Deals of the Year 2012
The Budapest Business Journal presents the most significant deals of the year 2012 in private equity, M&A, foreign direct investments and capital outflows and JEREMIE transactions. And the winners are...
Every year, the Budapest Business Journal attempts to present the most significant deals of the past 12 months. However, since only a fraction of these are made public, and of the few that are only a minority disclose a transaction value, the task is a real challenge. Due to the lack of transparency and reliable data on the transactions market, the results are based not only on publicly available facts, but also on expert opinions gained during our numerous consultations with some of the industry’s most well-known and respected specialists, as well as on subjective judgments.
For the first time, we separated private-to-private market transactions from deals where the state was the buyer, as most experts categorically refused to include such deals in the survey. However, as increasing government activity has contributed to deal flow in several sectors, we think it is important to list the major state-related deals in order to get the full picture of the transaction landscape in Hungary.
If we take a closer look at the market transactions, unfortunately, we do not see too many positive deals, where a new strategic investor enters the market. Most transactions are rather related to the exit of a major player from the Hungarian market. One of the reasons behind this is certainly the general recession in Europe. However, central Europe is no longer seen as being the attractive investment target it was when these companies entered the market. Back then, the region was considered to be high-growth, low-risk; now it is sadly neither low-risk, nor high growth.
Most prominent Hungary-headquartered regional deal: Alma Media acquires East European job portals
Finnish media corporation Alma Media acquired the eastern European job portal assets of A&N Media Limited, a fully owned subsidiary of Daily Mail and General Trust (DMGT) in November. The transaction price was €24 mln on an enterprise value basis. The largest of the acquired assets is Profesia s.r.o., which is the dominant recruitment service provider in Slovakia (Profesia.sk) and operates job portals in Czech Republic (Profesia.cz) and in Hungary (workania.hu). Calculated on a pro rata basis, the annual revenue of the acquired assets was approximately €8.5 mln for the financial year ending September 2012. The corresponding combined EBITDA from the assets is about €2.8 mln or 33% of revenues in the same period.
Lapcom Kft, a Hungarian branch of A&N International Media Slovakia, acquired Profesia, established in 2000, in 2005. Alma Media said that the acquisition is in line with its strategy to seek growth from digital services and further internationalize its operations. “Acquiring these portals in Slovakia and its neighboring countries makes Alma Media the clear market leader in online recruitment services in the region,” said Raimo Mäkilä, senior Vice President of Alma Media’s Marketplaces business unit.
First JEREMIE exit
Private equity fund PortfoLion closed its exit from Cryo Management with the sale of the company to Vitrolife in September. The transaction marks the first successful exit made by a venture capital firm, which is part of the JEREMIE I initiative. Vitrolife said that it has entered into an agreement to acquire 100% ownership in Cryo Management Ltd for €5 mln, which could rise to €9 mln upon the fulfillment of defined objectives primarily related to sales during the period 2013 to 2015. The purchase price is financed by a corporate acquisition loan of €3 mln and by payment of €2 mln in newly issued shares or cash.
Vitrolife said that through the acquisition it gains access to a product portfolio in the form of successful time-lapse products for IVF and increased knowledge within IVF technology and embryo development, adding that the companies have the same customers in the form of embryologists and gynecologists, which creates synergy gains in the sales area.
Cryo Management Ltd and its subsidiary Cryo Innovation Ltd are located in Budapest, Hungary. The company was formed in 2005, and has 20 employees and budgeted sales of approximately €2 mln for 2012. The company has successfully developed, produced and marketed time-lapse products, primarily for the IVF market.
Most positive deal of the year: Szenna Pack emerges from bankruptcy
Hungarian manufacturer of aerosol cans Szenna Pack escaped bankruptcy when U.S.-based extruded aluminum can maker Exal Corporation agreed to acquire its troubled Hungarian peer for €14 mln as well as to pay off some of its debts. Family-owned Szenna Pack filed for bankruptcy protection in July 2011 because of a poorly timed investment. Exal agreed to take care of unpaid wages and bills, and repay 50-75% of loans backed by collateral and 10% of loans without collateral. The deal was closed in the first quarter of 2012.
The transaction is considered to be a remarkable deal because Szenna Pack managed to reach an agreement with its creditors, who decided not to liquidate the company under bankruptcy protection (or chapter 11), but to accept the indemnification offered to them. This kind of agreement is very rare in Hungary, because bankrupt companies do not have sources to pay impatient creditors and banks also avoid financing companies in this stage.
