Deals of the Year 2011
And the winners are . . .
Hungary’s transaction market had a disappointing 2011 after a temporary upturn in 2010, according to most market players. On the positive side, the Jeremie funds ensured a solid base of small transactions and liquidity on the market. In addition, as M&A advisors pointed out, not every deal comes to light and thus only a portion of actual transactions become known.
The weak performance throughout the year is attributed to uncertainties in the business environment globally and particularly in Europe, deteriorating macroeconomic indicators, and a worsening economic outlook in Hungary. Although increasing government activity in almost every sector contributed to deal flow, a series of unorthodox new policies introduced by the cabinet hurt the domestic investment climate, multinational investors said.
What to expect in 2012?
In 2012, deal flow could be fueled by the local impact of increasing global activity. Private equity, for instance, has been waiting for favorable investment opportunities in Hungary for years, but deals thus far have failed because Hungarian entrepreneurs have postponed the sale of their businesses in the hope of getting a better price later on. This attitude seems to be changing now, as they come to terms with the prolongation of the crisis. Increased workout activity in the Hungarian banking sector may also contribute to boosting deal flow.
The launch next year of two venture capital programs using EU Jeremie funding for SMEs, worth HUF 20 billion, is also a promising development. One program will offer up to €150,000 in seed funding for SMEs established within the past three years with annual revenues of a maximum of HUF 200 million. The other will offer a maximum of €1.5 million for SMEs established within the past five years with annual revenues of up to HUF 5 billion. Funding for the first program will be disbursed in one sum, while that for the second can be drawn in four installments until the end of 2015.
Mid Europa Partners – Wáberer’s
Experts described this as a “healthy transaction” without any negative associations in a promising sector. Waberer’s is the largest road transport company in Hungary and one of the largest road freight transport companies in Europe, operating a fleet of 2,300 trucks, while the investor is a leading private equity firm.
Mid Europa Partners acquired a 49.05% stake in Waberer’s in May 2011. Following a €12 million capital increase in Waberer’s Holding, Mid Europa holds a 57.5% stake in the company through the acquisition of shares from Waberer’s founder and CEO György Wáberer, who holds the remaining shares. Wáberer has an option to increase his ownership to the same level as Mid Europa.
According to Mid Europa, the company is well positioned to benefit from the strong growth potential of the European road freight market as a result of its modern fleet, regional coverage, low cost base and track record as a reliable partner for international blue chip companies and freight forwarders. The capital injection allows the company to take out new loans to finance acquisitions in the CEE region.
Largest M&A and FDI: Wanhua – BorsodChem
China’s Wanhua Industrial Group raised its stake to 96% from the previous 38% in Hungarian chemical company BorsodChem in a €1.23 billion transaction in February. The company’s creditors own the remaining 4% of BorsodChem’s shares.
Wanhua acquired a 38% stake in BorsodChem together with an option to purchase further stakes from the previous majority shareholders, Permira/Vienna Capital Partners, in June 2010. Wanhua paid back part of BorsodChem’s €1 billion stock of debt and restructured the rest.
Wanhua has said that it plans to make BorsodChem responsible for the operations of the Wanhua group in Europe, the Middle East and Africa. With BorsodChem becoming a full member of the group, Wanhua will become the world’s third-biggest isocyanate producer, the company said earlier. The Chinese giant plans to sell BorsodChem’s isocyanate products to its European clients and will help BorsodChem’s TDI sales on Asian markets.
Most prominent Budapest-headquartered regional M&A: Advent – Provimi
Advent International bought Budapest-headquartered Provimi Pet Food from Permira for €188 million, with plans to back the company’s growth across Europe. Provimi is the third largest producer of private-label wet and dry pet food in Europe, supplying approximately 280 customers, including major grocery retailers, in the 27 markets in which it operates. The company, which has eight production sites in Europe, reported total sales of €236 million in 2010.
The company is part of the Provimi Group, which will now focus on its key animal nutrition business, which has already been substantially expanded through acquisitions in Colombia and Mexico and organic growth in Brazil, Russia and Asia. Advent International has been investing in the retail and consumer sector since 1984.
Largest Telecom sector: Invitel – FiberNet
Invitel subsidiary Magyar Telecom, not to be confused with Magyar Telekom, signed a sale and purchase agreement with FN Cable Holdings to acquire all of the issued share capital of Fibernet Hungary in November 2010. Magyar Telecom has also entered into an asset purchase agreement with UPC Magyarország on selling approximately one-third of FiberNet’s network assets in order to comply with anti-monopoly rules. The transaction was completed in February 2011 after receiving the approval of the Hungarian competition office GVH.
