Emerging Europe - M&a Report 2011, A Joint Study by CMS and DealWatch

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Emerging Europe: M&A Report 2011

CMS and DealWatch
2012
ISIEmergingMarketsPDF in-iimahdvishwa from 203.200.225.151 on 2012-04-16 15:18:07 EDT. DownloadPDF. Downloaded by in-iimahdvishwa from 203.200.225.151 at 2012-04-16 15:18:07 EDT. ISI Emerging Markets. Unauthorized Distribution Prohibited.
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Introduction League Tables Emerging Europe Overview Deals by Sectors Top 20 Deals Bulgaria
16 Hungary 20 Poland 25 Romania 28 Russia 33 Slovakia 36 Ukraine 39 CMS and DealWatch
13 Czech Republic
Dear Readers, We are delighted to launch Emerging Europe: M&A Report 2011 which has been co-authored by CMS and DealWatch to highlight 2011 Mergers & Acquisitions (M&A) activity in the Central and Eastern Europe (CEE) region and our deal activity predictions for 2012. Having completed more deals than any other CEE-based law firm, CMS is ideally placed to comment on the deal activity in the region, based on data compiled by DealWatch. We have used our network of offices and asked our partners to outline their views on the markets in which they operate as we believe the commentary on different markets from the eyes of local dealmakers are the most valuable. The 2011 year produced a steady deal flow across the region, however deals continued to be protracted and the risk of deals not reaching either signing or financial close remained high. The banks played an even greater role in the outcome of due diligence exercises and the structure of deals, as financing remained heavily constrained and bank lending practices were more cautious than ever. The ability of buyers to deal with a basket of currencies, and hedge against currency fluctuations, in cross-border deals has become a strategic advantage over the last 12 months. The crisis has highlighted the importance of a diversity of risk profiles across the CEE region. Different jurisdictions are being priced, and contractual terms and conditions are agreed, depending on the assessment of a jurisdiction as an emerging or developed market. What was particularly prevalent in 2011 was the arrival of the large global private equity funds. Players like KKR, BC Partners, and Apax Partners took a significant interest in the region, especially in Poland, where the volume and value of the transactions were significant this year. The crisis in the Eurozone may well slow down the deal environment and the capital markets options. But we expect that the crisis will also trigger restructurings and the sale of assets, as well as privatisations. We hope you will find the report useful. CMS remains dedicated to the CEE region with the leading corporate M&A legal practice and the most extensive and experienced office network offering experts on the ground who are able to advise you on your future transactions.
Helen Rodwell CMS Head of CEE Corporate Practice helen.rodwell@cms-cmck.com
The 2011 year produced a steady deal flow across the region, however deals continued to be protractedThe crisis has highlighted the importance of a diversity of risk profiles across the CEE region.
League Tables
Top Emerging Europe Legal Advisors by Number of Deals (2011)

Company CMS Sorainen Raidla, Lejins & Norcous Havel, Holsek & Partners Weil, Gotshal & Manges White & Case LAWIN Linklaters Schoenherr DLA Piper Freshfields Bruckhaus Deringer Deal Value (m) 2,462.41 637.44 903.13 310.38 3,542.33 4,255.29 512.43 3,069.60 1,635.45 4,699.31 4,144.06 Number of deals 34 33 29 29 28 25 22 19 18 17 17
League Tables were generated using the LeagueBoard tool available in DealWatch. The criteria used for crediting the advisors for the purpose of these league tables include: deal announcement date: January 1-December 31, 2011 Emerging Europe geographic area, understood as the dominant country of operations of either of the deal sides, covers: Albania, Belarus, Bosnia-Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Kosovo, Latvia, Lithuania, Macedonia, Moldova, Montenegro, Poland, Romania, Russia, Serbia, Slovakia, Slovenia and Ukraine only announced and/or completed deals were taken into account deal value: at least US $1 million (note: deals with unspecified value were taken into account in calculations as having the value equal to zero) all industries were included exclusions: rumoured or failed deals, convertibles issues, share buybacks, and employee offers The ranking was created basing on deal advisory information available, according to our best knowledge, as of March 15, 2012. The data can be subject to updates.
Emerging Europe Overview
The number of M&A deals in Emerging Europe countries registered a 12% increase in 2011 with a total of almost 3,800 transactions, slightly exceeding the record levels reached in 2008.
Despite the rising number of transactions, the total value of deals recorded only a 0.8% annual growth with a total deal value of 150 billion. The average transaction size decreased by 10% and the number of mega deals with a deal size of over 1 billion dropped to 24 from the 34 recorded in 2010. The most active sector by deal numbers in 2011 was manufacturing with 753 deals representing nearly 20% of all transactions.
Deals by Value and Volume in Emerging Europe (2008-2011)

4,000 3,723 3,375 2,967 149 138 2,000 76 150 100 3,792 200
2008
2009
2010
2011
Number of deals (left hand scale)
Total value of deals (bn, right hand scale)
Mining (including oil & gas) was the leading sector in terms of deal value, with over 48 billion accounting for nearly a third of the overall market. The high deal value was mainly the result of several mega transactions - 13 out of the 20 largest deals in the region had a target from the sector. The largest deal in Emerging Europe in 2011 was the reverse takeover of the largest Russian gold miner Polyus Gold by KazakhGold valued at 8.5 billion. The second largest deal was the acquisition of Polish mobile-phone company Polkomtel by Zygmunt Solorz-ak for 4.8 billion. M&A in Russia accounted for 38% of all deals and 65% of the total deal value in 2011. Poland came second with a 13% share in deal number and a 12% share in total deal value. Despite the ongoing uncertainty triggered by the Eurozone crisis, we hold a positive outlook for M&A activity in the region in 2012.
We expect investors to stay away from small-sized deals in countries like the Czech Republic, Romania and Hungary, but at the same time the largest countries (Russia and Poland) are likely to witness growth in deal activity. The outlook for the Russian M&A market is positive mainly due to the upcoming privatisation of minority stakes in the largest state-controlled companies such as major oil company Rosneft and the state-owned banks Sberbank and VTB. The outlook for the Polish M&A market is stable. Some 208 state-owned companies are at still in the privatisation pipeline, so activity in this area is expected to continue. Acquisitions may be expected in the food production and FMCG distribution sectors where the level of consolidation is still low. In summary, we believe that the market in 2012 will be dominated by large transactions and do not expect a significant growth in the number of deals. Boris Maleshkov DealWatch Editor-in-Chief
Deals by Sectors (2011)
Number of Deals by Sectors in Emerging Europe (2011)