In the meantime, Boxal, the European subsidiary of Exal, has been sold to Ireland’s Ardagh Group, but this change has not affected the acquisition of Szenna Pack.
Most surprising deal: a new strategic investor enters Hungary’s financial sector
Nowadays, it is quite unusual to see a new foreign strategic investor entering the Hungarian financial services market, when many others are trying to leave. Still, financial advisory group Brokernet Investment Holding, the owner of Quantis Investment Management Zrt, managed to sell a 30% minority stake in Quantis to LGT Capital Management in January. The deal price has not been revealed, but it is estimated to reach several million euros. Within the framework of the agreement, Quantis will be responsible for the regional distribution of LGT Capital’s funds. As of December 31, 2010 Quantis had assets under management of $480 mln and managed 10 mutual funds and 21 segregated accounts.
LGT Group, the largest family-owned private banking and asset management group in Europe, and headquartered in Vaduz, the capital of Liechtenstein, offers global services from more than 20 locations in Europe, Asia and the Middle East with assets under administration of CHF 88.1 billion as of June 30, 2011.
Largest FDI inflow: automotive industry mega-projects
Investments by three major carmakers, Audi, Daimler and Opel, are expected to be the main drivers of economic growth in Hungary. In the first half of 2012, Audi Hungaria invested approximately €300 mln in projects, which puts its total investment to €5 bln since the plant’s foundation in 1993. By June 30, 2012, the number of employees had reached 8,322, with 1,000 new employees hired over the first six months of the year. The company said that it aims to further expand its capacity at the Győr plant from 2015.
Audi Hungária is the central engine supplier of the Audi and Volkswagen groups. In addition, the Audi TT Coupé and TT Roadster sports cars, the Audi A3 Cabriolet and the RS 3 Sportback are also produced in Győr.
Daimler started production of compact models at its €800 mln plant in Kecskemet in March. Opel inaugurated a €500 mln engine plant at its base in Szentgotthard in September. The plant brings the amount Opel has spent on investments in Hungary to €1.25 bln.
Private equity deal of the year: acquisitions by Docler
Docler Investments, the private equity arm of the Docler group, acquired a 49% share in Hungarian design company Ivanka Concrete Factory for HUF 240 mln in July. Docler Holding appointed two members to Ivanka’s board. The capital increase will be used to set up a mass production line. Established in 2003 as a family business, Ivanka is specialized in design goods that are made of concrete, such as concrete furniture, tiles and clothing items.
Docler also acquired a majority interest in Hungary’s market leading authentication provider, NetLock Kft in February. With the agreement Docler acquired 51.05% share in NetLock and a purchase call option for the remaining quota, which can be exercised within two years. According to the agreement, NetLock will retain its autonomy and current management, but it will establish strategic cooperation with more members of the Docler group. NetLock Kft is the first qualified authentication, timestamp and archiving provider in Hungary.
Docler Investments Kft, established in 2011, provides capital as well as the experience and business and technology infrastructure of the entire group in order to support companies with high growth potential.
Oil industry: Mol expands filling station network
Oil and gas company MOL increased its Czech network by a further 124 fuel stations by completing the acquisition of Bohemia Realty and Pap Oil companies in October. MOL now has a retail network of 149 filling stations and reached close to a 5% share in the Czech fuel retail market. With the acquisition, MOL became the fifth largest company in terms of the number of filling stations in the country. MOL aims to reach a 10% share in the retail market on midterm by further steps, both organic and inorganic. The filling stations will be operated under the Pap Oil brand, which is well known in Czech Republic.
MOL operates its filling station network in 11 countries under eight brands. With the acquisition of the Czech fuel stations, MOL Group has increased the total number of its filling stations to 1,744.
Financial services: Aviva sells Eastern European life businesses to MetLife
Insurance group Aviva completed the sale of its Czech, Hungarian and Romanian life businesses to MetLife Inc’s local operating subsidiaries in those countries in August. The transaction was in line with Aviva’s strategy to focus on fewer business segments, where it can produce attractive returns. The purchase price has not been disclosed, but Aviva said that as of June 2011, the combined net assets of the businesses were approximately €57 mln. MetLife is a leading global provider of insurance, annuities and employee benefit programs, serving 90 million customers in more than 50 countries.
Retail sector: Delhaize group exits Hungary
Exiting the Hungarian market, Belgium-based retailer Delhaize sold 110 of its 200 Match and Profi stores to domestic grocery retailers CBA and Coop. The latter has acquired 62 Profi and Match stores in the country, while the former aims to convert 48 Match stores to its high-end CBA Príma brand in the Budapest region. The acquisition of the Match stores by CBA is part of its strategy to regain a leading position in the Hungarian market.
