analysis Romanian M&A market ‘among the most dynamic in the region' The Romanian M&A market is “surely amongst the most dynamic in the region,” with changes happening very rapidly. While still behind Poland, Czech Republic and Hungary, “it is catching up fast,” Edward Daniel MacDonald III, president and founder of Capital Advisory Group, told Business Review, adding that the quality of financial professionals, as well as the legal professionals who support financial transactions is improving. All the recent and pre-EU accession countries in the South East European region are interesting, however Romania is particularly appealing since it offers “a very dynamic entrepreneurial sector as well as a sizable and a very well-educated population.” This was among the factors that prompted CAG to consider opening an office in Bucharest. Moreover, the fact that the company's most substantial client base is formed of private equity firms such as Oresa Ventures, AIG, Advent, and Enterprise Investors with offices in Romania and Innova and MCI which have deals in Romania, was “one of the key reasons we have decided to open an office in Bucharest at the end of 2007,” says MacDonald. “I believe it is hard not to make money in financial services, especially consumer finance, mobile telephony, cable television, and modern retailing if you are early to the market in these sectors.” In his opinion, the next few years will see Romania eliminating the gap between itself and other leading Central European economies. Preliminary research shows that consumer finance, real estate, technology, building construction materials and the entire service sector are “especially attractive” for investment, MacDonald says. CAG is focused primarily on sales side M&A advisory services, with the largest deal closed in Romania being the sale of Credisson to Cetelem. “Unfortunately we are not allowed to disclose the value. However, we have heard that there were certain press reports of the value which were not far from the truth,” says MacDonald, adding that at the time it closed in March of 2005, the deal was recognized as being one of the most important private sector M&A transactions in Romania up to that point. The company's first deal in Romania concerned the sale in 2003 of AIG-CET Capital Advisor's interest in Luxten, the largest lighting company in Romania. “At that time the market in Romania seemed very backward. Debt financing for M&A activity was practically unheard of. There were very few established private equity firms. Also, there were few international law firms,” says MacDonald. By 2005, when the company completed the sale of Credisson to Cetelem on behalf of Oresa Ventures, things had already improved tremendously. In May this year, CAG completed the purchase of Fiba Software on behalf of Asseco Romania S.A. “We see the Polish public markets and access to debt financing as still being more advanced, but Romania is now a very normal EU country to complete a transaction in. I believe Romania to be on par with Croatia and Slovenia and ahead of Serbia in terms of the quality of M&A transactions,” says MacDonald. According to a report conducted by PricewaterhouseCoopers, the total value of the M&A market amounted to more than EUR 3.5 billion in 2006. This figure places Romania in fifth position after Russia, Poland, Hungary and the Czech Republic, and, although it marked a decrease compared to 2005 when the total value of the M&A market reached EUR 3.9 billion, it also shows that the fundamentals of the market have changed, the report found. While in 2005, just one transaction, Vodafone's acquisition of Connex, represented around half of the market volume, in 2006 an increasing number of medium-sized deals were closed. The most dynamic sectors for M&A activity in 2006 were manufacturing with 21 deals and maintaining its leading position over the last four years, constructions with 20 transactions, financial services with 17 deals, media with 13 deals, and pharmaceuticals and services with 12 deals each. According to the PwC study, in 2007 the private sector, strengthened by the opportunities generated by recent EU accession, is expected to become the pillar of the M&A market. In terms of market volume, English investors closed 15 deals in 2006, American investors 11 deals and Austrians 10. Domestic buyers were the most active in the ranking, having sealed 41 deals. Another report, on the Central and Eastern Europe (CEE) Strategy, conducted by KBC Securities and quoted by Budapest Business Journal, shows that senior managers in the CEE region see Romania as the country with the greatest potential for mergers and acquisitions in the region, followed by Bulgaria. The report included the opinions of managers from 100 companies in Hungary, the Czech Republic, Poland, Slovakia and Slovenia, regarding the M&A context in their country. Romania and Bulgaria are expected to reach the highest level both in M&A and the activity of the private investment funds. Half of the study's respondents see Romania as the most attractive market on the M&A segment, with financial services expected to be the most active sector in the next year. At the opposite pole are Macedonia, the Republic of Moldova and Albania, which are considered the least interesting. Seventy-five percent of the respondents are considering making acquisitions exclusively in the CEE region which currently has a higher development pace than the rest of the European Union. Mergers in the CEE region have seen extremely high increases over the last few years, and this is a trend that will continue for the next 12 months.