Other, 183 Manufacturing,753
Construction, 173 Utilities, 185 Media & Entertainment, 210 Transportation & Warehousing, 219
Food & Beverages, 276
Finance & Insurance, 409
Telecom & IT, 293 Mining, 303 (incl. oil & gas) Wholesale & Retail Trade, 392
Services, 396
Share of Sectors from Total Value of Deals in Emerging Europe (2011)

Other 8.6% Transportation & Warehousing 5.3% Food & Beverages 5.4% Wholesale & Retail Trade 6.5% Mining 31.1% (incl. oil & gas)
Telecom & IT 9.2% Finance & Insurance 12.3% Manufacturing 11.4%
Utilities 10.1%
Top 20 Deals (2011)

Target Company Polyus Gold Polkomtel Norilsk Nickel Freight One Novatek Bank of Moscow; Capital Insurance Group LukOil VTB Bank Norilsk Nickel Metalloinvest MOL Beltransgaz Enisey Production Company Norilsk Nickel Norilsk Nickel SABMillers Russian and Ukrainian beer businesses JSW Industry Deal Type Country of Target Russia Poland Russia Russia Russia Russia Buyer Country of Buyer Kazakhstan Poland Russia Russia France Russia Deal Value (m) 8,545 4,817 3,358 3,167 2,901 2,555
Mining (incl. oil & gas) Telecom & IT Mining (incl. oil & gas) Transportation & Warehousing Mining (incl. oil & gas) Finance & Insurance
Acquisition (89.14%) Acquisition (100%) Minority stake purchase (7.71%) Privatisation (75%) Minority stake purchase (12.09%) Privatisation
KazakhGold Private investor - Zygmunt Solorz-ak Norilsk Nickel United Cargo Logistics Holding Total S.A. VTB Bank
Mining (incl. oil & gas) Finance & Insurance Mining (incl. oil & gas) Mining (incl. oil & gas) Mining (incl. oil & gas) Utilities Mining (incl. oil & gas)
Minority stake purchase (6%) Privatisation through stock exchange (10%) Minority stake purchase (6.85%) Minority stake purchase (20%) Minority stake purchase (21.2%) Privatisation (50%) Acquisition (100%)
Russia Russia Russia Russia Hungary Belarus Russia
n.a. China Investment Corp.; Generali Group; TPG Capital Norilsk Nickel VTB Bank Government of Hungary Gazprom Igor Altushkin; Ruslan Baisarov Interros Metalloinvest Anadolu Efes Biracilik ve Malt Sanayi
n.a. China; Italy; United States Russia Russia Hungary Russia Russia
2,525 2,440 2,317 1,938 1,880 1,852 1,748
Mining (incl. oil & gas) Mining (incl. oil & gas) Food & Beverages
Minority stake purchase (5%) Minority stake purchase (4%) Acquisition
Russia Russia Russia, Ukraine
Russia Russia Turkey
1,544 1,517 1,462*
Mining (incl. oil & gas)
Privatisation through stock exchange (36.29%) Minority stake purchase (2.94%) Acquisition (99.98%) Minority stake purchase (11.14%)
Poland
n.a.
n.a.
1,378
LukOil GZE X5 Retail Group
Mining (incl. oil & gas) Utilities Wholesale & Retail Trade
Russia Poland Russia
n.a. Tauron Polska Energia n.a.
n.a. Poland n.a.
1,259 1,213 1,067
* Deal value for Russian businesses only. Russias share is based on the annual brewing capacities and the respective market shares of SAB Miller in the two countries (estimates for market shares and total market taken from source, brewing capacities taken from source)
Bulgaria
The deals on the Bulgarian M&A market this past year have pointed to several fundamental changes and, to a large extent, specific trends on the Bulgarian market:
Global investors have started leaving the country and Bulgarian players have entered in their place. The change is most notable in key sectors such as energy, banking and finance, and media. Some privatisation deals have had a real impact and the states activity in this regard is expected to continue. Many of the transactions in the private sector have been initiated by debt restructuring (mostly in the real estate sector, industrial companies and trade, but also with big players in stable sectors like TMT, such as BTC). Companies that have been up for sale have mostly been small to medium-sized enterprises, which is largely because of the financial capabilities of local buyers in times of crisis, but also due to the unstable financial performance of local companies. We can expect these trends to continue during the year ahead. Because of the unclear economic prospects in Europe and the depleted financial resources of local buyers, we can expect fewer deals in 2012, and maintaining the 2011 levels would be an optimistic scenario.
Energy & Utilities

