Investing in CEE: Inbound M&A report 2022/2023

InvestinginCEE InboundM&Areport 2022/2023 Contents 4Foreword TheM&AmarketinCentralandEasternEurope(CEE) 6Thedealmakinglandscape 10AroundtheCEEregion–countryprofiles 15PrivateequityinCEE 18CEEvsotheremergingmarkets 19SituationinUkraineandimpactontheCEEregion 20ESGanditseffectsonthedealmakingprocessinCEE Cross-borderM&AinCEE 21Theinboundpicture 28Sectorfocus 32Technology 34Energyandutilities 36Industrials 38Indicativevaluationconsiderations 40M&Aoutlookfor2023andconclusion InboundM&Areport2022/2023Mazars3 Foreword DealmakinginCEEremainedresilientin2022despiteunprecedentedregionalandglobalheadwinds Russia’sinvasionofUkraineon24February2022signalledthebeginningofwhatwastobeaturbulentyearforbothEuropeanandglobalmarkets.Trendsthatwerealreadyinplayin2021 –risinginflationandhigherborrowingcosts–weregreatlyamplified.Thewarunleashedsupplyshocks,notablyinthewholesalegasmarket. Meanwhile,theimpositionofeconomicsanctionsagainstRussiafurthercomplicatedthedealmakinglandscape.Againstthisbackdrop,supply-chainbottlenecksandlabourshortages–alegacyofthepandemic–continuedtodampengrowth. Inshort,dealmakingconditionscouldscarcelyhavebeenmorechallenging.Yet,asthisreportreveals,theimpactonM&AactivityintheCEEregionwasmuchlesspronouncedthanmanyinitiallyfeared.Infact–andwiththeexceptionof2021,asomewhatanomalousrecord-yearforM&A–dealvolumesandaggregatedealvaluein2022bothreachednewhighsinCEE. Sowhatlaybehindtheregion’sremarkableperformance?Thematurityofthemarketisonefactor.Proofofthisisprovidedbytheincreasingattractivenessoftheregiontocross-borderinvestors.Asourstudyshows,2022sawtheproportionofinboundactivityinvolumetermsrisetoitshighestlevelonrecord.Westerninvestors–andUSdealmakersinparticular–wereincreasinglyactive.Againstthisbackground,thevolumeofprivateequitybuyoutsin2022wasoneofthehighestyetseen. Adaptabilityisanotherfactor.Anexampleofthisistheincreasingwillingnessofdealmakerstousestagedtransactions–buyingintranchesoroptingforextendedearnoutperiods–tobridgethevaluationgapbetweenbuyersandsellers. High-qualitytargetsareavitalpartofCEE’sallure.Intermsofsectors,technologystoodoutasthenumber-onedealgeneratorin2022.Moreover,theregionisincreasinglyafocalpointforinnovationassociatedwiththeenergytransition.Renewableenergyinvestmentsrapidlygainedmomentumin2022,asdidinvestmentsingreenmobility–fromelectriccarsandvehiclechargingtoride-hailingandadvancedautomotivesoftware. Inparallelwiththis,theregioncontinuestoofferunprecedentedconsolidationopportunitiesinthemid-marketspaceinindustriesrangingfromhealthcareandtourism(sometimestogether)tomanufacturingandtechnology. 2023willforsurebeachallengingyear.Butsetagainstthisarethequalityoftheregion’s businesses,thecreativityofdealmakersandthecontinuingsupportoftheEU’sResilienceandRecoveryFacility,whichisworthmorethan€100bntothe12CEEcountriesthatareEUmembers.This,andtheCEEregion’ssoundfundamentals,suggeststherearegoodreasonstoberelativelyoptimisticabouttheyearahead. MichelKiviatkowski CEEFinancialAdvisoryLeaderManagingPartner,MazarsinPoland 4MazarsInvestinginCEE Methodology MergermarketdealdataincludestransactionswithadealvaluegreaterthanorequaltoUS$5m,exceptforsomeminoritystakeacquisitionswhereahigher thresholdapplies.Iftheconsiderationisundisclosed,dealsareincludedonthebasisofareportedorestimateddealvaluegreaterthanorequaltoUS$5m.Countriesincludedare:Albania,Austria,Bosnia-Herzegovina,Bulgaria,Croatia,CzechRepublic,Estonia,Hungary,Latvia,Lithuania,Moldova,Montenegro,Poland,NorthMacedonia,Romania,Serbia,Slovakia,SloveniaandUkraine. Inthecaseofminoritystakedeals,transactionsareincludedwherethestakeacquiredisgreaterthanor equalto30%oftheentiresharecapital,andthedealvalueisatleastUS$5m.Wherethestakeacquiredislessthan30%thedealwillonlybeincludedifthedealvalueisatleastUS$100m,providedthereisalsoevidenceofanadvisorymandate;oratleastUS$500mintheabsenceofevidenceofanadvisorymandate. Mergermarketdataincludespropertytransactionswhereapropertycompany,withtheexceptionofapropertyholdingcompany,isacquiredormergedwithanotherentity.Itdoesnotincludeproperty/realestatetransactionsrestrictedtoland,buildings,portfoliosorsaleandleasebackagreements. Estonia Latvia Lithuania Poland CzechRepublic Slovakia Ukraine Austria Slovenia Croatia Hungary Romania Moldova Bosnia&Herzegovina Serbia Montenegro Kosovo NorthMacedonia Bulgaria Albania InboundM&Areport2022/2023Mazars5 TheM&AmarketinCEE Thedealmakinglandscape Dealmakersadaptedrapidlytothetougherenvironmentin2022 Despiteexceptionallychallengingconditions,M&AdealmakinginCEEproveditsmettlein2022,with846transactionsworth€39.2bninaggregate.Whilethesefiguresrepresentyear-on-yeardeclinesfortheregion–volumeandvalueweredown5%and21%,respectively,from2021–therearetwokeypointstobearinmind. First,2021wasalwaysgoingtobeahardyeartobeat(orevenmatch)thankstothelowinterestratesandsurgeofpost-pandemicdealmaking.ThenumberoftransactionsrecordedinCEEin2022,whiledownyearonyear,isnonethelesshigherthanforanyfull-yearperiodonrecordexcept2021.Theaggregatevalueofthosedealsisalsohigherthananyannualtotal