to EUR 2.5-2.8 billion and a little over 200 transactions since the beginning of 2009.” Energy, FMCG, telecommunications, private pensions and retail were the most active fields. “Food and beverages manufacturing, retail and financial services saw some of the most intense M&A activity, in terms of number of deals. Telecommunication and retail posted the highest values for transactions,” said Stoicoviciu. The PwC representative added that the local M&A scene in 2009 was a buyer’s market. “We also noticed a lack of large transactions. Again, with a few exceptions, there were no mega-deals that exceeded USD 100 million. There were 14 such transactions in 2007,” said Stoicoviciu. Last but not least, the slump in the real estate field also had huge ramifications. Transactions with real estate companies have subsequently fallen drastically, with a significant effect on the size of the M&A market. “Transactions with real estate firms made up over 15 percent of the total M&A market in the ‘glory days’ of 2006 and 2007,” added Stoicoviciu.

Businessman Marius Ghenea, president of FitDistribution, which was one of the companies that scoured the market for acquisitions most keenly, thinks 2010 will remain auspicious for acquisitions since many businesses with good potential are going through a rough financial period and/or need more capital to develop. “They are no longer managing to mobilize capital since banks are more cautious in giving loans, the cash-flow of the business does not allow for organic growth and, as for other types of financing (such as venture capital or private equity funds), these are not available at small and medium business level,” Ghenea told BR. Still, there is a glitch. While for those who can afford to splash the cash, this is an advantage, the risk is proportional. “Even though transactions seem more interesting to investors or buyers than in a normal period, the risks are significantly higher, so in the end, there is a trade-off between a lower price paid for the acquisition and a higher risk later for the acquired or/and consolidated business,” warned Ghenea.


Fewer shoppers for retail businesses

Like real estate, the retail segment has witnessed few deals this year. The main transaction of 2009 involved buyer Enterprise Investors and the retail chain Profi. Polish Enterprise Fund VI (PEF VI), the private equity fund managed by Enterprise Investors (EI), has signed an agreement to buy out 100 percent of Profi Rom Food Group, one of the largest supermarket chains in Romania, in a EUR 66 million deal, fund representatives announced. Following the transaction, EI will control 100 percent of the share capital of Profi Rom Food, Albinuta Shops and DT Logistic. The seller is Duna Waiting Participation. Enterprise Investors worked on the investment with a management buy-in team of experienced retail managers. The transaction will be completed pending approval by the Romanian anti-monopoly office.Enterprise Investors previously invested in the retail segment when it bought local chain Artima, which it sold in 2007 to French retailer Carrefour for EUR 55 million.

Flemish retailer Delhaize, which owns the Mega Image and La Fourmi chains of stores in Romania, took over four local shops under the Prodas brand this year. The four units, which posted a EUR 12 million turnover last year, will be changed into Mega Image outlets. The deal is awaiting final closure. It was not the first takeover for Mega Image. The retailer acquired the La Fourmi chain from Global Finance last year.


Real estate deals fall 90 percent

With the lack of financing and Romania’s increasing risk profile for real estate investments, it came as no surprise to see very few real estate deals sealed this year. The value of property transactions has dropped by as much as 90 percent, from more than EUR 900 million traded last year.

By far the most important new real estate move of 2009 was investment fund New Europe Property Investments’ (NEPI) acquisition of BelRom’s European Retail Park in Braila. The EUR 63 million takeover was announced in the second half of the year, after a quiet first semester, although negotiations for the deal started early in January. NEPI has also agreed to buy BelRom’s similar projects in Focsani and Bacau, with the three developments together worth EUR 160 million. The biggest deal on the local real estate market so far was the EUR 340 million sale of the Upground mixed project to RREEF, the real estate arm of Deutsche Bank. The agreement was signed in 2008, but the second part of it was finalized this year, when a new office building in the project was completed and leased out.

While in most cases foreign money has been buying local assets, this year saw the start of a process involving local cash being poured into local and foreign property. Romanian businessman Dinu Patriciu set up an investment fund, Black Sea Global Properties Limited (BSGL), and started to buy real estate investment funds traded on the London Stock Exchange. These funds have seen their share price slide in the last year and a half, which made them interesting investment targets. The first fund acquired was Fabian, which holds properties only in Romania, for which BSGL paid around EUR 50 million, according to its offer. In Bucharest, Fabian owns Cascade office building, Baneasa Center and Evocenter offices, as well as Romana and Cubic offices, both of which are underway.

The strategy was to buy the fund on the stock exchange, paying a small premium on the market value of shares, and then delist it. BSGL targeted foreign properties as well when it acquired controlling packages in Deutsche Land and Rutley European Property, which have assets in several European countries. Deutsche Land was to be stopped from trading on November 20, while Rutley is still trading.


