Deals of the Year 2021: Companies’ M&A Appetite Remains Strong

Analysis

4iG has teamed up with state-owned terrestrial digital broadcaster Antenna Hungária. In August, the two parties announced that they had entered into a cooperation agreement.

Photo courtesy of Antenna Hungária

Hungary’s M&A market continued its relatively strong activity despite the ongoing coronavirus pandemic in 2021. The market saw further consolidation of the banking system, several large-scale acquisitions in the IT and telecommunications sector, and deals in energy.

To give some contextual background against which to judge this year’s figures, it is worth recalling that the market for mergers and acquisitions started to liven up in 2020, and analysts expect 2021 to have been a similarly busy year in terms of M&A. According to the international consultancy firm EY, approximately 105 closed deals were registered last year, at an estimated total amount of more than USD 5.69 billion (HUF 1.68 trillion).

The number of deals showed a 4% increase from 2019, while their value rose by 7.5% in 2020 from the year before. As for transparency, there was some notable development in 2020: financial data was disclosed in 32% of cases; in 2019, this ratio had only been 19%.

 Technology was the most popular sector for investors; altogether, 22 deals had been made in the IT field. At more than half of the M&A transactions, domestic companies acted as buyers; the ratio of foreign companies was a mere 29% in 2020. At the same time, the percentage of Hungarian companies making acquisitions abroad grew by 1% in 2020 from 2019. Venture capital companies were quite active in 2020, with 22 deals sealed during the year.

As for 2021, although the pandemic still determines global markets, according to the experts from EY, the size of the transaction market in Hungary has not decreased. It remains active and, in line with international trends, the interest of both domestic and foreign investors in the favorable opportunities is growing.

Many of the negotiations that began before the restrictions were introduced continued. The pandemic has hampered the progress in terms of timing, though, especially in the SME sector.

Finance

Consolidation of the Hungarian banking system continued in 2021, with the ongoing integration of the member institutions of a Hungarian megabank, known for now, at least, as Magyar Bankholding.

The holding, consisting of three banks: MKB, Budapest Bank and Takarékbank, started effective operation about a year ago after the National Bank of Hungary (MNB) approved the merger and the lenders’ shares were transferred to a joint holding company.

This November, the holding announced the schedule of a two-step fusion: first, Budapest Bank and MKB will merge under the name of MKB Bank Nyrt. next spring, then Takarék Group will join in the second quarter of 2023, thus creating the second-largest commercial bank in Hungary.

The fusion, however, will leave the ownership structure of the group unchanged. According to the current plans, Magyar Bankholding will appear on the Hungarian Stock Exchange in 2025 and will also enter international markets in the same year.

Back in 2012, Prime Minister Viktor Orbán said he wanted at least 50% of banks in Hungary to have national or state ownership. Several state acquisitions have helped achieve this goal, as in the cases of Takarékbank, Budapest Bank, and Erste Bank, and this October, another bank joined the Hungarian ranks.

The 100% Hungarian-owned MagNet Bank Zrt. has acquired Hypo-Bank Burgenland AG’s Hungarian subsidiary, Sopron Bank Zrt. Following the sale, Hypo-Bank has not left Hungary but says it plans to focus on serving corporate customers in Hungary, primarily in the field of real estate financing.

With the acquisition, MagNet Bank acquired a branch network in Western Hungary and almost doubled its market share. The bank has been profitable in the domestic market for the past 25 years and has served more than 50,000 customers through several previous M&A deals, including the 2013 acquisition of Banco Popolare Hungary.

Hungary’s biggest lender, OTP Bank, has also been active in 2021 in the region. The group announced in June that it had signed an agreement to acquire a 100% stake in Nova KBM. With the most significant acquisition in the history of the OTP Group, it would become the market leader in Slovenia, the financial institution said in June. The transaction is expected to close financially in the second quarter of next year after obtaining the necessary supervisory approvals.

In November, OTP Bank said it would buy Alpha Bank’s Albanian subsidiary, Alpha Bank Albania, for EUR 55 million. The transaction is set to close financially in Q2 2022. With a market share of almost 5% in assets, Alpha Bank is the eighth largest bank in the country, active in both the retail and corporate segments.

It currently operates a network of 34 branches and is present in all the major Albanian cities. This is the second acquisition OTP has made in Albania: SGAL bank, owned by Société Générale at the time, was purchased by OTP in 2019.

