Mergers & Acquisitions market value tripled since 2004 in CEE

Maturity, momentum and mega-deals

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 rose by 37% last year while the total value of these transactions rose by 79% and reached a record-breaking USD 163bn compared with USD 91bn in 2005 – reported PricewaterhouseCoopers in its latest M&A report.

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.

“Robust growth in the region means that M&A market value last year doubled that seen in 2005 and more than tripled the aggregate value of M&A recorded in 2004” Margaret Dezse, Corporate Finance partner, PricewaterhouseCoopers

“Much of this growth was due to an outstanding performance by Russia which recorded 1,210 transactions totalling USD 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 PwC.

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 also at 9% (10% in 2005).

However 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 USD 45m to USD 200m in 2006.

Quick facts:

Top 3 countries by number of transactions:	Russia, Poland, Czech Republic
Top 3 countries by value:	Russia, Czech Republic, Poland
Top 3 growth countries by volume:	Ukraine, Russia, Slovakia
Top 3 growth countries by value:	Croatia, Hungary, Russia
Top 3 investors in the region:	UK, Germany, US
Average deal size of deals below USD 100m’:	USD 20m
Proportion of deals below USD 100m’:	82%
Average deal size of deals over USD 100m’:	USD 505m
Proportion of deals over USD 100m’:	18%
Average disclosure rate in the survey:	46%
The largest transaction:	As part of a consolidation, Rosneftegaz OAO acquired 23.21% stake in Yuganskneftegaz OAO by a share-exchange programme for a consideration of USD 6.60bn.
The largest privatisation:	Telenor ASA, Norwegian telecommunications group acquired the Serbian mobile phone operator Mobi 63 for USD 1.91bn.

Privatisations up by 52 % but down in market value by 70%

The 11 countries (newly joined by Serbia) reported 490 privatisations in 2006. This compares to 322 in 2005. The power houses of the region were Serbia (210), Russia (158) and Poland (56), which accounted for 87% of all privatisations in CEE. The top five sell-offs totalled at USD 4bn representing 53% of the entire CEE privatisation market.

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

M&A market in Hungary

Based on the deals realised and made public in 2006, PricewaterhouseCoopers gives an estimate of the total value of the Hungarian market of USD 9.8bn. This is a triple-digit growth after the value of USD 4.6bn in 2005. Despite the rapid growth, the number of transactions fell from 231 in 2005 to 168 in 2006, caused mainly by the poor acquisition activity of domestic companies. The number of transactions made by them plunged from 121 to 50 respectively. As a result, the share of domestic transactions fell to its three-year low with 30%. The general uncertainty on market and in the economy (fiscal restrictions, poor macroeconomic results) also had a negative impact on the figures.

Foreign investors invested USD 5bn in Hungarian companies through 90 transactions disclosed last year. The number of mega-deals (with a total value of USD 100m-plus) increased significantly which contributed to the spectacular market growth, as well. The average transaction value reached USD 89m that exceeded well the regional mid-figure. The most active industry sectors were: services, IT sector, pharmaceuticals & chemicals, and energy & utilities. In latter two sectors accompanied by financial services, average deal value was the highest of all soaring to USD 300m or more. The continued regional expansion of certain Hungarian companies added significant momentum to market growth which placed Hungary among high achievers based on outward deal volume and value. Total disclosed capital invested from the country amounted to USD 2bn.

Privatisation in Hungary

Considering both the total market value and the number of transactions, the Hungarian privatisation market declined in 2006. After 11 deals registered in 2005, last year only 7 privatisations were made. The total market value fell from USD 2.7bn in 2005 to USD 1.4bn in 2006. Respectively, the average value of transactions declined to USD 237m in 2006.

Notes to Editors:

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.

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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