Pharma companies bet on OTC segment

The pharma sector saw more M&A moves than other business areas in Romania this year, and although the value of the deals was lower than in previous years, the transactions signed showed the interest in the sector and availability of funds. LaborMed was one of the most active buyers this year, having signed two deals. Its most significant move was the acquisition of producer Ozone, mainly aimed at strengthening its portfolio of over-the-counter (OTC) products. The OTC segment is more attractive to players as the prices of such drugs are not state regulated and companies can add their own trade margin. The deal involved 400 products in the Ozone portfolio. LaborMed is owned by investment fund Advent International, while the shareholders in regional player Ozone were Ludovic Robert, Michel Eid, Roger Akoury and Walid Abboud, who control the majority share package in another pharma company, A&D Pharma, focused on distribution and retail.

Producer LaborMed Pharma also acquired a 12-product portfolio from Cluj-based company PlantExtrakt. The acquired firm made a EUR 2.3 million turnover last year, with a profit of approximately EUR 84,000. LaborMed said it would be interested in other acquisition opportunities.

It posted EUR 30 million in turnover last year. Apart from the deals in the drug production field, one transaction was recorded on the private healthcare segment. Private hospital and clinic operator MedLife was the subject of a deal in which existing shareholders, the Marcu family and the International Finance Corporation (IFC), sold a 36 percent package in the company to an investment fund owned by Societe Generale, SGAM Eastern Europe. The deal was worth EUR 20 million. Following the transaction, the Marcu family holds a controlling package of 51 percent, and the IFC, 12.75 percent. This was not the first new shareholder the Marcu family has welcomed onto the company’s board. In 2006, they sold 20 percent of the shares to the IFC. MedLife runs four private clinics, five laboratories and 28 medical centers in Romania. The company was expecting EUR 26 million in turnover for this year.


CEZ consolidates its position on local energy market

The energy sector has not seen major moves in 2009 in comparison with recent years. The most important deal in this field was signed in the second half of this year by energy company CEZ, which consolidated its stake in CEZ Distributie, CEZ Vanzare and CEZ Servicii by acquiring the share packages owned both by the Property Fund and state-owned energy company Electrica.

According to CEZ officials in Romania, negotiations have been underway since late June, when CEZ applied for a call option for the first two companies. The firm paid EUR 145.36 million for the 19 percent share package held by Electrica in both CEZ Vanzare and CEZ Distributie, and another EUR 229.59 million to the Property Fund for its 30 percent stake in both these two entities. After the transactions with the Property Fund and Electrica, CEZ owns 100 percent of both companies. “We consider these negotiations a success for the Property Fund, as we obtained a 20 increase in the initial share price offered by CEZ. It is a success for us because after this deal, the fund will report EUR 130 million in profit or we will sell at 55 percent over the market price of these participations, as established by an external evaluator,” Cristina Stihi, communication director at the Property Fund, told BR.

CEZ also bought from the Property Fund its 12 percent stake in CEZ Servicii for EUR 1.6 million. CEZ Servicii was established two years ago and carries out activities including customer relationship management through customer relationship centers, financial and human resources activities. “The recent deals with the Property Fund and Electrica, along with the fact that we strengthened our position with CEZ Servicii […] pave the way for more synergy opportunities inside CEZ Group in Romania,” said Jan Veskrna, CEZ Romania country manager.

CEZ has operated in Romania since 2005 when it won a privatization tender for a 51 percent stake in the largest Romanian electricity distribution company Electrica Oltenia.

The firm boosted its operations on the local market in particular last year by winning the tender for strategic partner for the modernization of the existing plant in Galati. CEZ also became a partner with a 9.15 percent stake in the joint-venture company for the construction of the third and fourth units in the Cernavoda nuclear power plant. In Romania, CEZ Group is also building the largest European wind power plant at Fantanele and Cogealac with an installed capacity that will reach 600 MW. The group plans to invest EUR 1.1 billion in the project.

CEZ is the leading electricity distributor in Europe with almost seven million customers and a portfolio of over 14,300 MW installed capacity. Its market capitalization is in excess of EUR 30 billion. In Romania, the company acts as electricity distributor and supplier to 1.4 million customers.


Private equity firm buys regional operations of AB InBev

The regional beer industry has taken on a different aspect since Anheuser-Busch InBev Group (AB InBev), the largest brewer in the world, sold its assets and operations in Central Europe, including Romania, to the private equity firm CVC Capital Partners for EUR 1.5 billion. The deal includes the company’s assets in Romania, Bulgaria, Hungary, Czech Republic, Slovakia, Serbia, Croatia, Montenegro and Bosnia-Herzegovina. “Although the mergers and acquisitions market in Romania and the CEE was relatively quiet for about twelve months for obvious reasons, the last few months have brought a marked pick-up in activity, at least in our direct experience. Interestingly, the main buyers, once again, are private equity funds, which is a sign that some sellers’ expectations are getting back to more realistic levels and that there may be nice deals out there for smart investors. Also, while the number of leverage transactions has decreased significantly, recent deals driven by private equity funds are signs that acquisition finance may make a comeback, although probably only for the best of deals,” Alexandru Barsan, partner at PeliFilip, told BR. The law firm acted as advisor in the deal for CVC Capital Partners. “The acquisition of Anheuser-Busch InBev’s Central European operations by leading global private equity firm CVC Capital Partners is considered one of the largest private equity transactions ever in Central and Eastern Europe,” he added.

