M&A trends in 2013
World M&A sector was in downward trend in 2013. When the number of transactions stayed in the same level as 2012, the total deal volume decreased 3.2% according to Mergermarket annual report. The total volume was in 2013 2,215.1 B$. European M&A deals valued at US$ 631.6bn dropped 12% from 2012 (US$ 717.8bn) and represented a second annual decline.
On the other hand Baltic M&A sector showed good growth. According to the survey made by five legal companies lead by Tark Grunte Sutkiene the M&A transaction number increased 40% in 2013 y-on-y comparison. Legal adviser Sorainen also sees positive growth trend in Baltic M&A market.
Estonian M&A market has been influenced by the Scandinavian investment funds exits and buyouts of local capital. One of those funds who closed its portfolio in Estonia was Askembla Growth Fund who sold Bauhof DIY retailer and My Fitness fitness clubs chain shares in 2013 summer MBO. In November the fund made MBO in TD Baltic electronic wholesaler in Baltic. In the beginning of 2014 they sold last two companies to Klick Eesti consumer electronics retailer and Coral Arendus Real Estate Company. The closing trend of Scandinavian funds may continue because of the time restriction of funds.
At the same time when Scandinavian Funds are making exits in Baltic States there are local private equity companies that will open new funds. The Baltic Innovation Fund (BIF) will invest 100M€ into private equity and venture capital funds focusing on the Baltic States over the next four years. The total amount with private investors funds will be over 200M€ that will be available for the markets. Baltic biggest fund manager BaltCap opened new fund BaltCap Private Equity Fund II in 2014 February and made its first investment in Lithuania. The fund will invest in small and mid-sized companies with target of 100 M€ in total size. Also the different analyst expect the growth in small and mid-size M&A market with deal size up to 5M€.
Latvian Euro adaption will influence M&A market
Latvian EURO currency adaptation in 2014 will also influence the M&A market locally and Baltic cross border transaction. Sorainen law office senior associate Sergej Butov sees common effects with EURO adaptation in Latvia as it was in Estonia :“As we saw in Estonia, the market will have the biggest effect one year before and one year after the EURO currency adaptation“.
Aleksei Vorobjov, Investment Agency OÜ analyst
2014 is EU funding gap year for the next funding period 2014-2020.
Estonian government approved in March EU structural funding draft bill for 2014-2020. Estonia will receive 5.9B€ for the period which is 0.9B€ more than it was for the previous period. The biggest growth was in agriculture sector where the subsidies grew from 1.2B€ to 1,73B€. Also Estonia will be able to apply for additional funding for the Rali Baltica project that will add another 1B€ to the total sum.
2014 will pass as preparation year and there will not be EU funding to the economy So we will see the beneficial side starting from next year at the beginning of 2015. So we could presume that some sectors e.g. construction, agriculture etc. will have slightly lower investments than it was in 2013. There will be decline in construction price index, which will enable to start new developments. We could also presume that when the Rail Baltica project is lunched there significant increase in constructions specially in road construction sector.
Illar Kaasik, Investment Agency OÜ partner
Investment opportunities as an alternative into energy sector.
Estonian investors have been showing interest in investing into energy sector for the last couple of years. Previously investors from Finland, Norway, France and Germany have invested into energy sector more daringly. Good example in that field would be buyout of heating supplier from French investors in Tallinn and VKG investments in Virumaa with local investors.
There are not so many investments opportunities at the moment and investors are waiting for Eesti Energia next steps. Currently the shale oil burning with 30% of efficiency is slowly been replaced with oil production, where bypass product gas will be burnt for electricity production. Those investments need capital and should be done in syndicate with investors.
Changes have been made also in Eesti Gaas gas group. Last year the supply infrastructure was separated from the in to new company AS Gaasivõrgud and will offer only supply services. With the building of LNG new terminal there is also need for upgrade in gas infrastructure and will offer many interesting investing opportunities. There is already a possibility to buy some existing gas infrastructure company.
The investment into heating companies has been held back due to the Competition Agency restrictions for 7-8% yield margin. There will be several new adjustments into heating laws e.g. 2 tariff price, motivating for the owners to invest into companies, fixing the price for only big infrastructure areas, etc. There might be a market change from big heating infrastructure to more local smaller heating solutions, which will need investments.
In the following year investors should be read to invest into energy sector.Aivar Ljaš, Investment Agency OÜ development manager.
„Export“ opportunities in Estonian real estate market.
Usually we view export only as moving goods out of country. We all know also service export which is most commonly used in truism sector. Real estate does not move by itself and we could look as Real Estate export by the investor origin. Where the investor are coming from?
We have all read about Jurmala (in Latvia, next to Riga) and the real estate development and celebrities that have purchased real estate there. Jurmala is definitely the best case in the Baltic States.
Where could be similar case in Estonia? One possible candidate could be Tallinn with its old town that has been one of the favourite locations for foreign real estate investors. There has been great number of investors from Finland, Sweden and Russian. Finnish have also invested a lot in Saaremaa, Haapsalu and Pärnu real estate.
Outlook of East-Virumaa real estate market which has not been so well covered by the media.For the last couple of years the demand for living premises has risen mostly by the Russian citizens who are buying in different reasons. Mostly because it is close to the St. Petersburg. Cheaper apartments have been bought in Aseri or Kohtla-Järve presumably because of the living permits for EU. The more expensive apartments, which are used more frequently, for the long term living purpose or summer residence, are bought in Narva, Toila and Narva-Jõesuu. In the last few years Narva-Jõesuu apartments have been sold 25-30 pices per year with m2 price ranging from 1800 to 2000€/m2. That is the same price as apartments are sold in the centre of Estonian capital Tallinn. That shows continuing interest for the Narva-Jõesuu real estate and good quality and price ratio. The national Land Agency statistics also show that there was 91 deals made in last year with total volume of 5.2M€
Takeing into account the current demand for Narva-Jõesuu apartments there are several ongoing development projects and aloso completely new projects. Soon there will be opened new Noorus SPA hotel which is also aimed mostly to the Russian market and create good service for surrounding area.
Information about mergers & acquisitions in Estonia
Feel free to respond on this M&A article about Estonia. For mergers and acquisitions advice or questions about investing in Estonia you can contact Erki Katkosild.