M&A market in Bulgaria in 2013

M&A trends in 2013 globally

The world M&A sector continued a slightly downward trend in 2013. While the number of transactions stayed in the same level as 2012, the  total deal volume decreased 3.2% according to Mergermarket’s annual report. The  total volume was in 2013 2,215.1 B$. European M&A deals valued at US$  631.6bn dropped 12% compared to 2012 (US$ 717.8bn) and showed a second annual  decline.

Bulgarian market M&A trends

The market for mergers and acquisitions in Bulgaria during the last 2-3 years is a result of the consequences of the global financial crisis. However, the market grew in 2012 and 2013 according to different agencies reached roughly 1.5 billion euros. There are many opportunities to acquire interesting companies at an attractive price as long as the investors are willing to invest a little more effort in restructuring and repositioning of the companies. The fields, which attract the most the investor`s attention in 2012-2013 are the energetics, food industry and telecommunications. In one of these fields the biggest deal for the 2012 was done – the completed in November obligations reconstruction of the Bulgarian Telecommunications Company. The deal is significant for one of the main tendencies, which characterized the mergers and acquisitions market in Bulgaria in 2012 – insist on the reconstruction of liabilities and less “fresh” deals, directed on the encouragement of the growth and realization of additional advantages for the business, note the authors of the report.

There is growing investment interest from investors from investors from the East: Russia, Turkey, China – which revealed a special credit line of 10 billion dollar for a cooperative investment projects in the infrastructure and in technologies in East Europe and a fund for an investment partnership in amount of 500 Million Dollars and others. They are expected to replace the European investors. The number of financial investors (private equity funds) which are looking for investment in Bulgaria decreased substantially for two reasons: the majority of the firms which are on the market currently are in financial difficulty and the funds do not want to invest so much resources in restructuring of such companies. The second reason is that they became much more conservative in their valuations, which do not meet the expectations of the owners of the good companies.

Bulgarian M&A market performance during 2013 – a moderate improvement dominated by local players. In 2013 deals continued to be driven by massive restructuring and relocation of capital. Again, most deals were initiated by sellers wanting to leave the Bulgarian market.

Most sellers were foreign investors, leaving mainly because of low return on investment over the past few years or attempting to finance other operations with the capital they have raised here. For the most part, the places of those leaving were taken up by local businesses. Thanks to many businesses seeking to actively consolidate market positions, there were moments of real competition, allaying fears of political risk associated with months of anti-government demonstrations. Overall, the number of deals was reasonable for the size of the market. However, with the exception of a few prominent transactions, the market continued to lack depth.

Dynamics of the Bulgarian market

There were interesting transactions in several sectors that traditionally attract the attention of investors. In the financial institutions sector: the MKB Unionbank deal was completed; German Bayern LB sold its Bulgarian assets; and First Investment Bank acquired another small piece on the banking market. CTBank acquired Emporiki Bank. The Dutch insurance group Achmea sold its insurance business in Bulgaria; and Interamerican is about to become part of the local insurance company Euroins. The race for the largest pension fund, Doverie, attracted quite a bit of interest. The owner, Vienna Insurance Group, received mostly local offers and finally signed an agreement regarding the sale of Doverie to United Capital Plc, a fund registered in the UK.

There was significant movement in the telecoms and media sector, the acquisition of Globul by Telenor being the most important deal. In the digital media segment, Darik acquired the web business of the internet group Netinfo.bg, thereby completing its portfolio of media platforms to reach out to their Bulgarian audience. In the print market we saw the end of disputes over the ownership of “Trud” and “24 Chasa”; in the magazines segment, Sanoma sold their business to a group led by current management.

Some players continued expanding. Rompharm acquired a few large agricultural land portfolios, after which they made a portfolio investment in the largest pharmaceutical company on the Sofia Stock Exchange – Sopharma. A group of investors, led by Spas Roussev, acquired the Radisson in Sofia last year, followed by the Hilton Sofia acquisition this year.

What’s next in merger & acquisitions

There are no signs of significant growth in the M&A market in Bulgaria. Still, it is worth mentioning that for the first time in a few years there were two consecutive periods of increased trust among fund managers in Central Europe. This growth is extremely important and along with the timid, yet continuing economic recovery, it brings together investors interested in the region and the businesses trying to plan the future of the market. However, discrepancies between buyers’ and sellers’ price and timing expectations remain a fundamental obstacle to deal closure.

In line with the economic and political circumstances in the country, we can expect that there will be more investments aimed at increasing efficiency and lowering costs, rather than investments in production capacity. Export-oriented sectors, such as the food industry and fast moving consumer goods, will continue to do well and we can expect some movement there.

Many of the country’s industries are still fragmented, which means we are going to see even more consolidation in the coming months.. The good news, however, is that financial investors’ interest seems to be on the rise.

As is the case in some neighbouring CEE countries, there is a growing interest from other markets, such as China and Korea. We have seen increased interest from Chinese companies in particular and this looks set to continue for the foreseeable future.

Finally, accelerators/incubators and co-investment funds reinforce the country’s position as a regional hub for young and ambitious projects. While just a couple of years ago there were just a few foreign projects in the accelerators’ investment window, now the ratio is about 50/50, meaning continuing diversification and internationalisation. We can realistically expect the start-up industry in Bulgaria to start generating deals in the near future.