Being a typical anti-cyclical sector with foreseeable and relatively stable cash inflow, the energy sector welcomed investors interest. In 2011, the Italian Enel sold 73% of Maritsa East 3 TPP to the American fund Contour Global for 230 million, the German E.ON sold 67% of its electricity supply company to Czech ENERGO-PRO for 133 million, while toward the end of the year the Bulgarian state started the privatisation of its 33% share of EVN on BSE, obtaining over 46 million for it. On the renewables front, over 5 PV or wind projects were successfully sold to foreign investors, with a clear focus on Asian investors, such as Toshiba (Japan), Sky Solar (China), SDN Company (Korea) and Samsung (Korea). In 2012 we expect developers to keep selling renewables portfolios, with a tendency towards a decrease in volume and activity mostly among Asian investors, as well as US private equity houses.
Real Estate
This is one of few sectors that saw an increase of deal volume in 2011 and in which real estate companies actually made a profit. According to the Registry Office, M&A in real estate has increased by 22%. According to various sources, over 50% of those have been transactions with agricultural land. Urban real estate and real estate investment 2011 was a year of little interest in the Bulgarian real estate sector from big players (their focus was mostly on Western Europe, Poland and Russia). Opportunistic funds looking for big-risk-big-gain deals were behind most of the significant deals. The biggest deal for 2011 was the sale of Mall of Sofia for a little over 100 million to Europa Capital, part of Rockefeller Group. Earlier in the year, the fund bought Retail Park Plovdiv for 20 million (CMS advised Europa Capital on both deals). Office space transactions were much slower, with the biggest deal being the 24 million sale of Kambanite Business Centre by FNI Bulgaria to Zeus Capital Partners (Zeus first investment in Bulgaria). Although the total value of similar deals brought over 200 million to the investment market, we expect 2012 to be a difficult year for the real estate sector. Opportunistic players will be the most active those seeking to expand their portfolios, or those that have already invested in CEE and know the region. Demand will be targeted mostly at high quality assets buildings with a great location and high occupancy that have been let to first-class tenants with long-term contracts. However, such estates are rare, and this remains one of the biggest problems that investors in Bulgaria face. With this in mind, it is safe to say that we cannot expect any major investment deals in the sector. It would be an achievement if the market maintained 2011 levels. Agricultural land 2011 marked a significant rise in the revenues of funds specialising in agricultural land investments. Industry specialists forecast that agricultural land will continue to be a sought-after and profitable asset. Besides the traditional buyers like large real estate funds and agricultural producers, new players investors who want to invest their assets acquired from other businesses - will be more active. For example, last year Peugeot importer Sofia France Auto acquired a portfolio of agricultural land in various parts of the country, which turned it into one of the biggest investors in the sector.
Food & Beverages: Retail

This sector was dominated by one large privatisation deal and one in the private sector. In 2011 the state sold 80% of Bulgartabac Holding for a little over 100 million, while Belgian Delhaize Group acquired Delta Maxi Group, the leading Serbian food retail company which owns Piccadilly stores in Bulgaria, and operates more than 450 stores in five South-eastern European countries, for a purchase price of 932.5 million (CMS advised Delhaize Group on this deal across all five jurisdictions).
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TMT
Undoubtedly significant in the sector was the sale of 50% of NURTS by BTC to Bluesat Partners for 57 million. It was the TMT sector that showed the first signs of foreign investors exiting from their Bulgarian investments, with WAZ, Bonnier and ProSiebenSat1 selling their assets in 2011. As part of a global restructuring, Nokia Siemens Networks took over Motorola Bulgarias business. Against the backdrop of the few deals in the sector, another trend appeared the loss of interest in the BSE and investors turning to other means of profit, a demonstration of which was internet company DIR.BG listing on the BSE. The first IPO on the BSE in two years did not cause much excitement despite the constantly proclaimed hunger for new companies on the stock exchange. DIR.BG hardly managed to get 13.5% of its maximum capital raise target. Atanas Bangachev Partner, Head of Corporate Department CMS Bulgaria atanas.bangachev@cms-cmck.com David Butts Partner, Corporate Department CMS Bulgaria david.butts@cms-cmck.com Veliko Savov Senior Associate, Corporate Department CMS Bulgaria veliko.savov@cms-cmck.com
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The Bulgarian M&A Market
Deals by Value and Volume in Bulgaria (2008-2011)

150 136 120 100 2,130 92 95 2,000 3,000
50 720 0 742
1,204
1,000
2008
2009
2010
2011
Total value of deals (m, right hand scale)
Top 10 Deals in Bulgaria (2011)

Target Company Industry Deal Type Buyer Country of Buyer United States Netherlands Bulgaria Czech Republic Russia United Kingdom United Arab Emirates Philippines Deal Value (m) 230 225 162 133 100 100 57 52
Maritsa 3 Thermal Power Plant Sensor-NITE Kremikovtzi E.ON Bulgaria Bulgartabac Holding Mall of Sofia National Unit Radio and TV Systems EPIQ Electronic Assembly Markovo Tepe Mall EVN Bulgaria Elektrorazpredelenie
Utilities Manufacturing Manufacturing Utilities Food & Beverages Real Estate* Media & Entertainment Manufacturing
Acquisition (73%) Acquisition (100%) Acquisition (100%) Acquisition (100%) Privatisation (79.8%) Acquisition Acquisition (50%) Acquisition (100%)
ContourGlobal Sensata Technologies Holding Eltrade Company ENERGO-PRO VTB Bank Europa Capital Bluesat Partners Integrated Micro-Electronics
Real Estate* Utilities
Acquisition (100%) Privatisation (33%)
InvestKredit Bank AG EVN; PAC Doverie; Undisclosed investors
Austria Austria; Bulgaria
45 43
*Real estate deals are listed in the Top Deals tables to illustrate the overall business activity. As they are not regarded as pure M&A deals, their number and values are not included in other parts of the report.
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Czech Republic
As opposed to the downward trend that we witnessed in 2010, in 2011 the M&A market in the Czech Republic was surprisingly active. But given the instability in the Eurozone, M&A activity was still prone to significant fluctuations.
In the absence of very large transactions, there were sectors that attracted more attention from private equity investors, strategic investors and small and midsize enterprises. Those sectors included energy (sale of Energy 21, RSP Energy, Ethanol Energy, Elektrizace zeleznic Praha, and Elektrarny Opatovice), telecommunications & IT (acquisitions of Skylink, POS Media Global Services, Mobilkom, Sitel, LMC, Spojka Group, LOSAN internet, Global Inspiration, and SLOANE PARK Property Trust) consumer products (sale of United Bakeries, SPV Pelhrimov, ETA, Venture Retail, Budejovicky Mestansky Pivovar, Pinelli, Asko Nabytek, and Bontonland) and real estate (sale of D5 Logistics Park I, Monlid Development, Palac Andel and Olympia). As the Czech Republic is a relatively small market, one strong investor or one large transaction can make big waves. One of the largest deals in 2011 was the sale of the shopping centre Somerston Olympia by Somerston Group to Rockspring Property Investment Managers, a UK-based real estate fund management and investment company, and ECE European Prime Shopping Centre Fund, a Germany-based real estate developer and manager of shopping centres. Other significant transactions were the acquisition of a 61% stake in OKZ Holding, a company engaged in the construction of large capacity steel storage tanks and steel structures, to a Russian strategic investor Summa Capital, and the 81.67 million sale of Direct to Home TV (DTH) satellite operator company Skylink to M77 Group, a Luxembourg-based investment holding company. The Czech market in 2011 was also driven by restructuring deals. One of the most notable examples was the 153 million sale of the insolvent SAZKA, a major player in betting games and lotteries, to investment groups PPF and KKCG.
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The M&A market in the Czech Republic is not expected to grow significantly during 2012. One of the drawbacks for M&A deals is the limited willingness of banks to finance acquisitions, which affects the number and size of such transactions. However, a recent study showed that many Czech businesses are still planning acquisitions in 2012. Although it is surrounded by the turmoil of the Eurozone, many investors are beginning to see the Czech Republic as a safe haven by comparison. Additionally the government might create some opportunities through privatisations and the announced auction of a new telecommunication licence. There are also funder-owned IT and engineering companies that are willing to sell (part of) their business. We expect the market to grow in 2012, primarily in the energy sector (Austrian company OMV plans to close down its whole network of filling stations in the Czech Republic and RWE plans to sell its gas transmission company Net4Gas), the TMT sector (Mafra Group intends to sell the music TV station Ocko TV and Moravia Steel intends to sell Barrandov Movie Studios), e-commerce (potential acquisition of various Czech discount servers by Groupon or the potential sale of Alza.cz), and the engineering and consumer products sectors. The market may also be driven by restructuring deals (EPRO, a state-owned petrochemical company is considering restructuring). The year 2012 may bring also some privatisation deals as the Czech state continues to play a role in the M&A field. The sale of the Czech national airlines CSA is one privatisation expected soon. Ian Parker Partner, Corporate Department CMS Czech Republic ian.parker@cms-cmck.com Patrik Przyhoda Senior Associate, Corporate Department CMS Czech Republic patrik.przyhoda@cms-cmck.com
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The Czech M&A Market
Deals by Value and Volume in the Czech Republic (2008-2011)

