International law firm Allen & Overy’s freshly released “Global Trends in Private M&A” report says that political uncertainty is not deterring dealmakers, who are forging ahead to meet the challenges of globalization, with market confidence leading to more auctions.
The report claims that deals with a value over USD 5 billion are at the highest level for a decade. This, it says, represents the increasing boardroom appetite for large, strategic deals, while 50% of private equity-backed acquisitions are bolt-on transactions. In spite of regulatory issues, buyers seek expansion, market share, a wider operational and product range, as well as economies of scale through acquisition.
Strongly performing companies put their cash reserves to work during 2018, with capital markets as well as ready access to finance further bolstering the deal flow. While protectionism and related regulatory challenges present a definite obstacle to businesses’ impetus to globalize, this has done little to deter dealmakers, Allen & Overy says.
In the CEE region, despite a strong rise in deal values, investors remain uncertain about the outlook. According to the report, the region has the second highest percentage of deals conducted by auction of any region worldwide, at 59%, just behind the U.K.’s 63%.
From the regulatory perspective, investors continue to find the region challenging, with about two-thirds of conditional deals dependent on antitrust approval, and one-third on other regulatory conditions, notes the report.
Poland was one of the busiest locations in the CEE in 2018, with Generali’s October acquisition of Union Investment TFI with its approximately USD 3.8 bln assets under management, BNP Paribas’s USD 954 million purchase of Raiffeisen Bank International’s Polish business last spring, and Banco Santander’s USD 345 mln acquisition of Deutsche Bank Polska’s retail and private banking businesses in November, boosting activity in the financial sector.
In the Czech Republic and Slovakia, more mid-sized deals were realized in 2018 across various sectors, with Sanofi’s USD 2.2 bln sale of Prague-based generics drugmaker Zentiva to Advent International last October representing one of the larger transactions.
In Hungary, a strong real estate sector drove competition in loan portfolio sales processes, the report notes. The activity included the October sale of Aegon Credit and its mortgage portfolio to a unit of Sweden’s Intrum Justitia and Raiffeisen Bank, respectively.
The April 2018 acquisition of Hungarian pet food manufacturer Partner in Pet Food by international private equity firm Cinven, for an estimated value of USD 607 mln, was one of the countryʼs standout deals in 2018.
"Despite issues with global macro sentiment and political risk, robust corporate optimism and ample uninvested capital held by private equity funds are all helping to fuel continuing strong M&A activity," says Zoltán Lengyel, partner at Allen & Overy’s Budapest office. "The CEE has been the venue for some particularly substantial deals, and we expect the same drivers to maintain momentum throughout the year ahead."