27 March 2007 — In line with continental Europe and the UK which last year achieved their strongest Mergers & Acquisitions performance in recent history, transaction activity in Central & Eastern Europe was also extremely buoyant. In total 2,527 publicly-disclosed private transactions were completed in the CEE countries last year. Overall, deal volume in terms of number of transactions rose by 37% last year while the total value of these transactions rose by 79% and reached a record-breaking $163bn compared with $91bn in 2005 — reported PricewaterhouseCoopers in its latest M&A report.

“Much of this growth was due to an outstanding performance by Russia which recorded 1,210 transactions totalling $111bn during 2006. As a whole, however, M&A activity in CEE remained robust with new stars such as Ukraine and Serbia beginning to attract considerable investment attention” — highlighted Margaret Dezse, Corporate Finance Partner of PricewaterhouseCoopers.

Top target industries

There are few surprises among the ranking of industry sectors by M&A activity in 2006 with a similar picture to previous years emerging. Manufacturing remains the titleholder for the most active sector with 499 transactions (384 in 2005) representing 20% and 21% of the deal total, respectively. It is followed by financial services with 16% (13% in 2005); food & beverages with 10% (9% in 2005) and energy & utilities at 9% (10% in 2005). With regard to year-on-year deal volume growth, construction, transport, financial services and retail & wholesale last year showed the greatest increases.The pharmaceuticals & chemicals industry earned the title of ‘most valuable industry’ in CEE with 344% increase in the average deal size from $45m to $200m in 2006.

Ending privatisation

In 2006 the volume of privatisations in CEE grew by 52% but was down in market value by 70%. The 11 countries of the region reported 490 privatisations in 2006. This compares to 322 in 2005. The top five sell-offs totalled $4bn representing 53% of the entire CEE privatisation market. Privatisation activity in Serbia, Russia and Ukraine increased last year to account for 87% of total privatisation deal volume in CEE.

In contrast to the generally upbeat M&A trend, the total value of privatisations dropped dramatically last year, from $22.8bn in 2005 to $7bn in 2006. This could indicate that much of the CEE region has matured beyond the State sell-off stage.

Russian market

M&A market growth in Russia was 111% last year — up from USD 53bn to USD 111bn in 2006 with an average deal size of USD 181m. Deal volume shot up from 706 to 1,210 deals in 2006, of which 922 were completed by domestic companies. The total number of privatisations was 158 with an average deal size of USD 9.1m.

Russia saw 142 M&A transactions in excess of USD 100m last year. The hottest industries in 2006 were manufacturing including the metals sector, financial services and energy & utilities.

In addition, Russia closed 102 outward transactions in 2006, thus staying the most active outbound investor in the region, as in 2005. The main targets of Russian investors were Ukraine (22), UK (8) and US (7).

The largest transaction in CEE also took place in the Russian Federation: as part of a consolidation, Rosneftegaz acquired a 23.21% stake in Yuganskneftegaz by a share-exchange programme for a consideration of USD 6.60bn.

Russia also stood out with a mega-merger in the food retailing sector: a deal between Pyaterochka and Perekrestok, Russia`s two leading food retailers. The deal is notable for its size of USD 1.37bn and because it was a landmark merger that heralded further mega-deals in the retail sector.

Steven Berger, CEE Transactions Leader, PricewaterhouseCoopers, shared his view on the M&A activity in the Russian Federation:

“Russia remains the focus of great attention on the part of investors in countries all over the world. Foreign companies are expanding their activities in Russia, taking full advantage of the opportunities offered by the increasing purchasing power of local consumers. While the natural resources sector remained a key sector in terms of M&A activity, other sectors such as the consumer goods and financial services sectors gained in importance. Furthermore, Russian companies are fully in step with the global trend of cross-border business consolidation and are acquiring assets overseas”.

Notes for editor

1. Table 1: Quick facts

2. Table 2: Top 5 disclosed privatisations in 2006

3. The full survey can be downloaded from our website.

PricewaterhouseCoopers has performed an analysis on the key trends and driving forces related to the Mergers & Acquisitions and privatisation activity in the CEE region since 1997.

PricewaterhouseCoopers tracked publicly disclosed, private-sector transactions in eleven countries of the region: Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania, Russia, Slovakia, Slovenia, Ukraine and including Serbia in its survey for the first time.

This publication includes information obtained or derived from a variety of publicly available sources. PricewaterhouseCoopers has not sought to establish the reliability of these sources or verified such information. PricewaterhouseCoopers does not give any representation or warranty of any kind (whether express or implied) as to the accuracy or completeness of this publication.

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“PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.