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Oct 20, 2009 18:46 EEST
October 20 (SeeNews) - The mergers and acquisitions (M&A) market in Bulgaria is expected to enliven in the next six to 12 months but will not reach its pre-crisis levels as a lot remains to be done to attract private equity funds to it, industry officials said on Tuesday.
The M&A market is extremely low nowadays and it is tough doing M&A in Bulgaria but it will recover, Luc Hanon, managing director at global advisery Rothschild, told an M&A conference held in Sofia.
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The volume of M&A transactions in the country, which together with its peers in Eastern Europe is still "in the tunnel of the crisis and doesn't see the light" in contrast to central European states, could vary from 500 million euro ($748.3 million) to 2.0 billion euro next year if some major deals take place, Hanon told SeeNews on the sidelines of the conference.
The global crisis hit hard the M&A market in Central and Eastern Europe (CEE) alike. Transactions plunged to 1.0 billion euro in the region in the second quarter of 2009 from 8.0 billion euro in the fourth quarter of 2007, Hanon said. Unlike the central European states like Poland, Hungary and the Cezh Republic, which are considered to be exiting the crisis, M&A transactions in Bulgaria, Romania, Ukraine and other eastern European states are considerably lower.
"There is a lot of room for Bulgaria in the next six-12 months. [...] It seems that foreign investors have opened books for Bulgaria," Hanon said.
"The good news is that there is money. Funds are looking actively and there are companies that realise the possibility to attract private equity. [...] Strategic investors are also showing up," Rossen Ivanov, managing partner at Sofia-based M&A consultancy Entrea Capital told SeeNews on the sidelines of the conference.
Ivanov gave as an example the recent acquisition of Bulgarian water bottler Devin and the central Earopean breweries of Belgian brewery Anheuser-Busch InBev (ABI).
"There are sectors that continue to grow and will grow - online media and insurance, for example. There are also some opportunistic options - companies in a sector that is going down but will recover like machine building," Ivanov said. "For the right companies, there is interest."
According to Hanon, the privatisation of state-run Bulgarian energy companies and former tobacco monopoly Bulgartabac is also attracting investor interest.
Bulgaria has started to liberalise its energy market in the past couple of years, selling majority stakes in electricity distributors and some heating utilities. However, the government in Sofia is the sole owner of an energy megastructure incorporating assets worth more than 10 billion levs ($7.65 billion/5.11 billion euro) across Bulgaria's energy sector.
The Bulgarian government has said it wants to sell up to 30% of the project company that will build the country's second nuclear power plant, and sell debt-ridden Sofia heating utility serving more than a million of customers.
"For the next six months you will see deals done," Bela Lendvai-Litner, partner at Arx Equity, a mid-market focused private equity firm, which provides liquidity solutions to Central and Eastern European businesses, told the conference.
Industry officials agreed that a company with a strong platform, growth potential, vision and business plan could be a M&A target. The ability of a company to generate sustainable margins and possessing strong brand are also key for an investor's decision to enter or not. They also urged businesses to hire consultants to educate their management and restucture their business to sweeten themselves for likely investors.
"Perfectly put together businesses will attract investors," Bela Lendvai-Litner said. "We buy business plan, future," he said and added that its implementation is secured through a strong management.
The companies' balance sheets should be clean and managers should be dynamic and very well prepared, according to the strategy and corporate development head of Bulgarian telecommunications group Vivacom, Mathias Laferrere.
"We are looking for solid companies where we can add value," Tsvetan Lazhanski, CEO of mineral water bottler Devin, said. Devin has expansion plans related to neighbouring Romania.
"The successful deal will be when the two sides [the buyer and the seller] have common vision," said Ivaylo Spasov, another managing partner at Entrea Capital.
According to Valeri Petrov, partner at Bancroft Private Equity, one of the most specific reasons for the lower number and volume of M&A deals in Bulgaria is the big discrepancy between the expectations of sellers and buyers with regard to price and valuation.
"There is always a valuation gap. Prior to the crisis the gap was narrowing, now it is expanding. [...] Buyers now expect to buy cheap distressed assets," Christo Vanev, vice president of Sofia-based consultancy Bulbrokers Consulting told the conference.
Investors have zero tolerance for grey economy and lack of transparency in the companies, officials said. "The monkey business is already done," Lazhanski said.
"That is my advice: put your house in order. Otherwise it will reflect on your price," Tom Higgins, managing partner of Bucharest-based Axxess Capital, said. " Investors are looking to step in something that is really stable."
($ = 0.6682 euro)
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