INTERVIEW - Burgeoning M&A market in SEE boasts untapped potential for intra-region deals

INTERVIEW - Burgeoning M&A market in SEE boasts untapped potential for intra-region deals Mark Rubens/Shutterstock.com

SOFIA (Bulgaria), March 30 (SeeNews) - As Southeast Europe returns to steady economic growth and the mergers and acquisitions (M&A) market stirs up, an increasing number of local companies are starting to explore the opportunities for expansion in other countries in the region, Diana Nikolaeva, managing partner at the Bulgarian unit of global consultancy EY, said.

“There is an untapped potential for cross-border deals within the region. If you decide to expand, the most normal thing to do is to look at the neighbours, and this is exactly what we see many of the companies doing,” Nikolaeva told SeeNews in a recent interview on the sidelines of a presentation of the consultancy’s latest M&A Barometer report for Central and Southeast Europe (CSEE).

The survey indicated that the value of M&A deals in the region rose 16.6% last year to $43.1 billion ($38.4 billion), although the total number of deals went down to 1,281 from 1,304 in 2014.

The survey, however, excludes acquisitions of minority stakes of less than 15% from majority shareholders, privatisation deals, as well as bourse transactions, joint venture deals, greenfield investments, and licence acquisitions, and includes only deals whose price has been disclosed, based on enterprise value. For that reason, a number of cross-border deals, such as the acquisition of the Ljubljana stock exchange by the Zagreb stock exchange, remain outside its scope.

The M&A Barometer report showed parties to the deals are increasingly often local players, as in 2015 in 49% от all deals in CSEE both the buyer and the seller came from one and the same country. This trend is strongest in Bulgaria, where local players are involved on both the buyer and seller side in 67% of all deals, followed by Hungary with 61% and Serbia with 60%. Still, foreign investors continue to dominate the market.

“The economy is stabilizing, companies have now cleared their balance sheets and the banks are well capitalised,” Nikolaeva said, recalling that some big global companies such as power utilities E.ON and Enel and DIY retailers Praktiker and bauMax exited the region over the past years for strategic reasons – under pressure to deleverage, to dispose of non-core assets and raise cash.

“The question now is how this money returns to the real economy. This is the big challenge, and entrepreneurship should start returning,” she added.

IT startups seem to be part of the answer.

In recent years IT companies have mushroomed - both in Bulgaria and elsewhere in the region – attracting much of the investor interest.

“These companies are very good in technological terms but tend to be somewhat slow with the commercialisation of their projects,” Nikolaeva said. Selling such a project requires a major investment, which should be carried out simultaneously, or only shortly after, a product is developed because competition in this sector is extremely tight and everyone is trying to achieve something ultra significant, she added.

“However, to be successful a product needs to be scalable, i.e. it should be sellable on a big market,” she added.

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