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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 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.

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