200 198 166 153 6,554 6,000 195 8,000
100 3,409
4,000
2,000 2,099 1,556 0 2008 2009 2010 2011 0
Top 10 Deals in the Czech Republic (2011)

Target Company Industry Deal Type Buyer Country of Buyer n.a. United Kingdom; Canada United Kingdom; Germany Czech Republic Czech Republic Czech Republic Czech Republic United Kingdom Czech Republic Czech Republic Deal Value (m) 622 290
CEZ Nova Karolina & Ostrava Forum shopping centres Olympia Brno Shopping Centre United Bakeries 19 office buildings Palac Flora shopping centre Sazka 6 logistics parks Olympia shopping centres City Park Jihlava shopping centre
Utilities Real Estate*
Minority stake purchase (3%) Acquisition (100%)
n.a. Meyer Bergman; Healthcare of Ontario Pension Fund Rockspring/ECE
Real Estate*
Acquisition (100%)
253
Food & Beverages Real Estate* Real Estate* Media & Entertainment Real Estate* Real Estate*
Acquisition (100%) Acquisition (100%) Acquisition (100%) Acquisition (100%) Acquisition (80%) Acquisition (100%)
Agrofert Holding Czech Property Investments Atrium European Real Estate KKCG; PPF Group Tristan Capital Partners Czech Property Investments
249 219 191 154 135 96
Real Estate*
Acquisition (100%)
Czech Property Investments
85
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Hungary
The Hungarian M&A market has been quite slow in the past few years, and 2011 did not see any major change. The first half of 2011 looked promising, but the unpredictability of the economic and legal environment, as well as a weak macroeconomic climate meant that the market failed to deliver.
While the number of medium-sized deals did not increase significantly, some high-volume transactions took place in 2011. The states acquisition of a 21.2% stake in Hungarian oil and gas company MOL, and the acquisition of Hungarian chemicals company BorsodChem by Chinas Wanhua Industrial Group, were among the biggest transactions in the region last year. CMS acted on several of the Top 10 deals on the Hungarian market in 2011, including the Pannunion acquisition and the acquisition of Provimi Pet Food. The Hungarian State was one of the most active players in the Hungarian M&A market, completing three of the ten largest transactions of the year. Of course, these transactions were not driven by the market opportunities but by general economic political considerations, so these deals may not be perceived as signs of recovery in the M&A market. The Hungarian State is, nevertheless, expected to continue to be an active player in the Hungarian M&A market as there is a strong political intent to increase the states presence in certain sectors, such as energy and banking. Another interesting feature of the market is that Jeremie venture capital funds remained active. Though the value of these transactions is too small to attract global actors, the companies receiving investments are slowly progressing to the next stage where they might attract small to medium-size second round investments. There was a fairly high number of restructurings, internal reorganisations and cross-border mergers of multinational companies in 2011 which affected Hungarian companies (e.g. Osram, Fairmont and Ecco). The main purpose of these was to increase efficiency, simplify organisational structures and provide benefit from synergies. It is expected that this trend will continue in 2012, especially in the banking and insurance sectors.
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The Budapest Stock Exchange has failed to attract companies for listing in recent years, and it appears that this will remain the trend for the foreseeable future. Rather, it seems that listed companies are attractive acquisition targets. The acquisition and delisting of Pannunion was one of the high profile transactions in 2011, and we may see similar transactions in the next few years. As in previous years, the largest transactions were completed by foreign investors (and the Hungarian State), while domestic buyers took part in smaller transactions. Large Hungarian companies will continue, however, to be active in acquiring (or selling) other businesses in the region (e.g. banks and real estate developers). The M&A market cannot move independently from the general economic environment. The fact that Europe is facing financial and economic difficulties and Hungary is still fighting to achieve stability is enough in itself to hold back investments in Hungary. Nevertheless, in 2012 Hungary stands a good chance of restoring its financial stability, and business in Europe is predicted to slowly pick up in the second half of 2012, which may put Hungary back on the investors map. Hopes are high for certain sectors to remain active over the forthcoming year, including energy, TMT and financial services. Dr. Anik Kircsi Partner, Head of Corporate Department CMS Hungary aniko.kircsi@cms-cmck.com Dr. Ferenc Mtrai Partner, Corporate Department CMS Hungary ferenc.matrai@cms-cmck.com Dr. va Talmcsi Partner, Corporate Department CMS Hungary | CMS London eva.talmacsi@cms-cmck.com
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The Hungarian M&A Market
Deals by Value and Volume in Hungary (2008-2011)

