M&A Market in Hungary Expands Almost 50% in 2021


Balázs Sahin-Tóth, counsel at Allen & Overy Kádár.

The value of mergers and acquisitions in Hungary jumped by almost 50% to USD 1.7 billion (HUF 521 bln) last year compared to 2020, according to the latest annual global study by law firm Allen & Overy.

However, this comprised little more than 5% of the USD 32 billion total value of M&A market in the Central and East European (CEE) region in what Balázs Sahin-Tóth, counsel at Allen & Overy Kádár in Budapest termed “the M&A jamboree of 2021.”

Presenting the report via an online press conference on Feb. 11, Sahin-Tóth said the CEE region (stretching from the Baltics to Albania, but not including Russia) registered 1,343 deals in 2021, with technology, financial services, and infrastructure/energy “especially prominent.”

Within this, the number of M&A transactions in Hungary totaled some 100 last year, led by deals in the media and entertainment, materials and real estate sectors. The largest single Hungarian transaction was IT company 4iG’s acquisition of Digi from Romania’s RCS-RDS consortium, worth USD 715 million.

The Budapest Business Journal “sat down” virtually with Sahin-Tóth to discuss points made in the press conference and on the law firm’s press release in greater depth.

BBJ: In your press release, you wrote that “Allen & Overy’s understanding of the Hungarian and CEE market is demonstrated by its advisory work on some of the major regional transactions of the last year. Your firm advised DoorDash on the USD 8 bln acquisition of Wolt Enterprises, the Helsinki-based international technology company offering services in the food delivery, grocery and retail sectors in more than 22 jurisdictions worldwide. Has the value of the Hungarian subsidiary ever been made public?

BS-T: I do not think so.

BBJ: A&O also advised W.A.G Payment Solutions on its acquisition of 100% of WebEye Telematics, a leading fleet management solution provider in CEE, from the founders and management. To check: WebEye Telematics is a Hungarian-owned and Hungarian-registered company? Can you reveal the value of this deal?

BS-T: Yes, WebEye Telematics is Hungarian-owned and registered. I cannot comment on the value.

BBJ. Your report also “considers among others the requirements for AI due diligence and what technology investors are doing to retain and incentivize key personnel in their acquisitions.” Can you offer some details here? For example, what are the requirements for AI due diligence?

BS-T: It depends on the type of deal. For example, due diligence over the technical conditions for operating hardware (e.g., data centers) is key. Also, due diligence into software rights, including copyright, and which rights employees hold are material considerations.

To incentivize key staff, share schemes are put in place to grant share or monetary awards to well-performing staff. Earn-outs and deferred consideration are being used to provide a reward for good performance of the target company after completion. Shareholders’ agreements between the investor and management contain drag and tag [designed to protect both majority and minority shareholders] and other rights rewarding good performers and punishing bad leavers.

BBJ: Hungarian M&A activity may have risen by nearly 50% compared to 2020, but it’s still relatively small within CEE. Legal uncertainty in Hungary has been mentioned before as an issue here, undermining evaluations of companies and acting as a disincentive to potential investors, especially those not already in Hungary. Has legal certainty improved or been further eroded in 2021?

BS-T: Legal certainty was eroded as a result of uncertainty surrounding FDI approvals.

BBJ: We’ve also had, for example, changes to the law on foodstuffs, which was passed just before Christmas, which means large retailers (essentially the large foreign-owned retail chains only) will have to hand over unsold goods gratis two days before the end of their shelf-life date to a new, state-owned entity for onward distribution. In another example, the prices of petrol and diesel at service stations have been capped at below cost price, a measure which, after being extended beyond the initial three-month period, has reportedly led to the closure of some small service stations companies. What, in your opinion, is the effect of such legal changes on investors’ confidence in the legal certainty of the Hungarian market?

BS-T: Government measures that run counter to business logic deter investors if they see that the government might force them to operate by producing losses. Generally, any state intervention in the free market might keep investors away, whilst such intervention may benefit consumers.

BBJ: You said that, as a conservative estimate, you expect the Hungarian M&A market to grow by at least 20% this year. Which sectors do you expect will lead this growth?

BS-T: I would put my bet on technology sectors, anything to do with digitalization, plus healthcare, retail and financial services.

2021 a ‘Scorching Year’ for Global M&A, Includes CEE ‘Mega Deals’

Allen & Overy’s Global M&A Insights report deems 2021 a “scorching year” in M&A worldwide, with the value of global transactions “surging to a record high” of more than USD 5.8 trillion. That represents an increase of 64% on 2020, the first year of the pandemic, and is 48% higher than 2018, the previous highest year on record.

Globally, technology-sector deals were the main drivers for this growth, with M&A values in the tech sector alone exceeding USD 1 tln in 2021 for the first time, representing a 71% increase on 2020.

As noted, within these heady sums, CEE deals totaled just over USD 32.1 billion in value. These included what O&A termed the “mega-deals” such as [Czech anti-virus provider] Avast plc’s USD 8.35 bln merger with NortonLifeLock Inc., the USD 2.9 bln takeover of Aviva Poland by Allianz, and the USD 2.3 bln acquisition of the Czech Republic’s Ceska Telekomunikacni Infrastruktura (Cetin) by Singapore’s GIC.

Such deals “demonstrate that the region has assets and opportunities large enough to attract multi-billion deals and leading international acquirers,” Balázs Sahin-Tóth argues.

This article was first published in the Budapest Business Journal print issue of February 25, 2022.

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