08 . 03 . 2024

MARKET TRENDS Trends in M&A market in CEE in 2024 through the eyes of buyers

08 . 03 . 2024

Overall, the sentiment on the buying side in the CEE M&A market in 2024 can be described as a mix of cautious optimism, sector-specific enthusiasm, and pockets of risk aversion. In-depth evaluation is more important than ever.

Last year, the CEE region’s M&A market faced numerous hurdles, including inflation and high interest rates, causing a decrease in transaction volume and value. However, the market remained resilient and global investors are still attracted by the region’s competitive advantages and diversified economy. In 2024, these traits are still present.

So, what are the current trends on the CEE M&A market and the sentiment on the buying side?

Obtaining Capital for M&A Deals in CEE in 2024

While the M&A landscape in the CEE region presents exciting opportunities in 2024, securing financing from banks might present some challenges. These are:

  • Higher interest rates
    Rising interest rates, a potential consequence of the global economic climate, can make borrowing for M&A deals more expensive, impacting profit margins and potentially reducing deal attractiveness for investors.
  • Hard valuation
    Will the loan interest rates increase, decrease, or stay the same? Investors need to make that tough decision, and on that basis put a price on the M&A assets.
  • Increased scrutiny
    Banks are likely to be more cautious when providing financing due to the uncertain economic outlook and the potential risks associated with the ongoing conflict in Ukraine. This might lead to stricter lending criteria and more rigorous due diligence processes, potentially delaying deal closures.
  • Competition for capital
    Increased demand for financing from various sectors, coupled with banks potentially being more selective with lending, could create a competitive environment for securing capital.
    However, there are also some positive aspects to consider.
  • Strong financial position of CEE banks
    According to S&P Global, CEE banks are expected to maintain robust capitalization, suggesting they might still have financing capacity available.
  • Focus on specific sectors
    Banks might be more open to financing deals in sectors perceived as resilient or with strong growth potential, such as technology, media, and telecommunications (TMT) or renewable energy.

While securing financing for M&A deals in 2024 might require careful planning and potentially involve higher costs, it is not necessarily an impossible feat.

Strategies to improve the chances of securing financing

There are strategies available, which can alleviate these challenges

  • Focus on well-structured deals
    Preparing a strong business case with a clear understanding of potential risks and returns might be crucial.
  • Targeting the right lenders
    Identifying banks with a positive track record in financing M&A deals in a specific sector and region could prove beneficial.
  • Alternative financing
    Different financing options such as mezzanine funding, venture lending, or private equity, may provide more adaptable conditions compared to conventional bank loans.

By carefully evaluating the financing landscape, developing a well-structured deal, and exploring various financing options, M&A investors can still find opportunities to secure capital in the CEE region in 2024.

AI is not replacing human judgment in M&A

While AI holds promise in accelerating Due Diligence in M&A transactions, it cannot replace human expertise and judgment, at least not in 2024, especially in such demanding circumstances.

Recognizing the increasing prevalence of digital platforms and the changing nature of M&A activities, a more general integration of AI still requires adjustments in laws, policies, ethics, and education and a collaborative effort among various stakeholders. This work is yet to be done.

In a nutshell, AI is not the ultimate answer for the M&A buyers as of 2024, be it CEE or elsewhere, but it can automate crucial processes and provide substantial savings to investors.

Strategic alliances over large acquisitions?

Due to factors like high interest rates and increased regulation, the M&A landscape in CEE is expected to favor creative partnerships over large-scale acquisitions in 2024.

This trend is universal, according to FutureCFO, and the cited experts predict a rise in joint ventures, strategic alliances, and minority investments as companies seek to share risks and mitigate costs while still achieving growth objectives.

Focus on speed and efficiency:

  • With a potentially volatile market and evolving economic conditions, dealmakers in the CEE region are likely to prioritize speed and efficiency in 2024.
  • There is a need for a swift execution process and a clear understanding of strategic objectives. This suggests a focus on well-prepared deals and streamlined negotiation processes.

Post-Ukraine war dynamics in CEE

The ongoing conflict in Ukraine is expected to have a disparate impact on M&A activity across the CEE region.
While some countries might experience increased caution from investors, others might see opportunities for reconstruction and development. What’s worth mentioning is the potential for consolidation within the Ukrainian IT sector, driven by the need for resource sharing and market survival.
By closely monitoring these trends and conducting thorough due diligence, M&A investors can make informed decisions and identify attractive opportunities within the dynamic CEE market in 2024.

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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.

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