The Czech mergers and acquisitions market was one of the few markets in Central and South Eastern Europe which reported a drop in activity during 2011. In the Czech Republic the number of transactions fell by 24 % against 2010, while in the region as a whole it rose by 11 %. However, the total value of disclosed transactions in the Czech Republic was USD 4.2 billion, up 29 % on 2010. The trend towards a smaller number of larger transactions was confirmed on the Czech market, with 11 transactions with disclosed value being worth more than USD 100 million. From investors’ point of view the most attractive sectors were manufacturing and services, information technology and real estate. These are the results of the ranking of mergers and acquisitions entitled “M&A Barometer in the Czech Republic and the region of Central and South Eastern Europe” compiled by Ernst & Young. The most interesting markets in the region of Central and South Eastern Europe are Poland, Turkey and Romania.
In 2011, there were 119 transactions on the Czech acquisition market (including 17 acquisitions undertaken by Czech investors abroad), i.e. a drop of 24 % on last year, when there were 156 transactions disclosed. “We have become a standard, economically saturated micro-region of Europe. Anyone who wants to do business in the area already has a presence in the Czech Republic, and for the rest it is more a question of the right opportunity and current strategy,” says Petra Wendelová, mergers and acquisitions partner, Ernst & Young in the Czech Republic.
“The same applies to transactions as applies across the board, namely that size matters. This means that the success of the Czech Republic in terms of M&A will depend on our ability to find possibilities of cooperation and synergetic effects with other countries in the region. Companies relying purely on the Czech market will lose year by year,” adds Petr Kříž, executive director, transactions advisory services, Ernst & Young in the Czech Republic.
Domestic investors predominate
Most transactions on the Czech market took place between Czech firms, whose share rose to 60 % in comparison with 49 % in 2010. Incoming investment was mainly from the United States, Poland, Germany, the Netherlands, Finland and Great Britain. Outgoing investment was mainly in Slovakia, Poland and Hungary. Strategic investors maintained their predominance on the market, and the share of financial investors rose slightly to 26 %. The value of a transaction was disclosed in 39 % of cases, just as in 2010. On the basis of disclosed transactions the estimated value of the Czech acquisition market was USD 4.2 billion, i.e. USD 0.9 billion or 29 % higher than last year.
“There exist several strong players on the Czech market with considerable reserves of cash at their disposal for acquisitions. While during the first wave of the crisis these firms were mainly interested in the opportunities afforded by crisis selloffs, which in fact did not take place in the Czech Republic on a massive scale, now they are prepared for classic takeovers of healthy firms. However, supply is relatively restricted,” explains Petra Wendelová.
The most attractive sectors
In terms of the number of transactions the manufacturing and services sectors were the most interesting, with both accounting for approximately one fifth of all transactions. Smaller but more numerous transactions saw information technology take third place. Real estate was next on 12 %. What is interesting about this last statistic is that it involved the four most important transactions in terms of size on the Czech market. In 2011, the largest disclosed transactions were the real estate transactions carried out by Multi Development, which sold the Forum Nová Karolina Shopping Centre in Ostrava and Forum Ústí nad Labem to the real estate fund Meyer Bergman Limited and the Canadian fund Hospital & Healthcare of Ontario Pension Plans for USD 403 million.
Mergers and acquisitions in the region of Central and South Eastern Europe
In 2011, the acquisition market in Central and South Eastern Europe (Bulgaria, Czech Republic, Croatia, Greece, Hungary, Poland, Romania, Serbia, Slovakia, Slovenia and Turkey) grew as a whole by 11 %. Of these 11 countries only four reported a drop in the number of transactions undertaken, with the CR being joined by Greece, Croatia and Slovenia. “The agreement on the global market is that the most interesting markets in this region are Poland and Turkey, followed by Romania. In addition, Poland and Turkey also dominated in terms of the number and volume of transactions in the region,” says Petr Kříž.
In all 1,116 transactions were disclosed in the region with an estimated total value of USD 49.5 billion. The most attractive sectors in respect of the number of transactions were manufacturing, services and energy. In terms of the volume of transactions realised, the most important sectors were telecommunications, the chemical industry and banking. It is interesting that only 5 % of transactions were worth in excess of USD 100 million. The biggest reported transaction in terms of disclosed value was the sale of the Polish company Polkomtel for more than USD 6.5 billion.
The outlook for 2012
Given the less than optimistic forecasts of the development of the eurozone, many analysts anticipate that there will be fewer mergers and acquisitions in 2012. Even though many European companies are at threat of restricted access to bank financing because of the unfavourable economic development of the eurozone, large corporations still enjoy access to credit. However, it is possible that many of them will not need credit for possible acquisitions, since they have hoarded sufficient financial reserves of their own.
An emphasis on control mechanisms is increasing hand-in-hand with economic insecurity. “Over the last few years we have noticed an increase in the demand for forensic due diligence which is less than flattering for the Czech Republic. The Czech environment has a particular reputation, and the success of certain smaller companies in the public sector, for instance, means that potential investors are looking for assurances that the financial results being posted by these firms are not the consequence of corruption or other ethically unacceptable conduct,” says Petra Wendelová.
Most interesting sectors in 2012
“Network sectors are becoming more and more attractive. Consolidation is going on in the food processing industry and pharmaceuticals, while healthcare is offering long-term potential. However, a company’s market position, the sector growth potential and recently the relative predictability of the development of the sector are the key factors,” explains Petra Wendelová.
“In certain economic sectors the main motive for mergers and acquisitions is gaining a dominant market position. The ongoing connecting up of various spheres of information technology, be this mobile or wireless services or cloud computing, will lead to greater interest in assuring innovative intellectual ownership, including of patents,” adds Petr Kříž.
The most attractive global markets for capital transactions
The most attractive markets for capital transactions in 2012 will probably include China, India, Brazil, the United States and Australia. Other investment destinations amongst developing countries are Malaysia, Mexico and Argentina. As far as the BRIC countries are concerned, during 2011 in Brazil, Russia and China the volume of domestic mergers and acquisitions increased, along with transactions realised abroad. A similar trend can be expected in 2012, because the crisis in the eurozone is motivating financially strong economies, such as the Chinese, to reassess their investment strategy and instead of state and other obligations invest in tangible assets, e.g. infrastructure or natural resources.
“There can be many reasons for selling a company. In the Czech Republic there is a group of owners with specific transaction motivation. This might involve family companies established after the revolution, in which the founder is having to deal with the problem of succession and does not want to fight alone in order to maintain the independent growth of their firm in light of an uncertain economic outlook in Europe. These owners are looking for strong partners, regardless of momentary economic developments,” adds Petra Wendelová.
Note on change of methodology. We have changed the methodology in this edition of the M&A Barometer and so the data for the entire year 2010 differs in this version from the version from April 2010.
Source: Ernst & Young