Analysis. Romania’s M&A market prepares for consolidation in 2018

Newsroom 15/03/2018 | 11:03

With the local M&A market posting a 15 percent increase last year compared with 2016, the future looks bright for the Romanian economy in 2018. While consolidation will be the key word for many sectors, the local M&A market will continue to generate few transactions exceeding EUR 50 million this year.

 

By Anda Sebesi

The Romanian M&A market reached EUR 3.8 billion in 2017, according to public sources and disclosed transactions, analysis carried out by Deloitte Romania has revealed. Overall, by combining all the transactions with undisclosed values, the total market reaches between EUR 4 and 4.6 billion, 15 percent up on 2016, according to Deloitte estimates. “M&A activity continued to grow in 2017, but more remarkable was that the number of transactions reaching between EUR 100 and 500 million reached 15, setting a record for the past ten years,” says Ioana Filipescu, Deloitte Romania M&A partner.

Pundits say the local M&A market made its debut in 2018 scoring rather a growth in terms of transactions and their value. Romania continues to be an attractive market for private equity funds and investors who are highly interested in the Central and Eastern Europe market. “There are sectors where there is a need for both consolidation and a breath of fresh investments to bring added value to the existing projects,” says Anda Rojanschi, partner at D&B David and Baias.

But Florin Vasilica, partner and head of transaction advisory services at EY Romania, warns that the corrections seen in the external economic environment combined with a lack of fiscal predictability on the local market counterbalance the rise of consumption and incomes and the favorable geo-strategic situation that Romania now enjoys. “These factors are evaluated by Romanian entrepreneurs who will look for solutions to make their exit from their mature businesses, while regional and global strategic investors will continue to extend and consolidate their market share.”

Anda Todor, managing partner at Dentons, highlights that there are investors looking for potential acquisition targets. “There are more and more Romanian entrepreneurs who have built their business up to a certain level, reached their maximum potential and are looking to move to the next level by attracting strategic or financial investors,” says Todor. She adds that the country’s favourable macroeconomic environment and general rise in consumption will persuade more strategic and financial investors to look closely at the local market and consider opportunities as they arise. As for the sectors expected to be livelier in terms of transactions this year, Laura Toncescu, managing partner, TMO Attorneys at Law in association with KPMG Legal, says that the M&A market will be more active in the FMCG sector but there will continue to be a consolidation in healthcare, agriculture and real estate. “In the banking sector, we will witness the completion of the transactions started last year. Considering the past deals and also the major changes in the fiscal legislation, we also expect to see NPLs entering another cycle, with fewer deals concluded throughout the year,” adds Toncescu.

As for the pharma and medical services sector, Rojanschi of D&B David and Baias says that consolidation is expected to continue this year based on the fact that the market has fewer large players with the appetite for acquisitions. “Plus, the lack of legal stability for this sector in particular and the lack of financial and fiscal stability for the entire local economy make it difficult for small and very small players effectively to survive,” she says. In the same vein, the consolidation of the real estate sector on segments like logistics, offices and retail will continue, too. “We could see new entries both in real estate and pharma and medical services this year,” adds Rojanschi. As for their value, the majority of transactions in Romania are quite small, with an average value of EUR 12-15 million. “A limited number of transactions, about 15-20, exceed EUR 50 million every year and we expect this to happen in 2018, too. This is because there are not so many investment targets which can support large values. But the average value of a transaction could rise in Romania too, as local capital consolidates and entrepreneurial businesses become larger and generate higher profitability,” adds Rojanschi.

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