Schoenherr: The dynamics of M&A transactions in 2014

By Madalina Neagu, Head of Corporate/M&A practicePartner with Schoenherr & Asociatii

The transactions of 2014 have confirmed the optimistic expectations from the beginning of the year, which forecasted an increase of the M&A market based on the slight economic increase from the first part of the year. With two of the largest transactions (i.e. divestment of the Lafarge / Romcim assets as part of the conditions required by the Lafarge-Holcim merger clearance by the European Commission and sale of the Enel assets in Romania) still pending at the end of 2014, last year has nevertheless proven to be one of the most prolific in M&A transactions until the beginning of the economic crisis.

There have been more than 50 transactions announced in 2014, which continue to fuel the experts’ optimistic expectations for 2015.

As concerns allocation of transactions by industry, the real estate M&A has partially recovered (at least in terms of number of transactions), closing the year with more than 10 announced transactions. Real Estate is followed in the deal count ranking by TMT (6 transactions), IT (4 transactions), various sectors of industry (which witnessed 7 transactions overall), banking & finance, services, energy and oil & gas.

In terms of deal size, the title of the biggest transaction of the year has been disputed between several transactions up until December 2014. To this end, NEPI’s acquisitions of Promenada shopping mall (148 million Euro), P3 real estate developer’s acquisition of the Europolis Logistic Park (120 million Euro), Auchan Group’s acquisition of 12 hypermarkets (261 million Euro), have taken turn in claiming “deal of the year” award, but in December 2014 Banca Transilvania and Volksbank Group announced the signing of the transaction for the sale of Volskbank Romania and, although the value of the transaction has not been made public, it is widely quoted as the largest M&A deal in Romania for the entire year.

The financial – banking field has been one of the most dynamic as far as the M&A transactions are concerned, and one of the most significant trends has been the consolidation. On this note, apart from Banca Transilvania’s acquisition of Volksbank Romania previously mentioned, OTP Bank has bought the Romanian operations of Millennium Bank, and Unicredit and RBS have completed their second transaction for the corporate clients’ portfolio, after the 2013 taking over by Unicredit of the retail clients from RBS. The dynamism of financial sector transactions has also been supported by the Polish Getin Holding which, after the purchase of Romanian International Bank in 2013, have recently completed the acquisition of the leasing divisions of Volksbank Leasing International from Poland and Romania. The above mentioned transactions, together with the non-performing credit portfolios traded this year by Volksbank and BCR, the takeover of Nextebank by Axxess Capital and the sale announcements of some subsidiaries of Greek banks in Romania confirmed the large contribution of the financial sector to the M&A market.

2014 has also been marked by the decision of certain multinationals to withdraw their market operations from Romania, so that after in 2013 Metro had sold the Real operations to Auchan, in 2014 it was Praktiker’s and bauMax’s turn to reduce their activity and transfer their Romanian operations to other players. On the opposite side, Auchan continued its expansion tendency by purchasing additional 12 trade centers this year, this appearing to be the biggest real estate transaction of 2014 so far.

Locally, we were able to see market consolidation tendencies through new acquisitions of small and middle size players.

As far as investment funds are concerned, the expected exits from their investments made during the economic rise are still long in coming. Except for some isolated transactions (e.g. the Advent International’ exit from Ceramica Iasi), the other investment funds seemed to have postponed their decision to capitalize their investments for the following period. Some private equity funds are also in the process of consolidating their investments by acquiring small and mid-size targets. This year, most active in their consolidation strategy have been Axxess Capital, Abris Capital, Resource Partners, and ADM Capital. Private equity funds’ appetite for transactions continued to manifest itself (although still mildly) in IT / Telecom, e-commerce and services) 

An area less explored by investors so far was that of distressed M&A. Regional distressed funds, active in Central and Eastern Europe have already expressed their interest for Romanian assets, their main strategy being to recapitalize, restructure and exit. Traditionally, distressed assets funds are focused on the portfolios of banks, taking over at a discount, the bank’s financing which the distressed companies cannot afford anymore. This is the case of the Vitantis Mall in Bucharest, which was sold at the beginning of 2014 to the Revetas Capital fund. Other similar transactions are currently being negotiated, so that some other distressed transactions are expected to be announced in the following months.