The year ahead: 2013, similar to 2012

There are no significant developments to suggest that the M&A market, and especially the Private Equity (PE) acquisition market, will be more active in 2013 than in 2012.







This is unfortunate, because according to many studies, PE-backed companies systematically outperform comparable public companies and therefore create more value. Behind PE outperformance and PE value creation, productivity (as measured by EBITDA per employee) and employment are key drivers of business performance and broader stakeholder interest in PE. According to an Ernst & Young study, PE has been able to improve productivity significantly (6.9% in 2005-2012 in all European markets). Also, employment grew by an average of 2.2% per annum under PE ownership in the same interval.
Many privatizations have regrettably been postponed, and although there is much to do in this respect given the government’s commitments to its main financiers (IMF, WB and EU), there is no sign as yet of significant determination to recover the delays in the privatization schedule. To some extent this is understandable, since we all know that selling under pressure is not always wise. But even if the government were to complete this year’s schedule of privatizations, this would be unlikely to increase the 2013 M&A market significantly, because the effects would be more evident in 2014 than in 2013.
Other than that, most of the transactions will probably come from consolidation efforts in various industries that are still fairly fragmented. We may see some transactions in manufacturing, especially in the food processing industries, and some smaller ones in different retail businesses, and perhaps also in IT. The energy-related sector seems to remain more dynamic than the others, so it too is likely to generate a few transactions. 
In the current financial crisis it is possible we will also see some transactions in the financial sector, although the National Bank of Romania's role as referee is likely to limit significantly the number of potential deals.
Real estate will continue to be one of the main drivers in terms of the number of transactions, since there are still a quite high number of assets ready to be sold and this sector seems to generate ongoing interest.
The continuing crisis over the last several years has affected most companies, reducing their attractiveness to some degree. Therefore, the owners of the "champions" that have outperformed their peers now consider their companies more valuable and desirable than ever before. To some extent this is understandable, but it should be remembered that the funds available for acquisitions in the CEE region are diminishing, and therefore acquisition funds will soon be a scarce resource. 
Finally, our government, which has enjoyed the greatest popular support seen in the last 20 years, has a duty to do more to encourage the business environment and to support economic growth. Only in this way, and with more fiscal predictability and political stability, will investors be encouraged to put more money to work in Romania, which in turn will stimulate the M&A market and promote economic activity. 
So far, the Romanian government has still to demonstrate that it knows what needs to be done and intends to do it. Because, at least for a while, it will have the population's full support to do whatever it wants.

Read the full report in the attached pdf document.



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