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Emerging Europe Sets the Pace for M&A Deals as Foreign Investment into the Region Surges

Emerging Europe Sets the Pace for M&A Deals as Foreign Investment into the Region Surges

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Against a backdrop of global uncertainty fuelled by Brexit, a US-China trade war, and a weakening German economy, Central and Eastern Europe has proven itself economically resilient in the face of a challenging year. Led by Hungary, Poland, and Romania – all of which reported more than 4% GDPs growth – many emerging European countries have comfortably outshone the sluggish economies of Western Europe. It is, therefore, unsurprising that foreign investors flocked to the region in 2019 in search of healthy returns.

Magnet for International Investors

As revealed in the latest CMS Emerging Europe M&A report, foreign investment into Emerging Europe grew 14% in 2019, with cross-border M&A deals accounting for nearly 60% of all transactions. The UK’s decision to withdraw from the EU appeared to have little impact on UK companies’ investment plans in Emerging Europe, with the deal flow rising 9%. Companies from Germany, Austria, France, and Spain also did more deals in Emerging Europe last year, highlighting the continued importance of Western Europe as a source of capital for the region.

The stability and growing consumer purchasing power in the markets across CEE also attracted investors from further afield. In contrast to the retrenchment by US investors in Western Europe, the US was the largest international investor in Emerging Europe by deal volume last year, clocking 122 deals – a 37% increase on 2018. Asian investors also turned their spotlight on Emerging Europe, with investments from Asia accounting for 15.9% of the year’s total M&A value. China is now the largest investor by deal value (EUR 6.4 billion), having more than doubled the value of its investment in Emerging Europe since 2018. Meanwhile, Singapore’s investment in the region grew five-fold to more than USD 600 million in 2019, and South Korean investors were involved in a several of the top ten deals in a number of countries.

Private Equity Reaches New Heights

Complementing investment from corporates and family offices, in 2019 private equity investment reached a record high of 318 deals, as the regional eco-system grows more sophisticated in its ability to make deals happen. Private equity investors – including financial investors, such as asset managers, pension and sovereign funds, supranational financial institutions, and large international banks – were involved in 16.2% of all transactions in Emerging Europe. This rise in private equity played an important role in the increase in telecommunication and IT deals, now the second largest sector by both value and volume (EUR 12 billion in 200 deals).

Private equity investors also demonstrated interest in the growing real estate and construction sector, where they are now involved in 28.6% of deals. This remains Emerging Europe’s most active sector by deal volume, with changing shopping habits playing an important role in the sector’s appeal. The growth of e-commerce has led to an increasing demand for warehouse, logistic centers, and returns centers for online retailers, and there are no indicators that demand will wane anytime soon. The real estate and construction sector is now worth EUR 16.6 billion and, despite labor constraints threatening to slow down the pace of growth, investment from Europe, the US, and Asia is set to continue. The gloomy sentiment among manufacturing companies in the eurozone has spilled over to Emerging Europe, as the region is highly dependent on demand from its trading partners in the West, especially Germany.

Deal-Making in Ukraine Picks Up

On a country-by-country basis, 2019 seems to have been a year of mixed experiences. Ukraine had a particularly buoyant year with M&A transactions reaching their highest level since 2013. Both deal volumes and values rose, by 25.7% and 21.4% respectively, and a continuation of this growth looks very likely. Thanks to the election of Volodymyr Zelenskiy in 2019, Ukraine is set to benefit from long-awaited reforms that will put the country on track for an economic resurgence. As these reforms begin to materialize, foreign interest will undoubtedly be stimulated – making Ukraine a country to watch in 2020. In some of the more mature markets in the region where deal volume declined, mainly the Czech Republic and Poland, overall deal value was up compared to 2018, indicating a growth in average deal size. Poland saw M&A values rise significantly (+68.3%), with the country boasting half of the region’s top 20 deals in the real estate & construction sector, including the sale of Orbis to Accor Hotels of France. The pace of economic growth in Hungary was not matched by M&A activity as transaction numbers fell 10.9% and values dropped 64.3% against the previous year, when there were two EUR 1 billion-plus telecoms deals. Meanwhile, Turkey underwent a similarly challenging year, with deal values more than halving against 2018. However, Turkey’s prospects improved towards the end of 2019 as the economy rebounded out of recession, putting the country on track for growth this year.


Although M&A activity in the manufacturing industries dropped and the sector lost its place as second busiest sector to telecoms & IT, the region continues to attract greenfield investment, particularly into the automotive industry. The global demand for electric cars has benefitted greenfield investment in Emerging Europe, most notably from South Korean investors who are seizing the opportunity presented by the electric vehicle industry to combine automotive experience with new technologies. South Korean investors have stepped up their production of cars, batteries, and components in CEE: in Hungary, SK Innovation is building a second battery plant;
LG Chem has plans to step up battery production in Poland;
and Hyundai announced plans to produce its full electric “Kona” car in the Czech Republic in 2020 – its largest overseas location for electric cars. Meanwhile, South Korea overtook Germany to become Hungary’s largest source of direct foreign investment. Looking ahead to 2020, the forces behind foreign investment from Southeast Asia show no signs of weakening and Emerging Europe’s attractions are stronger than ever.

Healthy Pipeline

Early projections for 2020 indicate that CEE will continue to live up to its reputation as a stable provider of investment opportunities, particularly in M&A. The region is on track to outperform its trading partners in Western Europe in terms of economic growth, and any economic slowdown is unlikely to dramatically impact M&A transactions in CEE, particularly as these markets are independent and self-contained. Overall, investors should be reassured by Emerging Europe’s resilience in the face of such a challenging year and excited by the region’s prospects in 2020.

By Helen Rodwell, Managing Partner and CEE Head of Corporate, CMS Prague and Bratislava

This Article was originally published in Issue 7.1 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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