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M&A Market Back at 2011 Level

The Hungarian mergers and acquisitions market had its best returns in four years, with the real estate sector being the most active in the first half of the year, to little surprise, according to EY Hungary’s H1 figures. 

Margaret Dezse, partner at EY Hungary’s transaction advisory services.

M&A deals inked in Hungary in the first half of this year grew by 12% as compared to the corresponding period a year earlier. With an approximately USD 980 million in traffic, the first six months of the year have been the strongest since 2011, according to the most recent M&A Barometer, issued in mid-September by EY Hungary. A total of 66 deals were concluded in H1 2017, eclipsing last year’s total of 64. 

It will have been little surprise, given that the sector has seen a spectacular revival, that most deals closed (24% of the total) related to real estate, with 16 deals in the first half, as compared to last year’s six.

“Transactions included the purchase of the centrally located prestigious office building of Mercury Palace in Budapest by the Vienna-based investment manager GalCap Europe, and the acquisition of the 25,300 sqm Váci Greens Building B by Hungarian property investor OTP Ingatlan Befektetési Alapkezelő Zrt. from the Belgian Atenor Group,” the EY report notes.

The sector was closely followed by the food sector, with ten deals. As far as the value of transactions is concerned, the biggest change is that average value of deals signed under USD 100 million significantly grew, EY data reveals.

The services sector and the telecommunication and media sector saw six deals each. The manufacturing sector was responsible for five deals.

Domestic Still King 

Following last year’s tendency, the M&A market was again dominated by domestic deals; 59% of transactions involved Hungarian businesses at both ends (39 deals on total). In 35% of the deals (23, all told), foreign companies purchased Hungarian companies, while in 6% (4 deals) Hungarian companies purchased companies abroad. The most active countries in Hungary in terms of FDI were Austria with five deals, the United Kingdom with four, and the United States with three.

“The Hungarian state’s activity increased on the Hungarian M&A market in H1 2017 compared with the previous year. Transactions included, amongst others, the 100% takeover of DÉMÁSZ by the First National Public Utility company, ENKSZ, from French EDF, and MVM, the state-owned Hungarian energy group, has via a capital raise become a 50% owner of ENKSZ,” the M&A Barometer states.

“Also noteworthy is the fact that, while in 2016 the state was rather on the sell-side, in H1 2017 it acted mainly as a buyer. During H1 2017 none of the state involvement transactions deal values was public,” EY adds. State transactions have not, therefore, been included in the analysis of the M&A market and the above deal numbers.

Placing Hungary in the bigger picture, the country appears to be outperforming peers in the region, as far as the M&A market is concerned, even if only to a slight extent. Hungary was able to grow the number of deals, while the Central and Southeast European region as a whole saw a contraction of 27%. Hungary exhibited the third highest number of deals, being beaten only by Poland (second with 107 deals) and Czech Republic (first with 113 deals). However, the region did see a significant rise of 42% in the value of M&A deals, chiefly boosted by the Polish and Slovenian markets.

The Budapest Business Journal discussed the performance of the Hungarian market with Margaret Dezse, partner at EY Hungary’s transaction advisory services, who talks about a “robust business environment” and has a positive attitude about the future of the market.

Hungary’s M&A market had its best year since 2011. What is the chief reason for the market performing so well? 

We have generally seen a correlation between the macroeconomic environment and M&A activity. The volume of gross domestic product was 4.2% higher in Hungary in the first quarter of 2017 and 3.2% higher in Q2 than in the corresponding period of the previous year. These resulted in one of the largest GDP growths in the past few years’ semestrial periods, with a total 3.6% growth in the first half of 2017 compared to the year earlier, and a robust business environment ensuring the increase of the M&A market.

To little surprise, having observed recent trends, the real estate market was the most active as far as M&A is concerned. Will this tendency continue in Hungary? 

The stronger position of the real estate sector was already experienced in 2016. The number of deals quadrupled from four, in 2015, to 16 in H1 2017. We do not foresee any reasons that would lead to a decrease in this high-level activity.

The most prominent change is that the number of deals under USD 100 mln on average has significantly risen. What is the reason for this? 

The growth in the average value of deals with a disclosed deal value was due to the increased activity in the real estate market, where the largest transactions were closed.

The Hungarian M&A market was again dominated by domestic deals. Is this promising? 

The Hungarian market was dominated by domestic deals in H1, consistent with previous years. That said, the share of inbound transactions has been increasing since 2014, reflecting also the number of attractive and healthy companies here in the eyes of foreign investors.

What is boosting Hungaryʼs M&A growth, while the rest of the region appears to see a falling tendency? 

Hungary has good fundamentals for investment and business, more than that it has profitable and strong companies to attract FDI. Good assets will always find a buyer, at the right time.