The CEE corporate strategy survey

mergermarket, the M&A intelligence and research service, in conjunction with KBC Securities, CMS and PENTA Investments, has today published a report on Central & Eastern European Corporate Strategy in which it has canvassed the views of senior executives in 100 companies in the CEE region (Czech Republic, Hungary, Poland, Slovak Republic, and Slovenia) to identify the sentiments and expectations regarding the M&A environment in their countries.

Key findings from the survey include: Great expectations for M&A activity in the next 12 months in the CEE region; Financial Services is anticipated to be the most active sector over the next year; Senior M&A practitioners are pointing to CEE targets over Western opportunities for the majority of their acquisitions; Romania and Bulgaria expected to witness the highest levels of both M&A and private equity activity.

M&A in Central & Eastern Europe has experienced tremendous growth over recent years, with deal volumes having increased dramatically throughout the region. This looks set to continue over the next 12 months with 72% of respondents expecting M&A activity to increase or increase greatly. Only 1% of those interviewed thought that activity in the region would decline.

Financial Services is, on average, the sector in which the majority of executives interviewed expect the highest levels of activity. This does however differ among the different countries, with those in the Czech Republic foreseeing a greater expected deal flow in Energy, Mining & Utilities and Industrials. TMT is another area which is anticipated to see some significant deal flow over the coming year. On the other end of the spectrum, there is very limited optimism for Food & Agriculture with only 19% of respondents expecting it to be an active sector. The majority of CEE corporates will keep their acquisitions within the region.

A large majority of 77% of those interviewed anticipate making acquisitions with the Central & Eastern Europe exclusively. There is a feeling that the region has higher growth potential than EU or Western countries.

Just over half of respondents saw Romania as the hottest country for potential M&A activity in the region, with Bulgaria only just behind. These two countries were also chosen as the prime targets for private equity buyouts in CEE. Macedonia, Moldova and Albania, are in both cases the least favourable options.

Additional findings include: Among those executives who are considering Western targets, Germany is by far the most likely country for outbound activity. Economic scale and geographic proximity makes Germany the most popular choice for companies looking at Western targets. The country is also a large recipient of CEE export sales.

Bank debt remains the most popular source of financing for M&A. While internal funding is also a strong source for financing M&A, bank debt is the preferred choice for executives looking to make acquisitions. However, the majority of respondents would favour financing deals with under 50% debt, which in combination with the anticipated strong deal flow could result in CEE corporates increasingly turning to their domestic stock exchanges.

Integration and negotiation along with political factors are the largest obstacles to M&A. Although many executives claimed they had no real difficulties in recent transactions, among those who felt they did integration and negotiation were key. Political restrictions and cultural differences also played their part in hindering M&A – the legal and formal regulations in particular.