The M&A market across the Baltic region saw a double digit drop in 2017 for both volume and value compared with the previous year but the outlook continues to brighten thanks to strong economic growth, increasing inbound investment and continuing market reforms according to the 2018 edition of the Baltic M&A Monitor, a comprehensive review of M&A activity in the Baltic region, published by Ellex, in association with Mergermarket.
The Baltic region is experiencing impressive economic growth, outperforming both the Eurozone economies and the EU as a whole. The European Commission estimates that growth in 2017 reached 4.4% in Estonia, 4.2% in Latvia, and 3.8% in Lithuania, well above the EU average of 2.2%. And, while this growth in the Baltic economies is expected to slow slightly in 2018, it will likely continue to outperform both the EU and the eurozone by a significant margin.
According to Mergermarket data, 53 deals totalling EUR 642 million were announced across the Baltics in 2017. This accounted for a 17% drop in volume and a 10% decrease in value year on year. However, this needs to be put into context by remembering that Baltic M&A volume hit a post-crisis high in 2016 as global M&A broke a number of records. Deal volume and value in 2017 was comparable to the majority of the post-crisis years, with deal numbers outstripping the dark days of 2009 and 2010.
The future is encouraging as the region is becoming attractive to foreign investment. In 2017 Inbound deals accounted for 58% of all volume, up from 37% in 2016 and surpassing the average of 43% in 2012-16. The high level of human capital, excellent infrastructure, and increasing confidence in regional security have all helped support foreign investment in the region. Asian investors are increasingly active, with players from Hong Kong, China, and Japan driving some of the biggest deals of the year. And this trend looks set to continue.
“Judging by the pipeline of transactions, I think 2018 will be an excellent year. There’s already so much under preparation. It could possibly be a record year value-wise” says Sven Papp, Partner, Ellex in Estonia.
Interest and acquisitions from major international funds indicate that there are globally-attractive targets even in these relatively small countries. In some cases, international investors are accessing the Baltics via regionally-active PE and VC funds, while government and EU support has also helped early-stage investment. Energy and TMT are attracting particular attention from PE funds, and more activity is expected in 2018.
“There is significant local private equity activity from Baltic funds, along with corporates expanding through acquisitions. Scandinavian and German companies are also very visible,” says Dovile Burgiene, Partner, Ellex in Lithuania.
Raimonds Slaidins, Partner, Ellex in Latvia agrees: “One thing that has been positive for the development of the Baltic M&A market is the growth of local private equity.” Adding, “There is a bubbling-up of activity in the Baltic region, including independent funds on the whole spectrum from angel investors to venture capital to private equity."
Transactional activity continues to be evenly spread across sectors, representing a balanced and diversified deal market. Consumer, TMT, industrials & chemicals and business services all saw a healthy level of activity.