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M&A TRENDS 2015: ‘great expectations’, after an optimistic start

The Romanian Mergers and Acquisitions (M&A) activity promises to pick up this year, taking into account an intense first half of the year, due to the business consolidation processes and expected market entry of new players. This makes us, business lawyers and financial advisers, more confident about the possibility of getting closer to pre-financial crisis transaction levels.

In line with the general economic situation, the M&A market registered a sustainable growth so far this year, on the background of increased investor confidence and interest, including investments funds.


With a number of deals filtering through from 2014, the Romanian market is now seen as stable and predictable in the region.


The Lafarge disposal of the Romanian assets to CRH, the ADM acquisition of a Constanta port terminal, and the take-over of Pehart by Abris are the leading domestic transactions in the first six months of this year. The healthcare market is also very active, with sale processes for big players coming towards the binding bid stage, while the Labormed takeover by CVC Capital Partners was already announced. 

 

It is also expected that real estate deals will increase in volume and value, as Romanian real estate opportunities are again interesting for investors. Such increase fits within the general trend noticed by Emerging Trends in Real Estate® Europe 2015, a forecast published jointly by the Urban Land Institute (ULI) and PwC, which notes that:


‘Investors have found prime assets expensive and hard to source, and have in turn looked to find new opportunities in recovering secondary cities, secondary assets and development opportunities’. We believe that Romania will be a beneficiary of this trend.


In addition, we believe that the conclusion of American analysts according to whom ‘high-profile megadeal activity has triggered activity across the whole deal landscape’(1) should also hold true for Romania.


The banking, food processing and logistics sectors are likely to see an increase in the volume of transactions this year, contributing to the overall framework.
 

Some good news at last


Globally, things are even better. According to Mergermarket, deal activity already exceeded the volumes of 2014 and, if the  trend continues, 2015 will get even closer to the record year of 2007.


‘Global M&A in H1 2015 saw a continuation of last year’s dealmaking enthusiasm’, illustrates the Mergermarket analysis. Energy, oil & gas and Technology, Media & Telecommunications (TMT) were again the hottest industries in the first part of 2015, with big deals, such as the Royal Dutch Shell acquisition of United Kingdom-based BG Group Plc, while Communications Inc acquired Time Warner Cable Inc.


‘Why mergers and acquisitions come in waves is not fully understood.’(2) It is though a reality that there have been six M&A waves in the history of the last 125 years. Since the end of 2013, experts have commented on a new M&A wave that should enter its peak phase in 2015-2016.


And, in the last months, signs of changing and increasing confidence can also be noticed among CEOs.


In 2015, M&A reappears as a leading growth strategy. According to PwC’s CEO Survey for 2015, ‘as CEOs increasingly focus on what they’re good at, they’re looking to partner with others whose capabilities could complement or enhance their own. Fifty-one percent plan to enter into new strategic alliances or joint ventures over the next year – the highest percentage since we began asking the question in 2010.’ 

 

Along the same lines, according to the findings of the 2015 Deloitte M&A Trends Report, ‘an overwhelming majority of the 2,500 surveyed executives at US corporations and private equity firms expect the robust pace of mergers and acquisitions to extend – or even accelerate – in 2015. This momentum is expected across the board, in private and public businesses, in multiple industry sectors, in companies and private equity firms, large and small’.


‘The fuel firing this acquisitive appetite is innovation(3). The PwC CEO Survey for 2015 shows that access to new technologies is a top reason CEOs want to partner, but access to customers is also an important trigger.

 


One step closer to 2007 figures


Globally, in terms of deal values, 2014 was quite close to the figures of 2007, which remains, to date, the biggest M&A year on record.


If we get a closer look at the figures, the Global M&A market would add up to the following: US$ 3,230 billion worth of deals, 44.7% above 2013’s total and down just 11.8% from the last highest annual total in 2007.


Great news came from US, where the market reached its highest point at the value of US$ 1,409.4 billion, while Europe measured US$ 901.4 billion worth of deals (40% increase compared with 2013). Energy, IT&C and Pharma were the strongest-performing sectors in terms of value, while, at global level, deals in the Financial services sector were strongly
decreasing in terms of value and share in total deal market value(4).

 

Romania – 3rd largest M&A market in CEE


Looking back at the local M&A market in 2014, analysts note that the global wave did not touch Romania, as the total value of mergers and acquisition transactions in 2014 was estimated at around 1.2 billion Euros, similar to the deal value registered in 2013 (PwC Romania analysis).

 

Actually, according to Mergermarket data, the entire Central and Eastern Europe (CEE) region saw a decline in deal count in 2014, with 632 deals compared to 692 transactions in 2013. It is generally considered that the political setting considerably affected the deal flow.

 

 

On the positive side, the importance of the Romanian M&A market increased in 2014, as to become the 3rd largest in Central and Eastern Europe, after those of Poland and the Czech Republic, countries that traditionally have larger M&A markets.


Most significant deals by value in Romania were:


?the acquisition of ‘Live Rail’ by Facebook (US);
?the acquisition of ‘Banca Millennium’ by OTP Bank (Hungary);
?the acquisition of ‘United Shipping Agency SRL’ by Nidera (China).


Financial services was a very active market, with large NPL portfolios being traded, together with IT&C.


To sum up, in line with global trends, we also expect for the Romanian M&A market to show an increase in the following 2-3 years, based on improved investors’ confidence and accelerated economic growth.

 

 

1) Pip McCrostie, Contributor, ‘New Wave Of M&A To Be Driven By Innovation And Disruptive Deals’, Forbes, May 12th, 2015 @ 5:00 PM.
2) Schumpeter, ‘Riding the wave’, The Economist, Oct 5th, 2013.
3) Pip McCrostie, Contributor, ‘New Wave Of M&A To Be Driven By Innovation And Disruptive Deals’, Forbes, May 12th, 2015 @ 5:00 PM
4) For reference purposes, according to Mergermarket, 2007 added up to US$ 3,660.4 billion worth of deals at global level. Energy, IT&C and Financial Services were
the sectors which contributed nearly 50% to the total deal value in 2007.

 

Authors

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PRICEWATERHOUSECOOPERS SERVICII SRL
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SOCIETATE CIVILA DE AVOCATI D&B DAVID SI BAIAS