Emerging Europe hits highest deal count in 2019 – report

PE deal volume continues to increase year-on-year as the region’s larger and faster-growing economies provide a hunting ground for international and domestic GPs.

Private equity deal activity is on an upward trajectory in emerging Europe, with the volume of private equity-backed deals reaching a five-year high last year.

A total of 318 deals were sealed by private equity buyers during the period, a slight increase from 2018’s 307 deals and a roughly 10 percent increase from 2015, according to Emerging Europe M&A Report 2019/20, a report from law firm CMS and data provider EMIS.

Deal values remained at almost the same level year-on-year, at around $23 billion.

Succession, corporate carve-outs and secondary sales continue to provide fertile grounds for investment, especially with international GPs showing an appetite for larger deals in the region.

UK firm BC Partners secured the second-largest deal in the region last year, with its €1.28 billion ($1.42 billion) purchase of Bulgarian telecoms and IT company Vivacom. Advent International-backed Zentiva, meanwhile, acquired the sixth largest, the central and eastern European operations of pharmaceutical company Alvogen for €900 million.

“The regional eco-system is growing more sophisticated in its ability to do deals,” Helen Rodwell, a partner at CMS, said in the report. She also noted that in some countries international funds experience tough competition from local investors and financial groups for the best assets.

Among active domestic players in the market are Mid Europa Partners, Innova Capital and Ukraine-focused Horizon Capital. Last year, Mid Europa bought bakery retailer Mlinar and software services group intive. It is also stepping up investment in Romania and opened an office in Bucharest in September. Warsaw-based Innova closed its sixth fund on €271 million in September, raising almost twice its initial target. Kiev-based Horizon is deploying the its third and largest Ukraine-dedicated fund, which closed on its $200 million hard-cap in 2018.

Consumer wealth and technology are the two standout themes for private equity investment in the region, noted Tamás Nagy, director and co-head of private equity at the European Bank of Reconstruction and Development, in the report.

GPs are mainly attracted to food retail, convenience products, healthcare and fitness, although technology saw continued investment in IT services, software and cable communications, Nagy added.

Looking at overall M&A activity, China was the largest foreign investor in emerging Europe by value – €6.4 billion ($7.09 billion) – and the US was largest by volume at 122 deals last year. Cross border deal volume had an almost 15 percent increase from 2018. Domestic deal volume dropped by 26 percent from the previous year.