CVC officials announced the firm would use the name “StarBev” and was aiming to be number one on the regional beer market. AB InBev owns two breweries in Romania, in Ploiesti and Blaj. The latest data on the Romanian market shows that total beer sales in the first half of this year amounted to 9 million hectoliters, down about 10 percent against the same period of last year. InBev is one of the biggest brewers on the Romanian market along with companies such as Heineken Romania, United Romanian Breweries and Ursus Breweries. 


Three become one on insurance market

Groupama received in June the approval of the Insurance Supervisory Commission (CSA) for its project to create a new player on the local insurance market, Groupama Asigurari. The plans filed with the CSA set out the merger of Asiban and BT Asigurari and the creation of a firm with a new organizational and management structure. At the same time, OTP Garancia’s integration into the new firm will take place gradually, firstly through the absorption of the human sales force, with the following technical merger to be completed during 2010. The new Groupama Asigurari brand was launched on the market at the end of September, with the full merger of the operations owned by Groupama in Romania to be completed by the end of the year. It will not be built on the existing structure of any of the three firms, but will make use of their human and material resources. The cumulated results of Groupama’s firms in Romania ranked the insurer third on the market with a combined market share of 10 percent, at the end of the first semester.

Slim pickings in telecom and IT

The most important deal on the telecom market was the takeover of Telemobil (Zapp) by Cosmote Group, an acquisition for which the company paid in total EUR 207 million, and which was approved by the relevant authorities. This included the takeover, which amounted to EUR 61 million, while Cosmote additionally took on Zapp’s debts and obligations, which amounted to EUR 146 million, of which the majority of the funds were spent by the company to expand its 3G and

CDMA networks. Recently, the CEO

of Cosmote Romania, Stefanos Theocharopoulos, took over the duties of CEO of Telemobil SA (Zapp). Since last year, IT&C retailers have faced a lack of liquidity, which forced many to reconsider their previous plans or sell all or part of their businesses. The major move on this market was the acquisition of eMag by Asesoft Distribution. The latter announced in April this year it had purchased a stake of 51 percent in eMag. The value of the transaction was not disclosed but media estimations put it at EUR 10 million. Last year, eMag predicted a turnover of EUR 110 million, but later revised its forecast downwards by approximately EUR 40 million.

Just a month before, Asesoft Distribution announced it had purchased the indirect distribution division of Flamingo International. The value of this transaction was not made public, either. Following the deal, Flamingo ceded to

Asesoft its indirect distribution contracts. In 2008, the respective contracts

represented a ratio of 15 percent of Flamingo’s total turnover of EUR 203 million.

The second largest transaction by value on the IT&C market was the takeover of Autovit.ro, a second-hand car classified website in Romania, run by Visual Soft SRL. It was sold to MIH Allegro BV, the European subsidiary of Naspers South Africa. The value of the transaction was not made public but media sources put it at EUR 4.7 million.

FitDistribution was another company that was very active in making deals on the online market in 2009. Its last and most important transaction this year involved PC Garage, just two months ago. “We are currently in a period of post-acquisition integration. In this context, and taking into consideration the coming of the end of the year and the winter holidays, it is unlikely other transactions will be completed in 2009,” said Marius Ghenea, president of FitDistribution.

At the beginning of this year, Ghenea took over the e-commerce domains 24pc.ro and shopit.ro. “Fit Distribution started a policy of growth and consolidation through acquisitions as early as 2008, so we began the identification of and negotiations with acquisition targets more than a year ago, before the crisis,” said the company president. The total value of transactions closed by FitDistribution in 2009 is close to EUR 2 million, according to Ghenea.

The company analyzes any opportunity for acquisitions and, from this point of view, “new acquisitions are possible in 2010.” Ghenea said he was interested both in companies in IT&C, the same domain of activity as FitDistribution, as well as businesses in e-commerce retail with other products, on segments where there is high opportunity for growth.

“The most important aspects we consider before making an acquisition are the viability of the business model, the respective company’s financial position and capital, human resources and organizational culture. Depending on these criteria and on the negotiation itself, a decision is made one way or the other,” he added. Elsewhere, IT&C retailer Flamingo International has undergone some changes in its shareholding structure.

QVT Fund (which had requested the dissolution of Flamingo International in August) sold its participation of 22 percent in the company to Midfair Management Services), it has the right to subscribe.

The main shareholders in Flamingo International are Dragos Cinca, with 25.2 percent of the capital, businessman Dan Adamescu (through two of his companies Nova Trade and Astra Asigurari) with 17.54 percent of the Flamingo shares (which he took over in February 2009) and Alexandru Ion Tiriac with 5.12 percent.

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