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Value of M&As down sharply in CEE, Hungary in 2017

Crops

International law firm Allen & Overy’s latest “Global Trends in Private M&A” report shows M&A activity worldwide still vibrant during 2017, although slightly less so compared to 2016 levels. The Central and Eastern Europe region saw a downward trend, however, with the decline particularly pronounced in Hungary, albeit set against a high bar in 2016.

Favored global sectors for mergers and acquisitions in 2017 were industry and manufacturing, followed by telecoms, media and technology, and retail assets, according to a press release sent to the Budapest Business Journal.

Figures drawn from Moody’s Analytics company Bureau van Dijk show that Western Europe saw overall M&A value in 2017 rise by 6%, from just over USD 1.21 trillion for 2016 to just over USD 1.28 tln by the end of 2017. The global total for 2017 was just over USD 4.74 tln, 3% behind 2016’s total of almost USD 4.9 tln of worldwide activity.

The CEE region and Russia saw a continuing downward trend, with just over USD 111.66 billion of M&A value in 2017, versus almost USD 137.4 bln in 2016, and almost USD 225.9 bln back in 2013; at the same time, private equity investments in the region rose by 42%, from just over USD 6.55 bln in 2016 to almost USD 9.3 bln in 2017, according to Bureau van Dijk data.

Hungary, meanwhile, experienced an M&A value decline of some 78% during the year, with the overall value falling from some USD 9.5 bln in 2016 to just under USD 2.05 bln by the end of 2017, while January 2018 saw the trend continue, with just over USD 66 million of deal value, versus almost USD 442 mln in January 2017.

Zoltán Lengyel, Partner at Allen & Overyʼs Budapest office.

“One of the reasons for that drop can be that in the previous year there was an exceptionally big deal in our region. Asahi, the Japanese brewery group, advised by Allen & Overy, paid EUR 7.3 billion [USD 7.8 bln] for the former SABMiller assets in the CEE in 2016,” said Zoltán Lengyel, partner at Allen & Overy’s Budapest office.

Allen & Overy’s own figures show that 47% of M&A auctions in 2017 were won by a private equity buyer, demonstrating the vigor of the private equity market. In addition, 34% of auctions involved an exit by a private equity firm, and 28% were actually a sale from one private equity firm to another, in secondary or tertiary buyouts.

As for buyers in deals, private equity acquirers made up 29% of the global total, slightly down on 2016’s 36%, despite their success in auctions, while corporates and strategic acquirers were the leading buyers, winning 59% of deals versus 2016’s 51%.

Although auctions represented only a third of all M&A deals in the CEE (similar to Asia, Australia and the Middle East), 83% of these processes remained highly competitive, which is the highest level globally. The CEE region maintained a high level of deals requiring antitrust/regulatory approval, with 64% of deals requiring such approval, the second most stringent region in the world behind North America’s 78%.

“We have seen a slack year for M&A investment into CEE during 2017, but the powerful fundamentals (strong corporate cash balances, availability of debt finance) are still in the global marketplace. We are optimistic that this part of the world will this year have a larger share of global M&A activity than it had in 2017,” Lengyel added.

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