Romania - M&A Market Trends
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Iulie 2010 |
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RUSANDRA SANDU - Associated Partner, Head of Corporate/M & A Department
S.P.R.L MENZER & BACHMANN - NOERR |
Adresa
Strada General Budişteanu Constantin, Nr. 28C
010775 Bucureşti, Sector 1
Telefon
+40-21-312.58.88
Fax
+40-21-312.58.89
Website
www.noerr.com
RUSANDRA SANDU
Associated Partner, Head of Corporate/M & A Department
NOERR
When considering Romania as a possible location for investment the most important advantages for such option would be that Romania is one of the largest markets in Central and Eastern Europe (with over 21 million inhabitants), and has an attractive location situated at the turning point between EU, the Balkans and CIS countries crossed by three important pan-European transportation corridors: corridor no. IV – linking Western and Eastern Europe, corridor no. IX – connecting Northern and Southern Europe and corridor no. VII – Danube River, facilitating inland water, transportation at the same time connecting the Romanian Port of Constanta to Northern Europe.
Romania benefits also from the EU accession since January 1st, 2007 that offers a harmonized legislation with the EU legal framework. EU integration boosted the economic growth and the foreign investments, at the same time putting pressure on inflation and generating exchange rate volatility. Moreover as an EU member, Romania is benefiting from post accession funds, for instance the amount allocated for Romania for the period 2007-2013 for Structural and Cohesion Funds is about EUR 31 bn.
After years of economic booming and dynamic growth of the M&A market, nowadays due to the global economic downturn, M&A market in Romania dramatically went down starting with the year 2009. The entire European M&A market is in decline as a result of the global economic and financial crisis, but the dynamic on the CEE countries is different. For example in Romania the total value of the transactions in the first 4 months of 2009 decreased with 98%, than the similar period of the last year, Bulgaria, Bosnia, Slovenia, Hungary with 100% while in Czech Republic and Slovakia the total value of the transaction increased with 60%.
In Romania, during the first 4 months of the year 2010 the direct investments decreased with 36% than the same period of the year 2009 (NBR source).
At the moment it is hard to foresee what shall reserve the future, as the whole economic environment faces radical changes and therefore the general context is completely different. At the moment it is clear that the crisis led to a contraction in the global liquidity and the investors' appetite for emerging markets, has decreased significantly.Nevertheless, based on our experience in the field, we believe that there are still businesses opportunities, despite the tough times we are presently facing and therefore, the investors should focus and keep the eyes wide open on the industrial/services sectors which still have the potential to grow in the near future.
The vendors' strategies are different, for instance we have noticed that they prefer to stay in business (the price obtained if they would sell the entire company does not reflect the fair value of the company) and to find a business partner to take over only part of the shares in the company and develop together the business. This strategy is also accepted by the purchasers who do not want to undertake all liabilities and other economical risks alone, preferring the joint venture for at least 3-5 years and backed-up by call option agreements for the rest of the shares in the company, concluded for a certain period of time and for a given price.
Foreign private equity funds remained also active on the Romanian market in 2009 despite the financial crisis. However, due to the economical downturn, the level of investments decreased in 2009 at around EUR 600 mn which represents half of the total value of the investments made in Romania by the foreign private equity funds in 2008.
With respect to the percentage of the purchase price for a leverage buyout target, the amount of debt used to finance a transaction in Romania varies according the financial condition and history of the acquisition target, type of business of the target and the past performances/track record of the private equity fund management.
Until 2008 the leverage multiple frequently used in the lending transactions for financing the investments in Romania of the private equity funds was of 8 EBITDA, whereas after the financial crisis such leverage multiple decreased down to about 2.5 EBITDA. No significant change with respect to the leverage multiple is envisaged or expected for 2010.
The first quarter of 2010 ended with investments made by the foreign private equity funds in Romania totalizing only EUR 59 mn and this not because of a shortage of available capital, since according to their public statements the foreign private equity funds have the necessary means to sustain investments in Romanian, but mainly because of the current economic situation (negative growth).
As regards the type of industries which remained or started to become lately more attractive for the private equity investments there can be mentioned the healthcare system (namely the medical services), security guard services and food and beverages business. The take over by SGAM fund of 36.25% of Medlife share capital was considered in 2009 the first important sign of M&A transactions revival in Romania. The targeted companies will continue to be the ones with positive cash flow which prove to be profitable and with potential for development even during crisis.
Another important transaction signed in February 2010 and advised by an international Noerr team was the taking over by Lidl of all Romanian and Bulgarian branches of its competitor Plus. The approval of the European cartel office must be obtained. With this transaction, the Lidl network in Romania increases by 119 shops and by 20 in Bulgaria in addition to warehouses and administration. Other branches in both countries which are still under construction must also be added. Lidl will continue with these projects.
Other financing alternatives are granted by the state for major investments through state aid schemes. For instance, according with the Government Decisions No. 1680/2008 for the investments exceeding EUR 30 mn and generating at least 300 working places, there is a state aid scheme which lasts 5 years during the period 2009-2013. The total maximum budget of the state aid scheme amounts to EUR 1 bn (with an annual average budget of EUR 200 mn). The total estimated number of companies which will benefit from the state aid is 70 (14 beneficiaries a year).
The grants are non-reimbursable and are given in the form of a refund of the company’s costs (in other words the company must pre-finance the investment).
Among this range of investments, we can quote the strategic investment also assisted by a local team of lawyers and financial consultants of Noerr, planned to start this year by Premium Aerotec. The investment, the building of the plant and the production of aircraft components will create around 700 jobs in the high technology aerospace sector in Romania.
Another success story became possible, due to a car park renewal scheme, supported by the German State and which enabled the Romanian car manufacturer “Dacia” to increase its sales up to 30,000 units during the first 2 months of 2009 (compared to 25,000 units sold by the German’s dealers all over 2008).
Such scheme helped the Romanian company to temporarily overcome the crisis and therefore could be an alternative that can be adopted by the governments also in other industries.
