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State dominates last year’s big deals

Our annual review of the deals of the year finds that state purchases of financial institutions and other properties made the government the biggest buyer in the country yet again. But private M&A activity is picking up.

The state-owned Hungarian Development Bank bought the ‘Paris Grand Department Store’, which includes this spectacular upstairs cafe.

Last year once again saw a state-dominated transactions market. The Hungarian state sealed several large-scale deals, many of them at a value that market players could not afford or risk these days, experts say. In what can be called a rather subjective summary, the Budapest Business Journal rounded up the most important deals of 2015.

“The M&A activity in the first half of 2015 showed a significant increase compared to previous years in Hungary and based on this growth, without seeing all the relevant databases’ full year information, we expect the number of transactions to increase in 2015 compared to 2014 in Hungary,” Margaret Dezse, partner and head of transaction advisory services at Big Four company E&Y told the BBJ. “As presented in our 2015 half year M&A Barometer, based on the number of transactions the IT and technology sector was the most active, which we expect to remain for the entire year as well,” she said.

According to Dezse, the most important transactions include TPG buying TriGranit’s Central and Eastern European portfolio, and Pamplona Capital Management acquiring Partner in Pet Food. As for deals where Hungarian companies bought into foreign ones, she mentioned LogMeIn acquiring Last Pass, OTP buying Bank Findomestic Banka in Serbia, and MOL buying Ithaca Petroleum Norge AS.

But besides market transactions, the Hungarian state still had a huge appetite in 2015.

“Similar to previous years, the Hungarian state remained active not only in terms of the number of deals, but also in terms of transaction values,” Dezse noted.

“When it comes to this year’s M&A activity, there’s no doubt that the most dynamic player of the market was the Hungarian state,” agreed Tamás Simonyi, senior director, head of CEE financial institutions M&A advisory at another Big Four firm KPMG. Hundreds of millions of euros have been moved by the state, no private market transactions came anywhere near to this amount, Simonyi noted. The state sported a huge appetite for energy and financial companies, but the real estate market too saw the state on the buyer’s side in large transactions. As Simonyi says, these deals had clearly been mainly motivated by strategic and political reasons.

The state also appeared on the sellers’ side: After spinning off the bad loan portfolios of not-so-long-ago acquired MKB Bank, the new owner wanted to sell a majority stake in the loss-making financial institution before year’s end.

According to Simonyi, in selling poorly performing loan portfolios, a whole new market was created, which will have a significant role in the future.

As for other important transactions, Simonyi drew attention to the one in which OTP Bank acquired accommodation reservation site, saying that it was quite an unusual move by a financial institution to buy an online portal. He also thinks that the planned sale of news portal will be an important transaction, especially considering that it’s a loss-making operation.

Big web deal: OTP purchased popular accommodation site

When it comes to pricing, Simonyi says that last year’s deals market saw rather depressed prices – except when it came to state acquisitions. “Market players still see serious risks in Hungary. Both domestic and international buyers seek consolidation, and a calm and predictable environment,” he concluded.

The transactions market experienced a significant boom in 2015, agreed Ervin Apáthy, director of corporate finance at PwC. “This year finally saw a larger number of market transactions, in addition to the state acquisitions that have dominated the market for the past few years,” he told the BBJ, adding that the state still remained a significant player on the deals market.

“The years 2014 and 2015 will be marked in history books as the years when the majority of the Hungarian banking and energy sector was taken over by the state,” Apáthy said.

As a result of a possible upgrade of Hungary’s sovereign debt, it seemed that investors’ worries about Hungary’s unpredictable economic environment had somewhat decreased, meaning several market transactions took place in 2015. The most important of these, according to Apáthy, were the sales of Hungarian bakery Fornetti, of property developer TriGranit, and mineral water company Szentkirályi.

As many of the current transactions will only be closed next year, the deals market will surely be lively in 2016 as well, Apáthy said. One of the main questions is will the retail and telecom sectors remain in the state’s focus, and also what will happen to the companies already acquired by the state? “We also have great expectations for the new ownership structure of the Budapest Stock Exchange,” Apáthy noted, adding that he hopes the bourse will have an increasing role in the privatization processes in the future.

Hungarian firms buying outside Hungary

OTP buys Findomestic Banca in Serbia

OTP Bank’s Serbian banking arm signed an agreement to buy the Serb business of Italian bank Findomestic Banca S.p.A in June. The business, Findomestic Banka of Serbia, is a retail-oriented bank with 26 branches and ranks 21st in the local banking market with a 0.5% market share at the time of the transaction, OTP said. The deal will increase the current 1.4% market share of OTP banka Srbija (OTPʼs local arm) to 1.9%, the bank said.