200 173 189 171 137 10,000
100
5,478 3,933
5,000
3,536
1,532 2008 2009 2010 2011
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Top 15 Deals in Hungary (2011)
Target Company
Industry
Deal Type
Buyer
Country of Buyer Hungary China Germany
Deal Value (m) 1,880 743 485
MOL BorsodChem Euromedic International Dialysis Centers Provimi Pet Food Millennium Portfolio Budapest Airport Magyar Televizio (MTV) headquarters Intercontinental Budapest Egis Napfny Park Retail Center Genesis Energy Rba Pannunion Magyar Turisztikai Holding Property of Ferencvros football club (FTC)
Mining (incl. oil & gas) Manufacturing Education & Healthcare
Minority stake purchase (21.2%) Acquisition (58%) Acquisition (100%)
Government of Hungary Yantai WanHua Polyurethane Fresenius Medical Care
Food & Beverages Real Estate* Transportation & Warehousing Real Estate*
Acquisition (100%) Acquisition (74%) Privatisation (25%) Acquisition (100%)
Advent International Heitman European Property Partners Hochtief Media Service Support and Asset Management Fund (MTVA) Tufik Abukhater - private investor Tradewinds Global Investors ERSTE Property Fund Servertech Magyar Nemzeti Vagyonkezelo (MNV) Sun Capital Partners Turisztika Hungria Magyar Nemzeti Vagyonkezelo (MNV)
United States United States Germany Hungary
188 148 142 83
Real Estate*
Acquisition (100%)
Lebanon
49
Manufacturing Real Estate* Manufacturing Manufacturing Manufacturing Services Real Estate*
Minority stake purchase (7.46%) Acquisition (100%) Acquisition (65.6%) Acquisition (57.69%) Acquisition (98.8%) Acquisition (100%) Acquisition (100%)
United States Austria United States Hungary United States Hungary Hungary
43 30 29 26 22 19 16
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Poland
Last year was exceptional for the M&A market in Poland. We have never witnessed so many transactions of such significant value in a single year.
The sale of Polkomtel, the Polish assets of Swedish company Vattenfall, TVN, Kamis, Polbank EFG, Emitel, abka these were the just the biggest of the transactions that electrified the market and the media. The high value of assets sold and the attractiveness of the sectors meant that the largest global private equity funds finally took a significant interest in Poland. Previously, the volume of transactions in Poland had been too small to attract global actors; last year this changed, and the number of the leading funds that were involved (with varying degrees of success) in the largest transactions was impressive. Also regional private equity funds already present in Poland were very active. There was strong competition between buyers for most of the assets sold. As a result, they could not usually expect favourable contract terms. The situation resembled the privatisations of the early years of the Polish economic transformation, when the negotiated terms strongly limited the liability of the seller and did not provide any (or provided minimum) protection to the buyer. The competitive pressure among the investors allowed the sellers to obtain unusual returns on their investment. We might say that it was a sellers year. The majority of the last years transactions were a turning point in their respective industries. In many cases, the investors treated the companies they bought as a platform for consolidation. The TMT sector witnessed an end to the long association of state-owned companies with telecommunications (Polkomtel). Other transactions in the industry (Dialog, the expected sale of Exatel) seem to confirm this market trend. It is almost certain that what happened last year will not be repeated in 2012. The M&A market in Poland will be negatively affected by the political uncertainty surrounding the Eurozone, which will likely result in the more conservative investors putting off certain investment decisions in Central Europe until safer times. The poor condition of the banking sector in Europe and, consequently, the increased caution of banks when it comes to financing M&A may seriously limit the availability of funds as is already happening in Western Europe. Polish banks still show considerable passion for financing acquisitions, but they are being much more careful in their selection of projects.
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On the other hand, banks operating in Poland which are owned by major Western European banks that are finding it hard to raise funds in their respective countries have already reduced their lending in Poland and Central Europe. The buyer will have to show more ingenuity in seeking financing and prove able to make difficult investment decisions in times of trouble. Consequently, the buyers caution and the difficulties in obtaining finance may cause difficulties for the potential sellers to find investors. In such circumstances, more activity can be expected from entities that have their own investment resources and do not necessarily have to rely on acquisition debt. Many Polish firms are in pretty good financial shape and have provisions allowing them to carry out acquisitions. Also private equity funds are carrying out more and more transactions using alternative sources of financing, avoiding bank debt. But will it compensate for the increasingly common problem of obtaining attractive financing? Probably not. Another factor that can stimulate M&A activity is consolidation. Investors funds or industry investors which have committed substantial resources in specific sectors with a view to consolidating them are determined to implement their strategy. This is frequently a matter of survival for them. The M&A market may also be positively influenced by the lack of competition from the stock exchange. It seems that over the next twelve months or so the stock exchange will not be an attractive alternative to exiting an investment by way of an IPO, and only a sale will be a reasonable option for industry investors or funds. Also the low capitalisation of listed companies can make them attractive acquisition targets. After all, it is not without reason that legal counsels have observed increased interest among their clients in acquisitions of listed companies and delisting. So, will 2012 be the year of the buyer who will dictate the terms of transactions? Time will tell. One way or another, we may be sure that a potential buyer will have to show more ingenuity in seeking financing and prove able to make difficult investment decisions in times of trouble. But of course, when the going gets tough, the tough get going...
Dariusz Greszta Partner, Head of Corporate Department CMS Poland dariusz.greszta@cms-cmck.com Marek Sawicki Partner, Corporate Department CMS Poland marek.sawicki@cms-cmck.com
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The Polish M&A Market
Deals by Value and Volume in Poland (2008-2011)

600 525 463 20.9 17.5 300 9.5 6.1 10 581 516 25
2008
2009
2010
2011
-5
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Deals by Sectors in Poland (2011)
Number of Deals by Sectors in Poland (2011)

