Vodafone Takeover Boosts 2022 M&A Deal Value in Hungary to USD 3.2 bln


Balázs Sahin-Tóth, counsel at Allen & Overy Budapest

Against the global trend, the value of M&A deals in Central and Eastern Europe held firm in 2022, although increasing regulatory requirements are likely to dampen potential growth.

The total value of the merger and acquisitions in Hungary last year surged to USD 3.24 billion, up 52% on the USD 2.13 bln total of 2021, the Budapest arm of international law firm Allen & Overy told the press on the release of its Global M&A Insights Report on February 9.

However, the Hungarian numbers were boosted by a single, very large deal: the sale of telecommunications company Vodafone Hungary to Antenna Hungária Zrt. (a subsidiary of 4iG), and Corvinus International Investment, in a transaction driven by the government’s goal of acquiring majority stakes in “strategic sectors.”

Highlighted by Balázs Sahin-Tóth, counsel at Allen & Overy Budapest, as the “largest non-Polish deal of the year” within CEE, this transaction was worth USD 1.78 bln and made up 55% of the total M&A market in Hungary last year. It also helped ensure that the combined value of M&A within the region largely held onto the gains made in 2021, in sharp contrast to the prevailing global trends.

M&A within CEE in 2022 amounted to a fraction under USD 30 bln from 1,273 transactions versus USD 30.4 bln in 2021 from 1,383 deals. This means the average deal size within CEE last year rose to USD 23.6 million, up from USD 22 mln in 2021.

Again, lifted by the impact of the Vodafone sale, with just 84 transactions in 2022, the average deal size in Hungary jumped to USD 38.6 mln, compared to USD 21.3 mln in 2021.

Poland on Top

Not surprisingly, within CEE, Poland again proved the most valuable market, at just over USD 19.47 bln from 471 deals, followed by Hungary, its USD 3.24 bln pushing Romania into third place with almost USD 2.4 bln from 166 deals.

“Amid the global downturn, Poland reinforced its position as CEE’s leading market,” Sahin-Tóth said, pointing to the almost USD 9.3 bln merger (as the company’s website terms it) of gas company PGNiG with energy group PKN Orlen along with PKN Orlen’s near USD 3.7 bln merger with oil company Grupa Lotos.

However, like the largest Hungarian deal, these two transactions mainly involved state-controlled or state-influenced players. Nevertheless, as noted above, all these dealings took place in the greater global context of a sharp downturn in M&A across most markets.

Sahin-Tóth pointed to the war in Ukraine, concerns over inflation, rising energy prices, and lingering supply chain issues arising from the COVID-19 pandemic as reasons behind the weaker M&A performance globally.

“Private equity and financial investors, meanwhile, were constrained in their efforts to put their substantial capital reserves to work by an increasing shortage of deal leverage. To summarize, geo-political tensions all left their mark, particularly in the second half of the year,” he said. (See separate box.)

The report also notes that a seemingly ever-increasing regulatory burden has further complicated deals, especially large transactions and those viewed as strategic or national security risks in the country of the acquisition target.

Attila Kőmíves, counsel and antitrust specialist at Allen & Overy Budapest, said: “Since 2020, we have seen unprecedented levels of change to foreign investment screening regimes, particularly in Western markets. For example, Hungary has two such regimes that apply in parallel, but 19 out of the 27 EU member states and altogether more than 100 countries globally operate foreign investment screening regimes.”

Political Interference

While the general regulatory requirements in Hungary are no more complicated than most other member states in the European Union, the special powers granted to the government because of the seemingly continuous “state of emergency” in recent years means political interference in deals has become more of an issue.

Another issue is that authorities lack the procedural framework to enable them to engage in discussions with the parties and address any national security concerns.

In one cross-border deal involving an unnamed Hungarian target company, there was “chaos” after one ministry gave the green light to the transaction, only for a second ministry to later block the deal on [the] grounds of national security, Kőmíves said.

Although the transaction went ahead, thanks to the determination of all parties involved, it nonetheless meant a delay of some five to six months before the deal could be passed off.

“We had to restructure the whole deal. We had to do it twice,” Sahin-Tóth told the Budapest Business Journal.

In general, the various and often changing regulations pertaining to FDI make M&A processes less predictable and can easily add an additional three months to a nine-month deal.

“Such delays could be much shorter if the ministries were empowered to engage in a dialogue on how to resolve their concerns instead of simply issuing a blocking decision,” he said.

As for the likely direction for M&A in Hungary in the immediate future, Sahin-Tóth pointed to energy deals as one “likely hotspot,” while the insurance, retail, and telecommunications sectors could attract further interest from investors.

“Some IT-driven start-ups may expand beyond Hungary, and international investors may be involved too,” he added.

Asked in the press conference to comment on the possible sale of Dunaferr, the long-troubled Hungarian steelmaker, Sahin-Tóth declined to comment.

Global M&A Value Shrinks by 38% in 2022 as Uncertainties Rise

According to Allen & Overy’s M&A global report, citing data from Refinitiv, worldwide M&A transactions tumbled from a record high of almost USD 5.8 trillion in 2021 to just over USD 3.6 tln last year, a contraction of some 38%.

Similarly, the number of M&A deals slumped from just over 66,000 in 2021 to almost 56,000 last year, with all three major markets, the United States, Europe, and Asia Pacific, seeing sharp downturns.

Total M&A deal value in the Americas during 2022 fell to almost USD 1.75 tln, against USD 2.78 tln in 2021. Europe, meanwhile, slipped back from 2021’s total of just under USD 1.4 tln from 21,140 deals to USD 852 billion.

Technology deals were especially hit by the new market conditions, partly because private equity funds could not obtain affordable credit to finance acquisitions. In contrast, energy and infrastructure M&A outstripped all other sectors in the second half of last year as global energy demand reacted to the Russian sanctions. This strong run of energy and infrastructure deals is expected to continue. Globally, other potentially strong sectors this year include consumer, life sciences, mining and metals.

This article was first published in the Budapest Business Journal print issue of February 24, 2023.


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