MOL sets foot in Norway

An installation owned by Ithaca Energy, which sold some oil exploration properties to MOL.

Hungarian oil and gas company MOL Group completed a deal to acquire 100% ownership of Norway’s Ithaca Petroleum Norge (IPN) from Ithaca Petroleum Inc. in April. The deal doubles the size of MOL Group’s exploration portfolio, adding 600 million barrels of net un-risked best estimate prospective reserves. Hungary’s oil and gas company bought the stake for $60 million and agreed to a discovery bonus of at most $30 mln.

MOL spreads in the region

MOL announced in February that it had completed the acquisition of ENI Romania, including 42 gas stations, thereby increasing the number of MOL-owned gas stations in Romania to 201.

At the end of July, MOL announced that it had successfully completed the acquisition of ENI’s Czech and Slovak downstream business, including the retail network under the Agip brand. The acquisition includes 125 service stations in Czech Republic and 41 service stations in Slovakia.

MOL signed an agreement to buy the entire local downstream business of Italy’s ENI International in October. MOL will acquire the entire share capital of ENI Hungaria, a company managing 183 Agip branded service stations in Hungary (including dealer owned sites) as well as wholesale activities in the country. ENI lubricants’ wholesale business is excluded from the deal. In November, MOL signed an agreement with ENI International B.V. for the acquisition of the entire share capital of ENI Slovenia doo.

LogMeIn logs in for LastPass

Remote computing company LogMeIn announced it was buying password management service LastPass for $125 mln in cash. Once it clinches the deal, LogMeIn will merge LastPass’ service with the team password management features of Meldium, the service it acquired last September. Both products will continue to be supported in the near-term, but the company plans to integrate them into a single offering later on.

Foreign companies buying into local businesses

Fornetti bought by Swiss bakery giant

Shown are baked goods made by Fornetti, the Hungarian concern that was purchased by Swiss bakery giant Aryzta, for a reported €60 million.

Switzerland’s Aryzta bought Hungarian frozen bakery products company Fornetti, former Fornetti managing director József Szabó announced in August. According to, the purchase price was €60 mln. According to the former head of the bakery, the decision was made because Fornetti had reached the limits of its growth potential. Aryzta, the third largest maker of frozen bakery products in the world and the owner of 60 bakery brands on four continents, said it planned to invest €1 mln in Fornetti before the end of the year and would hire new employees.

Szentkirályi merges with Italian peer

Hungarian mineral water bottler Szentkirályi Ásványvíz had merged into a joint venture majority-owned by Italy’s Pasquale family, the owners announced in April. Szentkirályi owner Levente Balogh, who holds the minority stake in the JV, dubbed Central European Mineral Water Holding (CEMW), said his company had wanted to become a multinational for years, but had not found the right strategic investor in Hungary. The Pasquale family has also acquired Hungarian mineral water bottler Kékkúti Ásványvíz from Nestlé through its Czech bottler Karlovarské Minerálni Vody.

Real estate magnate sells flagship company

U.S. private equity firm TPG announced that it was to buy Hungarian real estate developer TriGranit and its more than €500 mln ($547.95 mln) worth of commercial property assets in Central and Eastern Europe, TriGranit said in August. The deal was wrapped in December. TPG is already active in the Central European region: It bought Prague-based PointPark Properties (P3) in a deal that included 48 warehouses and development land, in 2013, and expanded that portfolio last year, and it plans a similar expansion with TriGranit, which it will acquire and develop through its real estate arm TPG Real Estate.

Hungarian pet food maker gets new owner

Advent International sold Hungarian pet food manufacturer Partner in Pet Food (PPF) to Pamplona Capital Management in a €315 mln deal in April. The exit comes four years after Advent acquired Partner in Pet Food – then Provimi Pet Food – in a carve-out from Provimi Group for €188 mln, through the GPʼs Advent Central & Eastern Europe IV fund. Pamplona invested via its Pamplona Capital Partners IV fund and will back PPFʼs current management, supporting organic growth of the company by providing continued investment.

