Global investment converges on CEE

Merger and acquisition volume in 2019 in CEE matched that of 2018, reveals our recent study. This year has also got off to a positive start as the fundamentals of robust growth, access to the EU market (and in some cases major emerging markets), and political and economic stability underpin investment in CEE from local and international players.

“CEE markets remain very attractive for international investors,” says Oleksii Larionov, head of Financial Advisory Services at Mazars Ukraine. “The M&A market is still active despite concerns about the global economy. A lot of companies are undervalued. Most CEE countries are still emerging markets, so investor return multiples are very high compared to developed markets.”

Top countries for investment by value

Investment into CEE is coming from a wide-range of countries, including countries you might and might not expect. In 2019, some of the highest profile deals originated from investors based in the Netherlands, Germany, Singapore, the US and Japan.

The Netherlands was the largest source of inbound M&A to the region by value – with deals worth €4.1 billion. In fact, three of the CEE region’s top ten inbound deals in 2019 involved Netherlands-based buyers.

Germany ranked second, with €3.3 billion in acquisitions, though this included RWE’s €1.85bn takeover of a majority stake in the Czech Republic’s Innogy Grid Holding, which it rapidly sold to an Australian-led consortium.

Top countries for investment by volume

The top four countries outside the CEE region for inbound bids by volume were Germany, the US, the UK, and France. Germany-based investors launched 47 bids for CEE assets, reflecting the country’s position as the powerhouse of the European economy. US-based investors were responsible for 40 transactions, and France-based companies and funds made 30 bids.

Perhaps most notable is UK interest, which remained robust despite Brexit. Reflecting on the 29 deals made by UK-based investors in the region, Greg Hall, head of Transaction Services for Mazars in the UK, says, “Central & Eastern Europe is viewed as a promising investment geographical area by UK firms and private equity funds, looking for relatively stable markets with high GDP growth, up-and-coming M&A targets and interesting return on investments. CEE countries have been growing at above EU28 average rates for a couple of years, driven by domestic demand, wage growth and inflows of EU funds.”

Increased interest from Japan and China

Two of the largest inbound deals with disclosed value in 2019 were from bidders based in Asia, including the largest, which saw Russian natural gas producer Novatek sell a 10% stake of its liquefied natural gas (LNG) project Arctic LNG 2 for €2.6 billion to Japan Arctic LNG, a joint venture between Mitsui and JOGMEC, a Japanese state-owned entity.

Japanese companies have so far invested in three Russian LNG projects, but China’s demand for gas is also rising and could soon overtake that of Japan. In 2019 National Petroleum Corporation and China National Offshore Oil Corporation both invested in the Arctic LNG 2 project. Tim Wei Yu, Financial Advisory Services Partner at Mazars China, explains, “Investments in Russian LNG projects are a good example of Chinese investments in the region in recent years. Chinese companies are keen to expand beyond China’s borders into growing markets, while CEE countries are keen to kindle stronger growth and development through FDI.”

LNG is not the only attraction for Asian bidders in the region. Singapore-based port terminal operator PSA’s was the lead investor in a consortium that acquired Polish DCT Gdansk port operator for €1.4 billion, one of the top deals of 2019. Notably, the consortium includes the state-owned Polski Fundusz Rozwoju (Polish Development Fund), which was founded in 2016 to support broader economic development in Poland.

Global outlook

There is, evidently, intense global interest in CEE and its M&A opportunities. For more on the region and its commercial outlook, including how local and global investors are operating, read ‘Investing in CEE: Inbound M&A Report 2019/2020’.