Transportation & Warehousing, 18 Media & Entertainment, 22 Education & Healthcare, 23 Construction, 28
Other, 17 Manufacturing, 112
Utilities, 29 Food & Beverages, 34 Finance & Insurance, 41 Telecom & IT, 54 Wholesale & Retail Trade, 67 Services, 71
Share of Sectors from Total Value of Deals in Poland (2011)

Other 9% Wholesale & Retail Trade 6.1% Mining 8.4% (incl. oil & gas)
Telecom & IT 35.3%
Manufacturing 10.4%
Finance & Insurance 12.6%
Utilities 18.2%
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Top 20 Deals in Poland (2011)
Target Company Polkomtel Jastrzbska Spka Wglowa GZE PZU
Industry
Deal Type
Buyer
Country of Buyer Poland n.a.
Deal Value ( m) 4,817 1,378
Telecom & IT Mining (incl. oil & gas)
Acquisition (100%) Privatisation through stock exchange (36.29%) Acquisition (99.98%) Privatisation through stock exchange (10%) Acquisition (99.98%) Acquisition (70%) Acquisition (100%) Acquisition (100%)
Zygmunt Solorz-ak n.a.
Utilities Finance & Insurance
Tauron Polska Energia n.a.
Poland n.a.
1,213 804
Vattenfall Heat Poland Polbank EFG TP Emitel abka Polska
Utilities Finance & Insurance Telecom & IT Wholesale & Retail Trade Utilities Telecom & IT Utilities
PGNiG Raiffeisen Group Montagu Private Equity Mid Europa Partners LLP
Poland Austria United Kingdom United States
717 490 422 383
SPEC Cyfrowy Polsat Tauron Polska Energia Kogeneracja; Elektrownia Rybnik; EDF Polska CUW Emperias distribution division N-Vision Polfa Warszawa Telefonia Dialog Kamis Przyprawy TU Europa Metelem Holding Globe Trade Centre
Acquisition (85%) Minority stake purchase (24.72%) Privatisation through stock exchange (11.9%) Minority stake purchase
Dalkia Polska Heronim Ruta; Zygmunt Solorz-ak KGHM; Institutional investors
Poland Poland Poland
380 338 316
Utilities
Electricite de France
France
301
Wholesale & Retail Trade Media & Entertainment Manufacturing Telecom & IT Food & Beverages Finance & Insurance Finance & Insurance Construction
Acquisition
Eurocash
Poland
235
Minority stake purchase (40%) Acquisition (85%) Acquisition (100%) Acquisition (100%) Acquisition (50%) Minority stake purchase (16.2%) Minority stake purchase (16%)
Canal+ Polpharma Netia McCormick & Company Meiji Yasuda Life; Talanx Group European Bank for Reconstruction and Development n.a.
France Poland Poland United States Germany; Japan International n.a.
231 229 214 208 202 200 191
24
Romania
Acquisition appetite remained low throughout 2011, but growth in the M&A market is envisaged for 2012
A stable year, although appetite remained low Generally speaking, the M&A market in Romania stabilised in 2011. Many had envisaged the appetite for takeovers would be stronger. The fact that the M&A market in Romania did not make a comeback during the year perhaps reflects a gap between the value expectations of sellers and buyers, as well as the general economic climate brought on by the financial tensions in the Eurozone, limited economic growth and low consumer spending. The energy sector was particularly interesting for our M&A team in 2011. We acted for the Romanian state, as a minority shareholder, in the secondary sale of shares in the largest Romanian company, OMV Petrom SA, a multinational oil and gas company listed on the Bucharest Stock Exchange. This was the largest secondary public offering to date on the BSE and the most significant capital markets transaction Romania has seen to date. Another noteworthy deal in this sector was First Reserves acquisition of the third largest gas producer in Romania we acted for an US-based energy-focused investment fund on this deal. Generally, the most targeted sectors for deals in 2011 were the manufacturing, energy, agriculture, TMT and real estate. The M&A market also saw a more active presence from financial investors, and this growth trend should continue in 2012. A large deal of 2011 was the acquisition of Cadburys Kandia-Excelent, the second largest player on the Romanian chocolate market, by Oryxa Capital, an international investment fund, from Kraft Foods. CMS acted for Oryxa Capital in the sale. Kraft Foods agreed to sell Cadbury Plcs chocolate confectionery business in Romania to Oryxa Capital for an undisclosed amount to meet the European regulatory requirement of its Cadbury acquisition.
25
Growth envisaged As regards 2012, a general upward trend is expected. Any increase in M&A activity will, however, rely heavily on Romania experiencing continued economic recovery. Investment decisions are always highly dependent on the overall economic situation as well as strong prospects for market growth in the relevant industry sector. Unfortunately we are facing uncertain times, as the Eurozone debt crisis continues and economic turmoil threatens, especially given that national elections will take place at the end of 2012, which historically slow the economy for at least one quarter. It will be a waiting game to see how much these factors impact the market. Growth in the M&A market in Romania is, nevertheless, expected in 2012. While privatisations across the region are waning, there are still several significant privatisations planned in Romania following IMF recommendations, for example the privatisation of Cupru Min Abrud (state-owned copper mine) is expected to conclude in spring 2012 via open auction. The large thermo-electrical power plants of Turceni and Rovinari, the state-owned chemical producer Oltchim, the Romanian postal service, the state railway company and the national airline (Tarom) could all go into private hands this year. Should these privatisations go ahead, the local M&A market would grow significantly. Several state-owned energy companies may also be subject to IPOs or SPOs in 2012. The most attractive sectors for acquisitions will be manufacturing, agriculture, energy & mining, telecoms & media and (potentially) real estate. It seems very likely that we will see transactions in Romania step up in 2012, with the most sought after companies being those with limited exposure to risk. Horea Popescu Partner, Co-head of Corporate Department CMS Romania horea.popescu@cms-cmck.com John Fitzpatrick Partner, Co-head of Corporate Department CMS Romania john.fitzpatrick@cms-cmck.com Rodica Manea Senior Associate, Corporate Department CMS Romania rodica.manea@cms-cmck.com
26
The Romanian M&A Market
Deals by Value and Volume in Romania (2008-2011)

300 238 200 189
223 3,400 162
3,620
2,363 100 1,688 1,264
1,700
2008
2009
2010
2011
Top 10 Deals in Romania (2011)