Delhaize also sold its seven Hungarian Cora hypermarkets to Auchan Magyarország in April 2012. Following the rebranding process, Auchan has now 19 stores carrying its name in Hungary.
The sweetest deal of the year: Rochen acquires Bonbonetti
Rochen, a major Ukrainian confectionery producer owned by Ukraine’s economy minister Petro Poroshenko, acquired Hungarian chocolate manufacturer Bonbonetti. Rochen and Bonbonetti signed a strategic agreement in July 2012 to strengthen the Bonbonetti brand on the European market and to support its expansion.
Rochen has four production units in Ukraine and two plants in Russia and Lithuania. The company employs 10,000 people and produces about 200 types of chocolate, bonbons, biscuits, cakes and toffees. The company’s revenues reached $1.2 bln in 2011, making it the 15th largest confectionery producer in the world. Rochen’s main export markets include Canada, Germany, Israel and the USA. Bonbonetti exports to 40 different countries.
TRANSACTION WITH THE STATE
Telecom sector: Magyar Telekom sells Pro-M Zrt
Telecom service provider Magyar Telekom signed a share purchase agreement to sell its 100% stake in Pro-M Zrt to the state-owned National Infocommunications Service Company Ltd for HUF 19.9 bln in August.
Magyar Telekom and T-Mobile Hungary established Pro-M in 2005 to build and operate a national Unified Digital Radio Network (EDR) system in Hungary. EDR is a national 380-400MHz band professional mobile radio network used by the emergency services, such as the police, fire departments and ambulance services. EDR runs on terrestrial trunked radio (TETRA) technology, the international standard for public safety and security mobile radio communications. The National Infocommunications Service Company is responsible for operating telecom infrastructure in the public sector.
Financial services: DZ Bank sells Takarékbank stake
The state-owned Hungarian Development Bank (MFB) bought a 38.46% stake in Takarékbank, the umbrella bank of a group of savings cooperatives, from the Deutsche Zentral Genossenschaftsbank AG (DZ Bank) in November. The purchase price has not been disclosed. MFB made an indicative offer for the stake in the summer and got permission to carry out the transaction from the bank’s other shareholders at a general meeting in September. Local cooperatives hold a 56.6% majority stake in the bank.
The transaction is in line with the government’s strategy to increase its influence in Hungary’s banking sector. In July 2012 Prime Minister Viktor Orbán said that 50% of the banks in Hungary should be Hungarian-owned. Nevertheless, this is only a tiny step in taking over half of the banking sector, as Takarékbank’s market share is only slightly more than 1%.
Takarékbank was established by the savings cooperatives in 1989 in order to provide their clients services that they could not offer separately because of their small size, as well as to develop a uniform market presence, and to strengthen their competitive positions.
THE BIGGEST DISAPPOINTMENTS
The biggest disappointment of 2012: E-Star
Hungarian energy supplier E-Star, once the darling of the Hungarian capital market, is now struggling with serious liquidity problems. The company launched a bond repurchasing program at a discount in October in order to avoid bankruptcy. As an alternative to the bond repurchase program, the company is also considering a debt-to-equity swap.
E-Star issued corporate bonds at a face value of HUF 10 bln gross during 2010 and 2011. The company was one of the first players besides banks to raise financing in the form of a public bond issue.
Two Hungarian private investors, Csaba Soós and József Makra, established E-Star, previously known as RFV, in 2000. The company floated its shares on the Budapest Stock Exchange in 2007. E-Star shares have been listed on the BSE BUX Index since 2010. A year later, the company’s shares were introduced to Warsaw Stock Exchange through a dual listing.
Largest deleveraging: the Hungarian banking sector
On an annual basis, the global banking sector reduced its external position to Hungary by about $18 bln, or 14.2% of Hungarian GDP compared to Spain with 14.3% of GDP, according to a study by the Erste Group on global deleveraging. The study points out that Hungary has clearly been an outlier in the region, both in terms of magnitude and the reasons behind the steep deleveraging, which were mainly unorthodox measures including the early pre-payment of FX loans, which freed up part of FX funding.
We would like to thank the following experts for their contribution to this article:
PwC director Ervin Apáthy
Ernst & Young partner Margaret Dezse
DLA Piper country managing partner András Posztl
Deloitte managing partner Béla Seres
Invescom managing director Zoltán Siklósi
KPMG associate director László Fendrik
KBC Securities Head of Corporate Finance György Herczku
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