Increasing activity of Private Equity funds will be key to the growth of the mergers and acquisitions (M&A) market in Poland. Polish companies face an era of integration with other entities from both Poland and the CEE region. While many enterprises will undergo succession or sale, others will be actively searching for potential acquisition targets all around Europe. These are just some of the takeaways from Bank Pekao’s “New opening. Challenges faced by Polish companies as a driving force of M&A market” report. In the last three years, the value of Polish M&A market reached as much as EUR 22 billion and is likely to grow even further.
- Poland becomes the M&A market leader in the CEE region
- Average transaction value is growing
- The role of Private Equity funds as parties is increasing
- Polish economy has an above-average development potential in the area of M&A transactions
Poland as M&A market leader in the CEE region
One of the indicators of an economy’s condition is the number of the completed M&A deals. And this is the aspect which was analysed by Pekao Group and Lazard in the newly-published report “New opening. Challenges faced by Polish companies as a driving force of M&A market”.
– We are living in the times of industry 4.0 revolution and Polish companies may become its beneficiaries. What speaks in their favour is intellectual capital, as well as the ongoing consolidation in many industries. In the coming years, domestic companies will be taking over foreign entities not only from our region, but also from Western Europe. Greater activity in the area of mergers and acquisitions is a desirable and beneficial phenomenon for the entire Polish economy – said Michał Krupiński, CEO of Bank Pekao S.A.
And this trend is already visible today. It is in Poland that every third M&A transaction in the CEE region is concluded. In the last three years, there have been over 400 of them with a total disclosed value of EUR 22 billion. Of 30 largest transactions completed in this period, almost half concerned entities from Poland. Moreover, the total value of Polish M&A market grew by over 20% compared to 2013-2015, whereas in other CEE countries a fall of approx. 10% was recorded.
Interestingly, we can observe a marked difference between the number of transactions involving foreign entities on the Polish market and on the markets of other CEE countries. In Poland, a significant part of mergers and acquisitions takes place between entities with Polish capital or Polish roots. Pekao experts believe that this trend will be reversed and Polish companies will be taken over by companies from abroad – and will take them over – more often.
It is due to the growing importance of the international dimension of M&A deals on the Polish market that Pekao Group has decided to enter into a strategic alliance with one of the global leaders in M&A transaction consulting – Lazard.
– Apart from experience and relations, Pekao Group is also recognizable on the international financial market. We believe that the global scale of Lazard’s operations combined with Pekao’s knowledge of the region will generate a number of positive effects for both parties – stated Bozidar Djelic, Managing Director responsible for Central Eastern Europe, Lazard.
Role of Private Equity funds
Experts recognise the growing role of Private Equity funds both in Poland and in the entire CEE region. In the analysed period, PE funds accounted for about 30% of total M&A market. The value of top transactions and the number of cross-border transactions are both growing. Combined with high fragmentation of many sectors in Poland and in the region, this trend is likely to continue, as PE funds are well suited to play an integrating role on fragmented markets.
An interesting observation from the report is also the disproportion between the number of entry and exit transactions completed by Private Equity funds in this period. Said disproportion is specific to the Polish market only, when compared to others in the CEE region. According to Pekao Bank’s experts, the much larger number of entries signals an additional stimulus for further growth of the Polish M&A market, due to the need to exit funds from PE funds’ investments within the next few years.
– In the strategy of global and regional Private Equity funds, Poland is a key country in the CEE region. It is the largest market in this part of the world, with large companies and the “entrepreneurial spirit” being the driving engine of the Polish transformation. We see a growing interest in Polish companies among the funds that already are in, or are planning to enter, Poland. We are also observing interest in companies from the CEE region among those entities that have transaction teams in our country. That is why Pekao Group, and in particular Pekao Investment Banking, plans to increase its activity in Central and Eastern Europe. We see a significant growth of interest in the region among all types of our clients – commented Maciej Jacenko, CEO of Pekao Investment Banking.
Polish M&A market – above-average development potential
According to the authors of the report, the M&A market may become one of the growth drivers of the entire Polish economy. They predict that the model of enterprise development consisting in increasing production by increasing employment has most likely been exhausted, in particular for demographic reasons, and that the new era of entering new markets or industry consolidation in search for revenue and productivity growth is approaching. In both cases, mergers and acquisitions may become a very important factor contributing to the development of the economy.
In the coming years, the high activity in the M&A market is expected by the authors to be maintained, with a strong stimulus for its development potentially turning out to be the higher growth rate in the mid-cap segment. The weaker economic situation and geopolitical uncertainty should be neutralized by intensified consolidation, larger number of companies put up for sale and their higher valuation. The main sectors that generate above-average M&A growth potential in Poland are industry, agri-food, TMT and financial services.
The report forecasts that the number of M&A transactions will remain close to the 2016-2018 average (130-140 deals with a unit value of more than USD 5 million). The market value may still fluctuate due to possible exceptionally large transactions in some years. Although M&A deals with a relatively low unit value (up to EUR 25 million) are likely to remain dominant, the mid-market is expected to continue to grow more important.
The “New opening. Challenges faced by Polish companies as a driving force of M&A market” report was drafted by analysts of Pekao Group (Bank Pekao S.A. and Pekao Investment Banking) in cooperation with the American investment bank Lazard (one of the leading consultancies on M&A transactions, investment banking and asset management).
The question posed in the report’s title was answered by the authors based on data from the Mergermarket service on transactions with a unit value of more than USD 5 million, which concerned companies headquartered in one of the Central and Eastern European countries, announced and closed (2013-17) or announced and not cancelled until mid-May 2019 (transactions from 2018), excluding purchase transactions of SPVs on the commercial real estate market.
Established in 1929, Bank Pekao S.A. is one of the largest financial institutions in Central and Eastern Europe and one of the three largest universal banks in Poland, with assets of approximately PLN 190 billion and a market capitalization of approx. PLN 30 billion. With its second largest branch network in Poland, Bank Pekao serves over 5.5 million retail customers. As the leading corporate bank in Poland, it provides services to every second corporation in Poland. The universal bank status is based on the market-leading position in private banking, asset management and brokerage activities. The diversified business profile of Bank Pekao is supported by the market-leading balance sheet and risk profile reflected in the lowest risk costs, strong capital ratios and macro-economic resilience (in the Top 3 most resilient banks in Europe out of 48 European banks subjected to the stress tests of the European Banking Authority (EBA).
Since 1998, Bank Pekao has been listed on the Warsaw Stock Exchange and participates in several local (including WIG 20 and WIG) and international (including MSCI EM, Stoxx Europe 600 and FTSE Developed) Indices. Pekao is one of the best dividend-rich companies listed in Poland over the last 10 years, paying out a total of PLN 20 billion in the decade.
Pekao Investment Banking is a leading Polish investment banking institution with a 26-year history. Over the last decade, Pekao Investment Banking has been a leader in both the ECM and M&A markets in terms of their disclosed value in Poland. It is part of Pekao Group.Pekao_M&A_report_ENG