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?
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.
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.
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.
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.
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:
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.