EXPERT'S VIEW Cautious optimism for M&A in CEE amid global challenges

In short:

• Economic Downturn: CEE experiences a downturn in economic activity, especially in manufacturing, affecting key economies like Slovakia and the Czech Republic.
• Cautious Optimism: Experts in the CEE region expect increased M&A activity, driven by aligning price expectations and market consolidation trends.
• Future Trends: Post-pandemic consumer shifts, growing importance of ESG, geopolitical changes, and lower capital acquisition costs, especially in IT, will shape the M&A landscape in CEE.

Much like the rest of Europe, CEE has been moving in line with global trends, experiencing a downturn in economic activity. This comes as no surprise, given the broader economic challenges that have been affecting markets worldwide. Notably, the manufacturing sector, particularly in France and Germany, has seen declines that have had a ripple effect on Slovakia and the Czech Republic, where the automotive industry plays a significant role in their economies, contributing to 12% and 17% of their GDP, respectively.

Despite these challenges, the sentiment among experts in the CEE region – ranging from advisors and companies planning M&A moves to private equity/venture capital funds, investors, and lawyers remains cautiously optimistic. This optimism is grounded in the expectation of increased M&A activity, driven by the alignment of sellers’ and buyers’ price expectations and a general trend towards market consolidation.

This year has unfolded largely as expected, without major surprises in the M&A industry. The cautious optimism shared by many is a reflection of the adaptability and resilience of the CEE market. However, the manufacturing sector’s downturn, particularly in key economies like Germany, has been a notable development, underscoring the interconnectedness of the region’s economies.

Looking ahead, several trends are expected to shape the M&A landscape in the CEE region.

• Post-pandemic consumer trends – the shift towards mixed-use real estates, driven by a reluctance to return to traditional office settings, and the phenomenon of “revenge traveling,” indicating a surge in travel and tourism activities, are likely to influence investment decisions in these sectors.
• ESG implementation considerations are becoming increasingly important, not just in real estate but across all sectors, serving as a differentiator for companies in the eyes of investors.
• Geopolitical changes and economic policies with numerous countries undergoing elections and potential shifts in investment policies, coupled with changes in interest rates and inflation, the M&A landscape could see significant impacts.
• The CEE region’s growing maturity, lower capital acquisition costs, especially in IT, and opportunities for consolidation present a fertile ground for specialized funds and investors looking for high-quality transactions.

The cautiously optimistic outlook for the M&A market in the CEE region is well-founded. Despite facing challenges such as high interest rates and difficult financing conditions, the region’s markets have shown resilience and adaptability. The integration of AI and professionalization trends within the M&A processes, as highlighted in previous reports, continue to offer avenues for efficiency and innovation.

In conclusion, while the M&A landscape in the CEE region faces its share of challenges, the underlying strengths and opportunities present a compelling case for optimism. The adaptability of the market, coupled with strategic investments in emerging trends and technologies, positions the CEE region as an attractive and dynamic arena for M&A activities in the months ahead.

Comments from other experts are available in the June edition of the CEE Expert Report.