Sándor Csányi, OTP’s chairman and CEO, said at the time that OTP wanted to be the largest bank in the Albanian market. He predicted that would be achieved primarily through organic growth, but if a suitable target were found, an acquisition would be considered, he said.

Digital banking is among the trends that primarily define the future of banking. In October, the Hungarian W.UP and the Czech-based Banking Software Company (BSC) announced their merger. The two are setting up a new group of companies called Finshape to facilitate international expansion.

The digital banking technology provider resulting from the merger will accelerate banks’ digital developments by combining low-code platforms and data-based personalization solutions. The transaction involved PortfoLion Capital Partners, one of the leading venture and private equity companies in Central and Eastern Europe, providing a solid backdrop for further expansion in Europe, Asia, and the Middle East, the companies said.

IT and Telecom

The most active player in the IT sector is technology company 4iG. Its goal is to become one of the key actors in the Hungarian and regional IT and telecommunications market, and it did a lot to achieve this in the past few months, adding several domestic and regional assets to its portfolio.

According to the latest announcements, 4iG is now expanding its telecommunications portfolio into the Western Balkans region after concluding a final sale agreement with Cetel Telekom, which holds a majority stake in Turkish Çalik Holding, to buy an 80.27% stake in ALBtelecom.

ALBtelecom is Albania’s number one fixed-line Internet and TV provider, the owner of the largest optical network in the country, and a major mobile operator with its own network. Following approval by the Albanian authorities, the acquisition of a controlling majority stake in ALBtelecom is expected to be completed in January 2022. The parties did not disclose the value of the transaction.

In mid-October, 4iG said that Hungaro DigiTel Kft., a joint subsidiary of 4iG and Antenna Hungária Zrt. (which has a 25% stake) entered into a final agreement with Israeli firm Space-Communication Ltd. to acquire a 51% stake in the company. Again, the value of the deal has not been disclosed; however, market estimates put it at USD 65 mln.

Announced in July and executed in October, 4iG also acquired a 100% stake in Telenor d.o.o. Podgorica (Telenor Montenegro). Once more, 4iG declined to disclose how much it had offered to owner PPF Telecom Group under the agreement. Telenor Montenegro is the leading mobile operator in the southern Slavic country, with sales of EUR 44 mln in 2020.

However, the biggest deal the IT company sealed this year was the acquisition of cable service provider Digi’s Hungarian subsidiary. 4iG said at the end of November that it acquired Digi’s Hungarian interests from the Romanian RCS & RDS Group. The transaction value is EUR 625 mln, which equals approximately HUF 232 bln. The transaction may close in January 2022 following regulatory proceedings.

The number of employees of the Digi Group in Hungary exceeds 3,000. In 2020, its consolidated sales revenue was HUF 70 bln, and its adjusted EBITDA reached HUF 19 bln. Digi has 61 customer service offices in major cities in Hungary, while its subsidiary Invitel has another 16.

4iG has also teamed up with state-owned terrestrial digital broadcaster Antenna Hungária. In August, the two parties announced that they had entered into a cooperation agreement.

The aim here is for the parties to combine public and private capital to create a strategic telecommunications and infrastructure company that, in addition to competitive market services, gives due weight to national interests within the industry.

Antenna Hungária, in the meantime, has completed its acquisition of telecommunication service provider MVM NET from state-owned energy company MVM Energetika Zrt. MVM Net, which provides critical telecommunications services availability, primarily within the MVM Group, as well as to state and wholesale customers, will change its name to AH NET Távközlési Zrt.

Energy

Consolidation in the energy market also continued in 2021. In April, MVM Energetika signed a purchase agreement with Émász Zrt. to buy 100% of Émász Hálózati Kft. With the acquisition, MVM guarantees a secure technical background for electricity services to almost one and a half million customers. Andrea Máger, Minister without Portfolio responsible for national asset management, said that the transaction is another stage in the business construction that will result in the MVM Group covering the entire domestic energy value chain and becoming a key market player at the regional level.

She recalled that MVM and E.ON had signed an agreement in the fall of 2019, as part of which MVM would acquire Émász Hálózati this year.

In March, OPUS Global signed a purchase agreement with the Swiss-based MET Group for the acquisition of 50% of MS Energy Holding AG, with which OPUS will acquire a 49.57% stake in Tigáz Földgázelosztó Zrt.

This article was first published in the Budapest Business Journal print issue of December 17, 2021.

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