“The acquisition of FiberNet Zrt was part of the overall company strategy which aims at expanding the geographical area where we have our own infrastructure and where we are able to provide TV, high-speed internet and voice services,” Invitel, which is 100% owned by Mid Europa Partners, said. Invitel has 750,000 retail and 14,000 business customers.
Largest Financial sector: Erste Bank – Magyar Factor
Erste Bank Hungary bought a 50% stake in factoring company Magyar Factor in July and the remaining 50% in September. The merger of Erste Faktor and Magyar Factor is underway. With the acquisition, Erste has become Hungary’s second biggest factoring service provider with close to 22% market share. Erste Faktor was the fourth-biggest factoring company with a turnover of almost HUF 91 billion in 2010, while Magyar Factor was the third with HUF 100.5 billion.
The highest FDI outflow: MOL
The Hungarian government bought a 21.2% stake in oil company MOL Nyrt for €1.88 billion from Russia’s fourth-largest oil producer Surgutneftegas, with the government paying around HUF 22,400 per share for the stake. MOL shares are currently trading at a price of around HUF 18,000. Surgut bought the 21.2% stake from Austria’s OMV in 2009 and said it wanted to be a strategic investor. However, MOL had always regarded the purchase as an unfriendly move.
Largest Corporate bond issue of the year: three-year fixed-rate MOL bonds
Hungarian oil and gas company MOL publicly offered HUF 10 billion in three-year fixed-rate bonds at an auction in April. Even with a relatively low fixed rate of 7%, MOL received and accepted orders in the value of HUF 11 billion. The bonds will expire on April 18, 2014. The sale was the second issue under MOL’s 2010-2011 bond program, which is capped at HUF 100 billion and was launched in the summer of 2010.
MOL sold HUF 5.05 billion of bonds in the first offering of the program, which was also MOL’s first retail forint bond offering, in October 2010.
Most promising technical listing: Masterplast
There weren’t any actual IPOs on the Budapest Stock Exchange in 2011, but there were six technical listings, with the most promising one in our view being that of building materials firm Masterplast. The remaining listings were that of health care firm Biomedical Computer Technologies, asset management firm Plotinus, KEG’s feed unit Visonka, mineral water company FuturAqua and IT firm Optisoft.
Jeremie deal of the year: BBS Nanotechnology Kft
The upper limit a Jeremie fund can invest in one company in a year is €1.5 million. From the around 30 Jeremie deals so far, several reached this limit in 2011. Picking medical technology BBS Nanotechnology from the other equally attractive and promising transactions was a subjective choice made by the author of this article. If you’ve ever seen a cancer patient after a round of chemotherapy treatment, you might understand why. But only the future can tell which of these transactions will be successful.
BBS Nanotechnology, based in Debrecen (eastern Hungary), has created a new nanotechnology-based technique for formulating active ingredients that presents a breakthrough in the area of cancer treatment by decreasing the side effects of oncology treatments.
The eight Hungarian venture capital fund managers that won EU funds through the Jeremie program are Biggeorge’s-NV, DBH Investment, Central Fund, Euroventures, Finext Startup, Morando, PortfoLion and Primus.
Sectors where we expected more
After seeing the highest number of deals in 2010, the market was quite optimistic at the beginning of 2011. However, there were only a number of small transactions in the sector this year. The only sizable deals – the acquisition of a minority stake in RTL Klub by RTL International from IKO, and the acquisition of seven small broadcasting stations – are still awaiting anti-monopoly clearance.
In addition to the acquisition of Magyar Factor by Erste, there were only a small number of deals closed, including the merger of two savings associations and the acquisition of Cashline Securities by Buda-Cash Brokerage. There are however several transactions in the pipeline for the near future. “Half of the Hungarian banks are for sale, the problem is that nobody wants to buy them,” said one investment banker. Global and regional transactions will also have an impact on the impending consolidation of the Hungarian banking system.
Although there are several transactions in the pipeline in this sector, too, market players are awaiting the new renewable electricity subsidy scheme. According to the latest reports, a new subsidy program for power generators using renewable energy sources will be introduced as of July 1, 2012, six months later than previously planned, to replace the current system of green subsidies.
Every year, the Budapest Business Journal attempts to present the most significant deals of the past 12 months. However, since only a fraction are made public, and of the few that are only a minority disclose transaction value, a task which we initially thought would be easy has become a real challenge.
During our numerous consultations with experts, our survey sometimes unintentionally provoked emotional responses. We believe that this reflects the lack of transparency and reliable data on the transactions market. Thus, the results are based not only on publically available facts, but also on experts’ opinion and subjective judgments.
We would like to thank the following experts for their contribution to this article: Deloitte managing partner Béla Seres ; Ernst&Young partner Balázs Tüske ; KPMG director Tamás Simonyi ; PwC director Ervin Apáthy.
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