Introduction to Business in Central and Eastern Europe
1. Introduction to M&A activity over the last 10 years
Looking at M&A transactions from the perspective of the last 10 years, we have seen a significant increase in interest from foreign buyers. The number of international transactions is steadily increasing thanks to the prosperous countries of Central and Eastern Europe, which offer a relatively cheap but well-educated workforce. In addition, several countries in Central and Eastern Europe (CEE) have not yet adopted the euro as their national currency, despite being members of the European Union and thus participants in a large market. This is one of the reasons why the M&A market is particularly attractive for foreign buyers from countries with strong currencies, as the valuation results in a lower price compared to the investors’ home markets.
The last decade, from 2014 to 2024, can be divided into two distinct periods: a relatively stable phase of development in the CEE region from 2014 to 2020, followed by the last four years, during which economic growth was significantly affected by the COVID-19 pandemic and, in 2022, by Russia’s invasion of Ukraine. However, we live in an increasingly dynamic world, capable of adapting to almost any circumstance. Paradoxically, the global pandemic only slightly disrupted the M&A market in Central and Eastern Europe, where countries generally imposed less stringent restrictions than in other parts of the world, particularly East Asia or neighbouring Western Europe. Increasing digitalisation also played a key role, allowing M&A processes to proceed smoothly.
Nevertheless, the pandemic had a negative impact on the global economy and disrupted supply chains in 2020-2021, particularly in the semiconductor and automotive sectors. In addition, the war in Ukraine has significantly increased the price of gas, petrol and electricity and affected the stability of supplies. To date, the supply of cheap raw materials from Russia has been largely cut off as a result of European and US sanctions, affecting many European economies.
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2. Current situation
Currently, M&A activity in the CEE region has declined slightly. This is due to the ongoing war in Ukraine, as well as high inflation and increased interest rates. However, if we look at other emerging markets, and Central and Eastern Europe is one of them, 2022 was a peculiar year in which all regions of the world took a step back. Although concerns about investing in the CEE market are primarily justified by the unstable geopolitical situation, M&A transactions in CEE remained largely unthreatened in 2022. Over the past two years, fears of Russian aggression spreading to other countries in the region have receded and this scenario is now considered highly unlikely.
3. Brief market and regional analysis
Poland is the clear leader in the region in terms of M&A activity. In 2023, it was the largest market, generating as many as 338 transactions with a total value of more than EUR 10 billion. This was the second highest total ever recorded, although 2022 saw an 18% increase in deal volume. Poland was followed on the list of busiest M&A markets by Austria, Romania and the Czech Republic. Together, these four countries generated a total of 709 M&A transactions, accounting for an impressive 65% of all deals in the CEE region.
4. Summary of M&A sectors
The technology sector continued to dominate in 2020-2022, recording the highest number of inbound deals in the region, with significant activity also recorded in the telecoms sector. There were 108 inbound technology deals worth just over €3.1bn. Joining technology on the podium of the largest sectors in terms of inbound deals were the industrials and energy & utilities sectors.
In 2022, the largest sector by value of inbound deals was Energy & Utilities. The 51 transactions totalled €6.3 billion, although up to 60% of this sum can be attributed to ADNOC’s €3.8 billion acquisition of a stake in Austria’s OMV.
The industrials sector was the second largest in terms of value in 2022, accounting for 59% of incoming transactions, down slightly from 2021 but higher than in 2020, when it was the sixth largest transaction sector, behind financial services, automotive and transport & logistics.
5. Further Observations and Analysis/Key Conclusions
The geopolitical situation following the war in Ukraine and the embargo on Russian raw materials has also led to discussions on the energy policy of the CEE countries, which have been largely dependent on imports of Russian gas and oil. In addition, the European Union’s policy to reduce CO2 emissions in member states and other measures to generate green electricity have led to an increase in the importance of renewable energy companies in the region.
The medical, media and pharmaceutical sectors are also very interesting markets that deserve special attention. Each of these sectors is highly future-oriented, but we still see relatively few M&A transactions in these areas in the CEE region.
Undoubtedly, the CEE region is becoming more attractive for potential investors, as companies whose capital comes from well-developed and economically strong countries are finding out. The United States, Germany and the United Kingdom are the leading investors in the CEE region in terms of number of transactions, while the United Arab Emirates, the United States and Australia account for the highest investment values.
6. Importance of CEE on the economic map of Europe
When weighing the pros and cons of investing in the CEE M&A market, the advantages clearly outweigh the disadvantages. The past few years of market uncertainty, not only in Europe but globally, have shown that the CEE region is exceptionally resilient to geopolitical instability and global crises. In addition, the cost of doing business is significantly lower than in well-developed and wealthy Western Europe, and the market offers significant opportunities for consolidation.
Significantly, with the end of the war in Ukraine, the CEE market could soon be a unique ‘gold mine’. Even now, the CEE countries, mainly as NATO members, are playing an important role as transit hubs for arms and humanitarian aid. Poland is clearly leading the way and remains the largest market for M&A activity in the CEE region. The national plan for the reconstruction of Ukraine after the end of hostilities is very ambitious. Major investments are planned in mining, energy, IT, agriculture and construction. Private investors are expected to play an important role in the reconstruction of Ukraine, and more and more companies are gathering information on the market situation with a view to allocating future capital for investment there. The CEE countries will play a major role in the reconstruction of Ukraine by facilitating and providing easy access to an attractive market. In addition, since the beginning of the war we have seen increased economic activity in Poland by Ukrainian citizens who have fled in search of a safe place to live. Once the war is over, we would expect many of them to return to Ukraine and transfer or merge their already flourishing businesses as they enter the domestic market, which should lead to a further boom in the CEE economies and increased M&A activity.
