Like the entire M&A market, in the first half of 2020, the Baltic region was marked by lockdowns, which had a number of economic consequences. Most of the pending transactions were put on hold, followed by the investors’ attempts to adapt to the moods of potential sellers and to the changing regulations driven by the pandemic in particular states in the region. How did the region cope with COVID-19?
The necessity of remote work and online communication strengthened the digitization trend (which we wrote about in an earlier article) globally. In the Baltics, this trend accelerated sharply and turned out to be prevailing. Thanks to its virtual nature, digitization turned out to be a buffer reducing the falling demand rate (number of transactions) in individual segments. This safety cushion was beneficial the most to the IT sector, which throughout the whole CEE region recorded “only” 20% less transactions – the smallest decline of all sectors.
In 2021, the sentiment has been cautiously on an upswing with the popularization of COVID-19 vaccines, which may contribute to easing off international restrictions. On the other hand, the risk of a new wave of the disease or increased inflation inhibit unequivocal investment steps.
General stability adds to technological prosperity of the Baltics
Few regions can pride themselves on the stability and support of governments in the area of legislation, taxation and business development as Baltics can. Against the background of general declines, the Baltics are attracting more and more investors’ interest – also foreign. In 2020, 6 out of the top 10 deals in the region came from the bidders from outside the region, according to Mergermarket & Ellex.
The Baltics region, relatively homogeneous compared to the rest of CEE, has similar strengths to other countries in the area. These are: political stability and effective convergence within the EU. What distinguishes the Baltic republics is the specialization in technology, which is becoming an export product of Lithuania, Latvia and Estonia. In addition, Baltics can guarantee high income rates and an appropriate legislative framework for investment development. Highly qualified, tech-savvy workforce and institutional support for prospective sectors further help move the region forward in terms of innovation.
Unicorn companies confirm this growth as well as market maturity. Among them there are now Bolt, TransferWise, Playtech, Skype, Vinted and the freshly announced PIPEDRIVE.The Baltic States’ main economic exposure to the Baltic Sea region creates extra value. Looking at this more specifically, Latvia is particularly exposed to foreign investment from Sweden and Norway, Estonia to Finland, and Lithuania – to Denmark. Broadly speaking, they are in the same economic boat as Scandinavian countries, which is a good neighborhood to be in.
M&A in the Baltics - diving for pearls
Against predictions, the local M&A market has not slowed down drastically. There still is a strong investment appetite for small but opportunity-rich Baltics. The magnet here is certainly the TMT industry and technology, including healthcare. Due to the resumption of some halted transactions in the second half of 2020, we could notice more deals ending at the end of the year and in the first weeks of 2021.
According to the Mergermarket & Ellex report: in 2019 there were 67 deals worth EUR 1,194 bn, in 2020 there were slightly more – 70 and worth EUR 1,196 bn (total disclosed value / declared value). According to a report by Sorainen, last year ended with 69 (EUR 1.196 billion), which is just two less than in 2019 – 71 (EUR 1.224 billion) .
There were a total of 28 deals in Estonia and Lithuania, while Latvia had 13 deals.In 2020, the number of investments undertaken had fallen in every Baltic republic. COVID-19 brought uncertainty to the stock markets resulting in the economic downturn, which was a great test of flexible portfolio management for Private Equity funds and investors, according to Baltic Startup Scene Report.
There is also visible the trend of organic expansion of Baltic startups towards the UK. This will allow local entities to compete in that market with comparable quality (technology and know-how) and lower prices.
Threats which might inhibit the growth are the risk of another wave of COVID disease and global recession which could make dealmakers cautious internationally.
The most popular M&A industries
As pointed out by Sorainen, in the Baltics, 16 out of 69 deals took place in the TMT sector in 2020. This reflects global interest in technologies. According to Mergermarket, the global value of TMT transactions increased by 56.8% that year (from USD 543.4 billion in 2019 to USD 851.8 billion in 2020).
Four segments finalized 7 deals each. These were agriculture, construction and production, consumer goods and services, and industrial products and services.
Interestingly, only some of them coincide with the most popular areas of M&A transactions in EU, which are:
- Industrial and chemicals
- Business services
- Pharma, medical & biotech
As agriculture was the least interesting to investors in the EU, in the Baltics it was one of the most popular M&A targets. On the contrary, Real Estate proved to be a cool industry to invest in in 2020.
Did you like the article?
I draw energy to act from all kinds of outdoor activities - forest runs, or conquering mountain peaks. My favorite region? Central and Eastern Europe! Linking business relations with collecting interesting facts about CEE economy and culture is my thing. I share my travel experiences and expert knowledge in the #FORDATACafe video cycle.
Do you want to exchange knowledge or ask a question?
Write to me : Piotr Miszczyk page opens in new window
01 . The Shifting Landscape of Gaming M&A: A Tale of Investments, Acquisitions, and Emerging Trends
The trajectory of the gaming industry’s investment landscape has been anything but predictable. Q1 2023, marked by a cooling-off period from the frenetic growth during the Covid-boom, saw investments dip significantly.
02 . M&A Landscape in the Middle East: Navigating Challenges and Seizing Opportunities
The Middle East has long been recognized as a dynamic and transformative region, and its M&A sector is no exception.
03 . Energy industry 2023: Virtual Data Room in M&A transactions
The situation in the energy industry in Poland and Central and Eastern Europe is rapidly changing. What do investments in renewable energy look like?
04 . Outlook for 2023 for M&A transactions in Scandinavia
The Nordic countries are considered stable and developed markets with strong economies. What key trends will drive the Nordic M&A market?
05 . What do M&A deals look like in 2022?
What does influence M&A deals in 2022 besides the war? We analyze the factors that shape the global mergers and acquisitions market.
06 . The role of the CFO in mergers and acquisitions - has it changed?
Financial directors have faced the big challenge of managing company’s funds in the uncertain reality caused by the coronavirus …
07 . What are the benefits of the FORDATA system in M&A processes?
Global opportunities for mergers and acquisitions are expected to remain firm after the initial lockdown, as pointed out by PwC, but the new and the ongoing transactions will have to adapt to the new circumstances.
08 . The post-pandemic outlook on M&A in Czech Republic and Poland
Coronavirus did stir up trouble for practically entire economies in Czech Republic and Poland. In general, companies…
09 . M&A in the age of coronavirus - market at a turning point
The situation on the Polish mergers and acquisitions market today resembles a controlled lottery. Some investors and entities are withdrawing or suspending operations waiting for stabilization
10 . CEE countries stay firm as global economy bears down
In the face of economic downturn all around, also in Europe, countries in the CEE region are expected to keep growing, especially…
11 . Due Diligence stages - selling your business step by step
Every good investment decision is based on sound knowledge about a given company and transaction process. This applies…
12 . Due Diligence - what exactly does it include?
What does Due Diligence investigation consist of? Who performs it? What are its types? Find the answers to these and other questions on FORDATA blog!
13 . Vendor Due Diligence - the Value of Negotiation Preparation
Vendor Due Diligence (VDD) is carried out only for the needs of the seller, which means that it takes place earlier than Due Diligence (DD).
14 . How can we help you with Due Diligence?
Time plays a major role in M&A transactions. Even the smallest improvement that saves time needed to prepare and perform Due Diligence…
15 . VDR in due diligence process
M&As are a permanent element of the economic world. Their goal is to achieve strategic and financial benefits by expanding markets, diversifying products and production processes.