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Dániel Kovács
30/08/2024 06:00
The number of M&A deals in Europe fell by 33 per cent in 2023, while the number of deals in Central and Eastern Europe fell by only 3.5 per cent, says Dániel Lakatos, Managing Partner at CLE:W Consulting, who recently published a study summarising what he sees as the success of our region and how long this positive sentiment can last.
"From a macroeconomic perspective, the Russian invasion has created a supply and demand shock through two channels: prices and trade. Central banks have responded by maintaining the restrictive interest rate policies they had in the epidemic period, which have had a significant impact on European economic activity and M&A deals," says Dániel Lakatos, adding that signs of optimism for transactions in Central and Eastern Europe can be seen from Q1 2023. According to the EMIS database, there were 1,187 deals in the region, which exceeds the 2019-2021 levels.
One of, if not the main reason for this, according to the expert, is the increasingly active Middle Eastern investor presence, with revenues from oil and gas increasingly finding their way to our region. This is the reason why, despite the economic challenges, the region was resilient last year.
"There are two main reasons for the strong Middle Eastern investor presence. Firstly, sovereign wealth funds (SWFs), which mainly manage and invest oil and gas revenues, have benefited from the rise in energy prices, while the appreciation of the euro and euro-denominated assets has created an excellent opportunity for Middle Eastern investors to increase their investments in CEE," he underlines. With a favourable labour market environment, a well-developed capital market ecosystem and regulatory safeguards, Central Eastern Europe is an excellent investment area and is seen as a long-term, strategic investment area by investors, who typically seek high value investment opportunities in Europe. Construction investments and logistics companies are therefore the main focus, but telecoms opportunities are also actively sought.
"In addition to SWFs, private, often family-owned Middle Eastern groups and state-owned companies are also actively interested in our region," points out Dániel Lakatos, adding that they are capable of highly efficient and rapid structural transformation, for example, in 2020, the Abu Dhabi-based IHC was mainly active in food and real estate, with only 40 employees. After four years of diversification and strategic rethinking, it has grown to become the second largest group in the Middle East with a market capitalisation of $245 billion, 500 subsidiaries and more than 100,000 employees.
The expert believes that the favourable winds of change will continue, with high financing costs and a skilled workforce, and that further Middle Eastern investment in CEE is likely, although the scale of the investment remains to be seen.
The author is a business journalist