BR SPECIAL! Banks lend large deals a financing hand in Romania

On a mergers and acquisitions (M&A) market that climbed to over EUR 4 billion in 2017, banks’ role in financing transactions remains critical, especially in the case of deals that break the EUR 100 million barrier.

By Ovidiu Posirca

Romania’s deal-making activity involved 15 transactions with a value between EUR 100 and 500 million in 2017, the highest number in the past decade, according to consultants at Deloitte, the professional services firm. The average value of a transaction stood at EUR 60 million last year and the overall value of the market is estimated to have reached EUR 4.6 billion, if transactions with undisclosed values are included. Based solely on M&A deals whose values have been made public, the market stood at EUR 3.8 billion, growing by 15 percent year-on-year
Generally, acquisitions in Romania have been financed with equity, which left more negotiation room for buyers, according to Ioana Filipescu, M&A partner at Deloitte Romania, who adds that the usage of various forms of debt in on the rise.

“Many of the global strategic investors are now using pre-existing multi-purpose credit facilities at international level to fund acquisitions in Romania. Private equity investors are increasingly using leveraged buy-out loans and debt push-down structures to optimize their returns on equity investments. Private Romanian entrepreneurs and other mid-sized strategic investors are also more often using loans from local and regional banks to partially fund acquisitions, so indeed there is a clear trend towards using more debt financing for M&A,” Filipescu told BR.

Banks’ interest coupled with the low cost of debt are fueling this trend, while mezzanine debt, direct lending and using bonds to finance acquisitions remain less popular options, says the partner.

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In industries such as energy and real estate, investors always use debt in their deals, to cover as much as 70 to 90 percent of the price, said Filipescu.There are also cases in which large international financial institutions buy stakes in companies with high growth potential, based on strong due diligence.

Meanwhile, the low-interest rate environment of the past few years has seen leverage loans holding a commanding grip on the acquisition finance market, but some investors are looking to tap the capital market as an alternative funding source, according to Raluca Coman, senior associate, banking & finance, at law firm Clifford Chance Badea.

“Banks remain the first option in M&A financing for strategic investors in Romania,” Coman told BR.

Deals to the tune of EUR 100 million and more

Usually, banks step in when the acquisition value exceeds EUR 100 million and can provide financing through club deals.

This process involves a bank arranger and/or agents that can also get parent banks on board or can directly raise funding from international markets.

“If the financing is done with arrangers/international bank agents, the documents will meet the standards required for the syndication of the respective exposures on international markets,” Alina Radu, partner and head of banking and finance at law firm NNDKP, told BR.

The financial complexity is higher in the case of private equity funds. For deals above EUR 100 million, there is typically an equity component that can be as low as 30 percent and a syndicated bank facility structured in various tranches (revolving, amortizing, bullet), according to Filipescu of Deloitte.

“Banks have dedicated teams involved in financing M&A transactions, which are part of investment banking divisions, structured finance departments or project finance departments. These teams review all the deal documentation, receive due diligence reports, create financial models and evaluate the ability of the lender and target to repay the debt being raised. At the same time, they are also responsible for the more ordinary activities, identifying, evaluating and securing collateral, and evaluating risks relating to the market, operations, liquidity and reputation,” she outlined.

Filipescu added that comfort and experience in dealing with the client and the M&A financing products are key aspects for banks, before they consider the merits of the deal.