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International Internet Magazine. Baltic States news & analytics Sunday, 27.05.2018, 00:12

Number of Baltic M&A deals reaches record high

Galina Molochkova, BC, 14.03.2017.Print version
A new report by Ellex and Mergermarket reveals that M&A deal volume in 2016 was up 24% on the previous year, reaching its highest point on Mergermarket record. And the outlook for 2017 remains similarly robust, in spite of a backdrop of broader regional turbulence caused by Brexit, continued economic contraction in Russia, and slow growth throughout the eurozone.

Dovile Burgiene, Head of the Corporate and M&A practice group, Ellex Lithuania comments: “Gross domestic product growth in all three Baltic countries, the unemployment rate and the decline in the growth of consumption has contributed to the region's mergers and acquisitions market spurt.”

“Strong deal activity in the Nordic markets, with which the Baltics share close business ties, also helped spur deal activity in the region,” adds Burgiene.

“There was notable interest from PE firms in Baltic TMT, consumer foods and healthcare companies. In addition to the tailwind from a strong Nordic M&A market this resulted in record deal volume for the Baltic region in 2016. The energy sector also yielded deal activity with several renewable energy businesses, including wind and biofuels, changing hands and energy incumbents continuing to unbundle,” says Sonja Caymaz, research editor at Remark, part of the Mergermarket Group. “These types of deals are also filling the pipeline for 2017.”

Further key findings from the report include:

·      A number of sectors helped to support 2016’s activity, but TMT was the highest value sector, at €268m. When comparing combined figures from 2015 and 2016 with those from 2012 through to 2014, TMT’s share of activity rose from 12% to 14% by volume, and from 12% to 21% of total M&A by value – demonstrating the sector’s increased importance for Baltic M&A.

·     Baltic private equity performed well in 2016. There were 12 transactions with a total value of €40m, compared to ten deals valued at €11m in 2015. Activity was particularly pronounced in Estonia, where several PE investment cycles wound down in 2016.

·     Looking ahead, the Mergermarket Heat Chart, which logs ‘companies for sale stories’ for the past six months, shows that the consumer sector is generating the highest number of M&A targets (six), followed by energy, mining and utilities (five).

The total number of mergers and acquisitions rose 24% in the Baltic countries last year to a total of 63 deals. The value of these deals rose 17% to EUR 716 mln in total.

About half of all mergers and acquisitions in the Baltics were recorded in Estonia - 33 deals worth EUR 331 mln. Lithuania had nineteen deals worth EUR 234 mln and Latvia eleven deals worth EUR 151 mln. Unlike the two neighbor countries, the number of merger and acquisition deals and their total amount decreased in Latvia last year.

The telecommunications, technology and media (TMT) sector was the highest value sector in 2016 (EUR 268 mln). This is partly due to the Baltic region being home to a number of innovative technology companies. At the same time, international technology firms view the Baltics as an attractive investment destination. Other major growth sectors for Baltic M&A have been energy, mining and utilities, as well as the energy sector.

Swedish food retail store operator ICA Gruppen signed a deal to acquire Lithuania's IKI supermarkets chain for EUR 213 mln in late December, with an eye on creating cost synergies between IKI and Rimi, and complementary store networks. This deal was also notable as the biggest Baltic deal of 2016 by value.

Looking ahead, the Baltic M&A market is expected to show further growth in 2017. A number of sectors are primed for activity this year. The consumer sector will be a likely standout, as increases in consumer spending provide companies the will and means to grow. Energy, mining and utilities sector has the second-most early stage deals. Anticipated changes in government policy will also benefit several sectors in the Baltic region. To summarize the outlook for 2017, the Baltics will continue to be seen as an attractive investment destination and M&A will remain a key method of business growth.

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