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Value of Central & Eastern European M&A deals lowest since 2004

Central & Eastern European M&A activity amounted to a total of USD31.2bn from 307 transactions for the first nine months of 2009 – the lowest nine month period by value since 2004 and by volume since 2003, according to a report by mergermarket.

Deal values are down from 2008 by 60 per cent and the number of deals is down by just over 50 per cent – in line with overall European stats which have seen similar dramatic drops.

CEE M&A activity is dominated by domestic transactions, which contribute 67 per cent and 61 per cent to the region’s total value and volume for the first nine months of 2009, at USD21bn and 188 deals respectively. Inbound activity stands at USD10.3bn and 119 deals.

So far this year, the M&A activity in the CEE region has been dominated by transactions in the energy, mining and utilities sector, contributing 51 per cent to the region’s total value accounting for a total of USD16.1bn from 33 deals. Foreign investors have also targeted the sector, making up 28 per cent to the total inbound activity value.

Although lacking in mega deals, the consumer sector is the most active in the region by volume so far in with 66 deals totalling USD2.2bn. The volume figure represents 22 per cent of total number of deals recorded in the region. The sector also contributed to 24 per cent of the total inbound volume. The sector is expected to see more deals announced over the coming months as the pipeline indicates potential targets are actively negotiating for deals. In particular, Russia and Ukraine seem to be the favourite destinations.

Russia is by far the largest M&A market in the CEE region for the first nine months of 2009, accounting for 113 deals with a total value of USD18.6bn, representing 60 per cent and 37 per cent of the region’s total value and volume respectively.

The inbound activity in CEE is so far dominated by buyers from the UK with 12 deals worth USD2.5bn, representing 24 per cent of total inbound value. However in terms of volume, US firms are leading the pack with 15 deals at a total of just over USD1bn. Together, the UK and the US represent 35 per cent and 23 per cent of CEE’s total inbound value and volume respectively. The largest deal amongst the two foreign investors was UK-based SABMiller’s acquisition of the remaining 28.1 per cent stake in the Polish brewer Kompania Piwowarska for USD1.1bn.

JPMorgan leaps seven positions from its 2008 ranking to top the Q1-Q3 2009 CEE value table for financial advisers, with a total value of USD8.9bn from seven deals. In the legal spectrum Cleary Gottlieb Steen & Hamilton tops the value table with USD7.8bn of total value, advising on six transactions.

PricewaterhouseCoopers tightens its grip as the most active financial adviser in CEE so far this year by netting nine deals totalling USD2.2bn. In the legal tables, CMS has jumped nine places from last year to be the most active legal adviser, with 12 deals worth a total value of USD1.8bn.

Private equity firms that had withdrawn assets for sale have tentatively put them back onto the market, but price expectations remain lower than 2008 levels which could hamper the sale process, says mergermarket. There is still however a discrepancy between what private owners are seeking for their companies and what buyers are prepared to pay.

Czech companies who had been considering an IPO have either withdrawn or are discussing a timeframe of 2011.

The refinancing of maturing bank debts/commercial paper continues to be a problem for corporates, especially in sectors such as property development, manufacturing and automotive industries – and this trend is expected to continue. In countries such as Poland, the corporate bond markets are opening up and some of that money will be used for acquisitions, with some fairly large deals expected in countries such as Poland this year, the report says.

According to mergermarket, the banking sector is still seen as facing a crisis and a number of support measures are in play to bolster their position, such as those announced by the IMF. Smaller banks are expected to go up for sale or form mergers with peers across the region, although issues related to debts and restructuring could hamper this process. Privatisations have begun to take off again and this remains one of the biggest areas of deal growth.

In Russia, the government is showing signs of exiting from companies it took stakes in during the financial crisis, signalling upcoming sell off s of valuable assets. The oligarch controlled industrial holdings that have emerged strongly from the crisis are looking for bargains in sectors such as real estate, where Russia saw a pre-crisis boom and subsequent stagnation.

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