Investing in CEE: Inbound M&A report 2021/2022

Despite concerns about Covid-19, resurgent inflation and rising energy prices, 2021 saw robust dealmaking across the Central and Eastern Europe (CEE) region. CEE’s diverse markets and abundant targets are increasingly attractive to both domestic and inbound investors. This publication offers an overview of inbound M&A activity in the CEE region throughout 2021, and looks ahead to the opportunities and challenges in the coming months.

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The overall picture is one of strong growth and resilience in the market, which was reflected by the highest level of M&A deal value seen for five years in the CEE region in 2021.

Deal volume and value both increased in 2021. The number of M&A deals in the CEE region rose to 889 in 2021, up 32% on the previous year. Total deal value was also higher, with transactions totalling €67.5bn. This represents an increase of 41% compared with 2020, and it is the highest total transaction value since 2016.

Key findings

  • International buyers continue to target CEE. Inbound investment accounted for 62% of the aggregate value of transactions carried out in the CEE region (including Russia) in 2021, up from 56% in 2020, confirming the attractiveness and relative stability of the market.
  • Lower share of domestic investors. Domestic investors’ share of the total fell to 38% from 44% in 2020. Rising borrowing costs in CEE countries outside the Eurozone are likely to be among the factors weighing on domestic investors.
  • Private equity (PE) buyouts on the rise. Fuelled by record reserves of dry powder in both domestic and international markets, the overall deal value for PE buyouts leapt 63% to reach a total of €10.4bn – the highest level on record since 2015. Volume also rose sharply, up 46% with 130 deals in 2021 versus 70 in the previous year.
  • CEE region attracts US-based PE investors. US private equity accounted for two-thirds of the value of the top ten PE transactions in 2021.
  • Sharp increase of cross-border dealmaking from outside the region. In 2021 the value of transactions by dealmakers from outside CEE jumped 36% to reach €32.5bn, deal volume, meanwhile, saw a 34% increase with 371 deals.
  • Four countries continue to dominate. The top four countries in terms of M&A deal volume in 2021 were Poland (with a total of 192 deals), Russia (146), Austria (119) and the Czech Republic (86). Turning to total deal value, Russia came in first with disclosed transactions totalling €20.4bn, up 15% versus 2020. Austria, Poland and the Czech Republic took second, third and fourth places respectively.
  • Tech, the star performer. Tech stands out as the CEE region’s biggest inbound deal generator in 2021. Performance was spectacular, with value nearly quadrupling year-on-year to €10.1bn and volume jumping up by 86%. Activity has been driven up by the accelerating digitalisation trend, as well as the growth in demand for IT nearshoring as a result of the Covid-19 pandemic.

Key findings for Slovakia

  • Slovakia saw a total of 16 M&A transactions in 2021 – two deals more than in 2020.
  • Disclosed M&A deal value for the year was €69m, a significant increase on the €6m seen in the previous year.

Despite the relatively low volume of dealmaking, Slovakia’s M&A market has much to offer. Startups and scale-ups are growing in strength, fuelled by a younger generation of entrepreneurs looking to partner with private equity or tap into state-managed funds. “Our main focus is on SMEs and scale-ups,” says Igor Mišík, Senior Manager at Mazars in Slovakia. “SMEs with a long-term strategy and growth focus are looking to secure the future through acquisitions. Those not negatively affected by Covid-19 in 2021 had surplus cash – in many cases, those companies did conglomerate acquisitions, because they saw opportunities coming out of the blue and just seized them.”

Rising valuations are a fact of life in Slovakia as they are in the rest of the CEE region, observes Mišík: “Buyers need to be cleverer post-acquisition and look for additional synergies. Ongoing Covid-19 restrictions and the ending of government subsidies means there will be a shake-out in some sectors, and this will reveal how well acquirers managed to restructure their business model.”

Higher energy prices in 2022 could also pose challenges, potentially leading to distressed opportunities. “Companies that did not hedge their energy prices could be easy prey for those who did,” Mišík says.

One sector that could do well in 2022 is healthcare, predicts Mišík: “The pandemic has left state healthcare personnel exhausted and demotivated. This could lead to exodus of personnel to private healthcare facilities putting even more pressure on the state healthcare system. Non-urgent operations were put on hold during Covid-19 peaks making already long waiting periods even longer. This, combined with often under-average quality of treatment, makes patients turn more regularly to private healthcare.”

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Outlook for the coming months

As the study shows, the region boasts a diversified economy, from strong IT capabilities to a growing class of middle-income consumers and large levels of natural resources. And while wages are growing in the region, they remain lower than in Western countries — providing an attractive area of investment and expansion as businesses seek to reshape their supply chains in the wake of the upheaval caused by the pandemic. Factors shaping the dealmaking landscape in 2022 are likely to include high and volatile energy prices (wholesale gas in particular), inflation, higher borrowing costs (central banks outside the Eurozone are already hiking rates), a tight labour market, tensions with Russia, and the rise of new Covid-19 variants. Against this background, GDP growth is expected to ease after the bounce back seen in 2021, with growth for the Eastern Europe region in 2022 expected to be 3.8% compared with the 4.9% seen in 2021, according to the IMF.

The war in Ukraine is presenting a considerable humanitarian crisis in the region, especially in neighbouring countries which have opened their doors to refugees. Although the conflict is set to slow growth both in the region and globally, M&A in most of CEE is unlikely to be directly affected. Volatility in the energy, stock and debt markets, however, is certain to pose a challenge for dealmakers across the region and beyond, as is inflation caused by further supply chain disruptions.


Investing in CEE report 2022
Investing in CEE report 2022