Target Company Banca Comerciala Romana (BCR) BRD - Groupe Societe Generale A&D Pharma Adama Group SkyTower office building Proprietatea Fund Astra (AstraUniqa) Generali Asigurari Green Group Romania Holdings Limited Auto Italia Showroom; Auto Italia Impex Industry Deal Type Buyer Country of Buyer Austria Deal Value (m) 514
Finance & Insurance
Minority stake purchase (30.12%) Block trade (5%) Minority stake purchase (30.5) Acquisition (69.22%) Acquisition (100%) Minority stake purchase (1.74%) Block trade (27%) Minority stake purchase (16.03%) Acquisition
Erste Group Bank
Finance & Insurance Wholesale & Retail Trade Construction Real Estate* Finance & Insurance Finance & Insurance Finance & Insurance
Artio Global Management; Institutional Investors A&D Pharma Immofinanz Group Raiffeisen Group Proprietatea Fund Nova Trade Generali Holding Vienna
United States; n.a. Romania Austria Austria Romania Romania Austria
108 44 42 35 30 25 24
Services
EBRD; Global Finance
International; Greece Israel
24
Wholesale & Retail Trade
Acquisition (100%)
Mediterranean Car Agency
20
27
Russia
The DealWatch results show a very strong upward trajectory for Russian deal making both in volume and value terms suggesting that in Russia we may be on our way back to the way things were which is good news.
What we do see is that a large number of the deals done here are domestic transactions and many of the largest deals are transfers of minority stakes rather than transfers of the ownership or at least control of Russian companies. In this respect, the Unilever acquisition of Koncern Kalina and Walt Disney acquisition of Seven TV are perhaps better indicators for the health of the cross border market which seems to have held up strongly in 2011 although we wait to see whether the more interesting political landscape that emerged in Russia in the final weeks of the year, will have any sobering effect. Most commentators believe that government policy will be a major driver in what happens to Russian M&A in 2012. The announced privatisation programme is a significant part of this. Privatisation has been much delayed as a result of the volatile situation on European stock markets and clearly the government intends to hold out for better valuations which must be sensible and this makes it difficult to predict the level of activity in deal making in 2012. There is a knock on effect of this delay also as the pipeline of major infrastructure projects and the M&A activity that these would spawn, will be held up too. Nevertheless, the programme did start in 2011 with the sale of 10% of the large state bank VTB and the sale of Freight One as the kick-off for the privatisation of Russian Railways and the government is clearly intending to pursue and even expand the privatisation project. Finance & Insurance sector had a strong year achieving 10.6% of the Russian deal market in value terms and equal second place with energy and mining in volume terms. Some of the value performance was on the back of transactions concerning the Bank of Moscow that was a big story in Russia last year and was in due course transferred to VTB after receiving a massive government bail-out. But Sberbank was active acquiring Troika Dialog and reaching out to new markets in Switzerland and Austria and we may see more of this as European banks continue to struggle with stricter capital requirements and the pressure exerted by the receipt of substantial government bail-out funds. We also saw VTBs first phase of privatisation. The large number of deals recorded by DealWatch in this sector may herald the start of the much anticipated consolidation in the Russian banking sector something that has been on hold since the crisis began but which is widely expected given the enormous fragmentation in this sector.
28
Energy and mining is conventionally the strongest sector in Russia, always in value terms and generally in volume terms too. What is interesting is the emerging strength of the consumer-facing space including services, telecoms, retail and the associated activities such as transportation and warehousing. There is a widespread expectation that the consumer driven sectors will attract a high level of interest in 2012 as investors look at the favourable fundamentals of the Russian consumer economy. There seemed to be a tail off in deal activity in the second half of 2011 not measured by the DealWatch statistics that may coincide with the performance on European stock markets and showing the effect of Eurozone problems and European sentiment generally on the Russian M&A market and inward investment. It is difficult to say but there is a strengthening belief that Russia is far from insulated from what goes on in Europe that was not always thought to be the case before. DealWatch notes that the US and France were leading investors in deal number terms in 2011 and certainly Europe features much more strongly than Asia in terms of volume of transactions with Russian targets. While most investment activity we observe is strategic and the market seems to remain healthy enough for that, financial investment remains very subdued in comparison to pre-crisis levels. It is difficult to predict whether Russia will dominate the Emerging Europe deal list in 2012 as it did in 2011. At the time of writing there is something of a waiting game to see what happens after the presidential elections in March: surveys indicate that political risk (quite apart from the recurring concerns about corruption and bureaucracy) is a or even the major concern of investors in Russia and any change of administration exacerbates this issue, the more so a change that occurs against the background of quite intensive public pressure to reform. David Cranfield Partner, Head of Corporate Department CMS Moscow david.cranfield@cms-cmck.com John Hammond Senior Partner, Corporate Department CMS Moscow john.hammond@cmslegal.ru
29
The Russian M&A Market
Deals by Value and Volume in Russia (2008-2011)

1,500 1,026 1,176 1,000 72 696 90 97 50 100 1,493 150
500
33 0 2010 0
2008
2009
2011
30
Deals by Sectors in Russia (2011)
Number of Deals by Sectors in Russia (2011)
Media & Entertainment, 69 Utilities, 76 Construction, 79 Food & Beverages, 89
Other, 44 Manufacturing, 279
Wholesale & Retail Trade, 105 Telecom & IT, 119 Transportation & Warehousing, 120
Finance & Insurance, 183
Mining, 184 (incl. oil & gas) Services, 144
Share of Sectors from Total Value of Deals in Russia (2011)

