REVOLUTION ON THE MERGERS & ACQUISITIONS MARKET – RECORD-BREAKING M&A TRANSACTIONS IN POLAND
Market analyses in the context of the number and type of transactions conducted in 2021 clearly indicate that it was record-breaking in terms of finalized M&A processes. And it does not seem to stop there… Looking through the prism of the economic and political situation, one might wonder: how is this even possible? Two years ago – in April 2020 – just after the outbreak of the SARS-COV-2 virus pandemic, we wondered how it would affect the mergers and acquisitions market and whether it would result in a forced transaction quarantine. More in the article Impact of a pandemic on Mergers and Acquisitions. Today we know that not only did it fail to hinder investment processes, but it also contributed to their significant stimulation.
M&A transactions in Poland – The numbers speak for themselves
The report titled “Investing in CEE: Inbound M&A report 2021/2022” – developed by the company Mazars confirms that in Central and Eastern Europe not only the number but also the value of M&A transactions reached the highest result in 5 years! In 2021, 889 mergers and acquisitions were conducted in this region, which means an increase of 32% compared to 2020. In turn, their total value amounted to €67.5 billion, which is 41% more than in 2020.
There was also an increase in cross-border transactions (i.e., ones conducted with the participation of investors from outside Central and Eastern Europe) of 34% compared to 2020. This also translated into an increase in the total value of this type of transaction, which amounted to €32.5 billion (an increase of 36%).
It is worth noting the involvement of private equity funds in M&A transactions. It is associated with high capital participation and increased activity of investors from the United States. It turns out that as many as two thirds of M&A transactions were conducted with the participation of private funds coming from the USA.
At the same time, it should not be surprising that most mergers and acquisitions took place in the technology industry. The volume of transactions increased by 86%and their value by more than €10 billion! This is, of course, the result of the dynamically progressing digitization and increased demand for outsourcing of IT services in recent years.
Poland is Central and Eastern Europe’s transaction leader
The analysis of the Mazars report – both in terms of volume and value of the transaction – allows for concluding that in 2021, 4 countries (Poland, Russia, Austria, and the Czech Republic) were at the forefront. And although in terms of the value of the conducted processes – Russia came first with a result of €20.4 billion, it was nonetheless Poland that turned out to be the leader in the number of mergers and acquisitions with as many as 192 M&A transactions.
Considering the lower transport costs, but also the economic potential, constantly developing internal market, qualified workforce and natural resources, Poland is a promising investment location and undoubtedly an attractive entry point to the markets of Central and Eastern Europe.
Moreover, also from the M&A Index Poland report prepared by Navigator Capital & FORDATA, shows that only in the first quarter of 2022 the number of M&A transactions in Poland in relation to the first quarter of 2021 increased by 10, and in relation to the first quarter of 2020 – it almost doubled! This data shows that despite the accelerating inflation and economic changes caused by the pandemic and the ongoing war in Ukraine, the M&A market remains active.
This is certainly a promising beginning of 2022.
On the other hand, comparing the entire year 2021 with 2020 – we can see an increase in M&A transactions executed in Poland by almost 100.
What does this result stem from? Factors such as: (i) a constant (low) level of interest rates in 2021, (ii) intensive development of the new technologies and e-commerce sector and (iii) fairly good economic situation on stock exchanges are not without significance.
Industries drawing the highest M&A interest
Technology, Media and Telecommunications
In 2021, there was a threefold (from 9 to 27) increase in M&A transactions in the e-commerce industry. This is undoubtedly the result of the increased demand for the use of electronic platforms in connection with switching to online shopping or conducting business (meetings) online. This is also supported by the constantly solidifying market position of software manufacturers. In 2021, as many as 26% of the acquired companies are companies from the TMT industry, and the latest data (for the first quarter of 2022) indicate that the interest in this industry is constantly growing (currently 28%).
FCMG (Fast Moving Consumer Goods)
On the podium, in the category of industries with the largest number of acquisitions last year (11%) was the industry of the so-called fast-moving products or fast-rotating consumer goods (FCMG). In other words, these are companies involved in, for example, the production or distribution of basic goods, including food, beverages, cosmetics, over-the-counter medicines, hygiene products, alcohol or tobacco products.
In turn, in the current transaction statement in the first quarter of 2022, the position of the FCMG sector was taken over by the energy sector.
Machine Industry, Biotechnology and Healthcare
Both in 2021 and in the first quarter of this year – compared to previous years – the number of acquisitions in the biotechnology and healthcare sector increased. The medical industry is currently dominated by Medicover and Luxmed, which are striving in parallel to increase the customer base and expand the services offered.
Energy Industry
Due to the EU rules and regulations and the suspension of importing raw materials from Russia in connection with the ongoing war in Ukraine, a rapid consolidation of the Polish energy market is forecast. Already in the first quarter of 2022, there was a significant transaction reinvigoration in the energy sector – 13 acquisitions. The sale of companies from the Lotos group (Lotos Paliwa, Lotos Asfalt (30%), Lotos Terminale, Lotos Air BP Polska (50%) and Lotos Biofuel) mainly to foreign investors from Hungary and Saudi Arabia (MOL, Rossi Biofuel, Saudi Aramco) is definitely important here.
Virtual Data Room
The last year and a half is a period of increased use of virtual data rooms (VDRs), especially in the real estate industry. And not only commercial real estate, but also (surprisingly) residential one. VDR systems enable efficient circulation of transaction documentation, and thus accelerate the finalization of processes.
Record-breaking M&A transactions in Poland – what is next?
Currently – just as at the beginning of the coronavirus pandemic – there are doubts whether and to what extent the war in Ukraine will affect the international market of mergers and acquisitions. On the one hand, it may contribute to a temporary halting of investment processes and the suspension of some planned M&A transactions. On the other hand – according to Marcin Rajewicz,an expert in the commercial real estate sector in Fordata – we should expect the activation of the so-called forced sale of endangered assets or transactions involving entities with Russian capital. Moreover, an increasing interest in Poland from investors withdrawing from business conducted in Russia is also forecast.
There are also no expectations of a transaction decline in the dynamically developing industry of new technologies. In addition, changes in the prices of energy raw materials and fuel will certainly contribute to an increased search for alternatives, and this in turn will translate into transaction processes also in this sector.
Blog edited by dr Anna Maria Panasiuk
Founder and Managing Partner of Panasiuk & Partners, with many years of expertise in wealth management.
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