Business Trends in CEE: AI, Investment Trends and the Current M&A Market
This paper discusses the latest business trends in Central and Eastern Europe (CEE) in the mergers and acquisitions (M&A) market. Thanks to the thriving countries in the region, the CEE market has grown rapidly in recent years. As the markets in Western Europe have become increasingly crowded, more and more investors have turned their attention to the CEE region. Compared to the rest of Europe, the CEE countries offer a cheap but well-educated workforce, relatively low operating costs and, in most cases, access to the large European Union market. For foreign investors from countries with strong currencies compared to their home markets, the CEE M&A market is particularly attractive in terms of valuation. Undoubtedly, the post-communist CEE countries are currently experiencing a boom and dynamic development compared to the rest of the continent. Europe, or more precisely the European Union, is one of the biggest players in the global economy, which means that the thriving CEE countries should not be underestimated as they can and probably will play an increasingly important role in global markets.
Although the CEE region is currently experiencing very dynamic growth, the market is still not dense enough to effectively hinder the entry of new investors. We expect the upward trend to continue in the coming years, given the systematic professionalisation of the companies operating in the market and the positive economic forecasts. However, the CEE market also has some drawbacks. While investors in the M&A market are currently very optimistic and enthusiastic, they also appear to be quite cautious. The main concerns are the still high and unpredictable interest rates, the complicated valuation process and, most importantly, the unstable geopolitical situation in the region due to the war in Ukraine. Nevertheless, it is expected that over time the doubts of most investors will be dispelled and we will see even more transactions on the M&A market. At the moment, Poland is by far the frontrunner in this respect, with as many as 366 transactions worth more than EUR 10 billion in 2023. Austria, Romania and the Czech Republic are also performing well. Together, these four countries generated 709 M&A transactions, accounting for 65% of all transactions in the CEE region.
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Current investment trends in CEE - rapid adaptation to change
The CEE region is becoming increasingly attractive for foreign investors with capital coming from well-developed and economically strong countries. Currently, investors from the US, Germany and the UK are financing the largest deals in the CEE region, while the United Arab Emirates, the US and Australia are on the podium of the most valuable deals. The IT & Telecom sector stands out as one of the most attractive and has the highest overall deal value. Industrials and Energy & Utilities are the second largest sectors in terms of M&A deals. The general development of the CEE countries is creating an ever-increasing demand for professional, high-quality services and products. It is therefore worth considering investing in less popular, but not necessarily less profitable industries. In particular, the healthcare and pharmaceuticals sectors are worth looking at, as they have a bright future given Europe’s demographic crisis and ageing population. The renewable energy and construction sectors should also be considered due to the EU’s green policies (e.g. the introduction of the Buildings Directive in May 2026), as most countries in the CEE region are members of the EU.
The importance of sustainability-driven companies is also booming in the M&A market. This is mainly due to the introduction of regulations in EU member states related to the EU Corporate Sustainability Reporting Directive (CSRD). The provisions of this directive require companies to report detailed information on the environmental (E), social (S) and governance (G) impacts of their operations. Based on the criteria set out in the Directive, companies are required to demonstrate how their activities and strategy take account of these areas and to outline specific actions taken to promote sustainable development. According to the Directive, the largest companies (based on the Directive’s criteria) will be required to report on this as early as 2024, and smaller companies will be required to do so in due course. As a result, many investors already intend to conduct ESG due diligence on proposed transactions. According to KPMG’s Global ESG Due Diligence+ study 2024, around 80% of investors said they would use such reports. Taking CSRD criteria into account and implementing sustainable development activities will increase the attractiveness of companies and influence valuations. In addition, ESG analysis can help identify risks and opportunities at an early stage of a transaction.
It is also worth noting the potential benefits of using artificial intelligence (AI) to support M&A processes. With the rapid digitalisation of everyday life, we are seeing an increasing impact of AI on many areas and industries. In the coming years, we can expect to see more acceleration and facilitation of M&A operations, such as due diligence reviews, although the complete replacement of M&A risk and threat assessment processes by artificial intelligence is unlikely, as the human factor still plays an important role.
