What's behind the rise of the CEE as a key emerging M&A market?

The number and value of investment deals that occurred in the CEE in 2019 reaffirmed the region’s reputation as a growing global M&A hub. Based on Mergermarket intelligence data, 726 deals above USD 5 million took place in this geographical area last year, for a total disclosed deal value of EUR 42 billion.

There are a number of reasons why the region is a top target for global and local investors, including:

• Its geographic location, conveniently sandwiched between the deep pockets of Western Europe and the expanding markets of Asia and the Middle-East;

• An appetite for growth, unaffected by the 2008 global slowdown, CEE economies generally have the confidence of their people and capacity for rapid development. GDP growth across the region is often 3-5%, compared to western neighbours that can only boast 1-2%; this is mainly due to the ongoing catch-up related to the economic gap between those two geographical areas;

• EU membership, many CEE countries are part of the European Union, which offers a layer of reassurance to international investors that may otherwise be hesitant to enter less developed markets that lack supranational oversight;
• Sector diversity, CEE countries are diversifying from the formerly dominant sectors, such as energy. Technology and R&D specialisms are on the rise and the region is attracting back and mid-office functions from banks pivoting away from post-Brexit Britain. 

Companies involved in M&A transactions: Local and global

The companies benefitting from the rise of the CEE are not just from the traditional country cohort – Germany, UK, France, China and the US, they are also based in South Africa, Japan, Singapore and elsewhere. And do not overlook CEE companies executing deals in their neighbouring countries.

Four main deal making factors in CEE

In addition to the strengths bulleted above, there are four trends driving the region’s investment reputation and achievements.

Local and global investors are taking advantage of increased levels of equity and venture capital – and are gaining good returns, as outlined in our highlights document.

Meanwhile, some 30 years after the fall of communism and the emergence of privately-owned businesses, many founders and their families are looking to sell. These businesses have gained from globalisation but now want to exit: this represents a huge opportunity for M&A players, local and global.

Thirdly, consolidation is on the rise. In the next five to ten years, investors should expect fewer players but those that remain will operate on a larger scale. This is particularly evident in financial services and in the energy sector – a popular target for international companies – as firms look to gain a greener edge by acquiring those with experience in renewables.

Finally, CEE firms are also looking outwards, increasingly executing their own M&A deals as a way to grow in Western Europe, Africa and Asia.

Optimistic outlook for 2020

CEE investment deals show no sign of slowing. Brexit and lacklustre GDP growth across Western Europe mean global investors continue to seek opportunity in more diverse markets. Trade tensions between the US and China similarly make the CEE an attractive investment choice.

There is some cause for caution as populism threatens to impinge on business growth, especially concerning international investors, however markets are so far relatively unaffected and deal advisory and M&A activities go from strength to strength.

Mazars and deal advisory in the CEE 

In 2019 alone, Mazars processed 16 successful CEE deals with a total transaction value of €1.4 billion. This allowed our firm to be ranked among the top 5 leading Deal Advisors providing Transaction Services (due diligence, valuation) in Central & Eastern Europe, based on Mergermarket CEE Accountant League Table by number of successful deals. We have also been ranked 2nd in terms of disclosed transaction value at the reginonal level. To find out more about our financial and tax advisory work in the region and our highlights for the last 12 months, go here.