State acquisitions

Government increases state control of Hungarian bank sector

State-owned investment firm Corvinus concluded a deal to buy 100% of Budapest Bank by transferring the $700 mln purchase price to General Electric Capital Group at the end of June. The deal was funded from forint-based market financing raised by Corvinus’ parent, the Hungarian Development Bank (MFB). The Hungarian government announced in December 2014 it would buy the bank as part of efforts to increase state control over key sectors of the economy. It did not disclose the price at that time. The minister overseeing the Prime Minister’s Office, János Lázár said at his weekly press conference in October that the government planned on selling two banks acquired in 2014, the Hungarian Trade Bank (MKB) and Budapest Bank. He said the government would like to sell MKB by the end of 2015 and anticipates selling the Budapest Bank in the first half of 2016. Later in October, MKB Chairman-CEO Ádám Balog said in an interview with Hungarian daily Magyar Idők that MKB Bank was planning to list its shares on the Budapest Stock Exchange (BSE), given that the bank’s value can best be demonstrated by its participation in an open, regulated securities market.

State and EBRD to buy into Erste Bank

The European Bank for Reconstruction and Development (EBRD) and the Hungarian state would each take 15% ownership in Erste Bank Hungary by increasing the capital of the bank, the parties announced in February. The government planned to close the transaction no later than the end of 2015, the then Napi Gazdaság (now renamed Magyar Idők after a complete overhaul) reported in August. EBRD spokesman Anthony Williams told the paper that the EBRD had expressed its concerns to the government over a top-up fund established to compensate investors who lost money in the Quaestor brokerage scandal. It is hoped that a solution will comply with the spirit of the agreement with the EBRD, he added. The top-up fund sourced by banks is being contested in court. The original deadline for acquiring the stakes was June 30.

State gets wired up on energy market

State-owned gas distributor Főgáz had closed the purchase of GDF Suez’s retail business in Hungary, the First National Utilities Company (ENKSZ), a state-established utilities provider, said at the end of September. Főgáz signed the deal to buy 99.93% in the local natural gas retail company GDF SUEZ Energia Magyarország Zrt. from GDF International S.A. early September. With the acquisition, Főgáz has taken over more than 750,000 retail customers. Earlier last year, Főgáz had also reached agreements on the takeover of the local retail gas customers of Italy’s ENI and Germany’s E.ON, making it the country’s sole gas provider, supplying gas to approximately 3.3 million households in Hungary. Early December, ENKSZ announced that it was set to acquire 50% of electricity provider ELMŰ- ÉMÁSZ Ügyfelszolgálati on January 1, 2016. The remaining 50% of the shares were set to be transferred by January 1, 2017.

Central bank buys Hungarian bourse

The National Bank of Hungary (MNB) has boosted its ownership in the Budapest Stock Exchange to 75.8% by acquiring a total stake of 68.8% from Austrian CEESEG AG (50.45%) and Österreichische Kontrollbank AG (18.35%) in November. The purchase price was HUF 3,550 per share (i.e. HUF 13.2 billion (€42.3 mln) for the full package). The government reasoned the move by saying that the Hungarian capital market was weak and the situation required an intervention by the state.

State gets rid of OTP shares

The government announced at the end of October that it had sold its stake in OTP Bank. The state raised about HUF 75 bln ($265 mln) in selling the 5% stake in OTP Bank Nyrt. at an auction, four years after it acquired the shares in the country’s largest lender by taking over HUF 3 trillion ($10.6 bln) in assets from private pension funds. The state-asset manager MNV Zrt. sold more than 14 million shares; the average price was HUF 5,322 per share.

MNB builds real estate portfolio

An entire section should be devoted to the property businesses of the National Bank of Hungary, or, more precisely, to the deals nailed down by various foundations belonging to the central bank. The appetite of the national bank seems bottomless, as to date some nine properties have been bought at an estimated combined value of HUF 27 bln. And this is not the end of the story: The MNB recently announced that it was eying another building for purchase, namely the infamous Bálna (Whale) on the Pest side of the Danube.

Landmark buildings get new owners

In June, three famous Budapest buildings were sold for an estimated HUF 15 bln, online news site reported. The portfolio, including the former Divatcsarnok on Andrássy út (also known as the Párizsi Nagyáruház), the Váci1 Business Center (the former Stock Exchange building) and the parking lot on Szervita tér in downtown Budapest, had previously been owned by troubled property developer Orco, and were taken over by the lending bank, which had planned to get rid of them for quite a while. The buyer of the Váci1 building and the Szervita tér parking lot is Hungary’s DVM Group, while the former Divatcsarnok became state property.

MFB buys former Divatcsarnok

The central bank is not the only state-owned financial institution to be active on the property market: With the acquisition of the turn-of-the-century Párizsi Nagyáruház (“Paris Grand Department Store”, the former Divatcsarnok) building on Andrássy út in October, the Hungarian Development Bank (MFB) became Hungary’s second government organization to own luxury property in downtown Budapest.