Construction 3.2% Food & Beverages 3.7% Wholesale & Retail Trade 5.5% Telecom & IT 6.3% Mining 40.6% (incl. oil & gas)
Other 4.2%
Transportation & Warehousing 6.9%
Utilities 8.3%
Manufacturing 10.6%
Finance & Insurance 10.6%
31
Top 20 Deals in Russia (2011)
Target Company Polyus Gold Norilsk Nickel Freight One Novatek Bank of Moscow; Capital Insurance Group LukOil VTB Bank
Industry
Deal Type
Buyer
Country of Buyer Kazakhstan Russia Russia France Russia
Deal Value (m) 8,545 3,358 3,167 2,901 2,555
Mining (incl. oil & gas) Mining (incl. oil & gas) Transportation & Warehousing Mining (incl. oil & gas) Finance & Insurance
Acquisition (89.14%) Minority stake purchase (7.71%) Privatisation (75%) Minority stake purchase (12.09%) Privatisation
KazakhGold Norilsk Nickel United Cargo Logistics Holding Total S.A. VTB Bank
Mining (incl. oil & gas) Finance & Insurance
Minority stake purchase (6%) Privatisation through stock exchange (10%) Minority stake purchase (6.85%) Minority stake purchase (20%) Acquisition (100%)
n.a. China Investment Corporation; Generali Group; TPG Capital Norilsk Nickel VTB Bank Igor Altushkin; Ruslan Baisarov
n.a. China; Italy; United States Russia Russia Russia
2,525 2,440
Norilsk Nickel Metalloinvest Enisey Production Company Norilsk Nickel Norilsk Nickel LukOil SABMiller's Russian and Ukrainian beer businesses X5 Retail Group Yandex Russian Trading System Stock Exchange (RTS) Lenta
Mining (incl. oil & gas) Mining (incl. oil & gas) Mining (incl. oil & gas)
2,317 1,938 1,748
Mining (incl. oil & gas) Mining (incl. oil & gas) Mining (incl. oil & gas) Food & Beverages
Minority stake purchase (5%) Minority stake purchase (4%) Minority stake purchase (2.94%) Acquisition
Interros Metalloinvest n.a. Anadolu Efes Biracilik ve Malt Sanayi
Russia Russia n.a. Turkey
1,544 1,517 1,259 1,101*
Wholesale & Retail Trade Telecom & IT Finance & Insurance
Minority stake purchase (11.14%) IPO (17.87%) Merger
n.a. Morgan Stanley Moscow Interbank Currency Exchange (MICEX) EBRD; TPG Capital; VTB Capital
n.a. United States Russia
1,067 1,018 940
Food & Beverages
Acquisition (44%)
International; United States; Russia Russia United States
844
Polyus Gold Wimm-Bill Dann Foods
Mining (incl. oil & gas) Manufacturing
Minority stake purchase (10%) Minority stake purchase (18.83%)
Suleiman Kerimov PepsiCo Inc.
829 770
32
Slovakia
Prior to the global economic crisis most M&A transactions in Slovakia were initiated by private equity companies which funded the transactions primarily from borrowing.
As the conversion rate was favourable, it was not unusual to borrow up to 80 percent of the value of the transaction. With the onset of the economic downturn banks lost their appetite to finance more than 50% of the value of a deal. Their confidence to lend more is gradually returning, however, but at a slow pace. There has been a number of mergers and acquisitions within groups, including cross-border ones, but mainly with the aim of lowering operation costs and increasing efficiency. Up until the middle of 2010 sellers tended to overvalue their businesses in the light of pre-crisis economic results. Buyers, however, looked at realistic numbers, also in the context of economic forecasts. The number of deals has not changed over the last three years (46 in 2011), but their value has been steadily decreasing. The total value of transactions in 2008 was approximately 1.185 billion, in 2010 290 million, and in 2011 235 million, one fifth of the 2008 figure. Some recent transactions include PosAm becoming a part of Slovak Telekom, which in turn merged with T-Mobile in the summer of 2010, and the Czech company Skanska acquiring construction company Skybau. The energy sector dominated in 2011 when the privatisation of several heating companies started. However, the privatisations have been stopped due to the collapse of the Slovak coalition government. The acquisition of Grafobal Group Energy (GGE) by Czech company Tenergo Brno went ahead, as did the acquisition of the West-Slovakian heating company Comeron SPS by heating company Cofely, a member of the major international energy group GdF Suez. The top ten deals by value in 2011 were mainly in the services and media & entertainment sectors. Kempinsky Hotel River Park and Grand Hotel Kempinski High Tatras were bought by Best Hotel Properties; the deals were valued at 66 and 31 million respectively. The Luxembourg M7 Group bought all the shares in Skylink in Slovakia (31 million), Cinema City International acquired 100 percent of the shares in Palace Cinemas Slovak Republic (4 million), and Time Warner Inc. purchased a minority stake in Central European Media Enterprises in Slovakia (6 million).
33
Other significant deals included the 100 percent acquisition of eskoslovensk obchodn banka dchodkov a sprvcovsk spolonos by Potov banka in Slovakia (15 million) and the purchase of a minority stake in construction company Prigan Holding by the European Bank for Reconstruction and development (9 million). Slovak Penta Investments bought a minority stake in Dexia banka Slovensko (5 million). In comparison to Poland and the Czech Republic, Slovakia does not possess great potential for future acquisitions. The optimal deal size in Slovakia is considered to be approximately 10 million, and although many aspire to higher value deals (over 30 million), these are exceptional and usually linked to the privatisation of government-owned property. The future of privatisations in Slovakia is in the hands of the politicians who will take over the government after the recent parliamentary elections in March this year. Analysts expect the market to pick up in 2012 thanks to an increased volume of manufacturing sales. This should improve opportunities for M&A, as should the fact that many investors have been holding back and waiting for conditions to improve. Some investors are counting on a second wave of restructuring where they believe they will be able to take advantage of good deals. Some analysts are forecasting that the majority of deals will take place in the information technology and innovative sectors. New innovative products, services and know-how are likely to be more tempting for investors than traditional ones. Petra Starkov Head of Corporate Department CMS Slovakia petra.starkova@rc-cms.sk Ian Parker Partner, Corporate Department CMS Slovakia ian.parker@cms-cmck.com
34
The Slovakian M&A Market
Deals by Value and Volume in Slovakia (2008-2011)

75 1,185 53 50 44 48 46 1,500
1,000
25 290 235 0 2008 2009 2010 2011
500
286
Top 10 Deals in Slovakia (2011)

Target Company Industry Deal Type Buyer Country of Buyer Netherlands Czech Republic Slovakia Czech Republic France Slovakia Deal Value (m) 151 72 66 66 60 31
Aupark Bratislava Logistics park in Lozorno Kempinski Hotel River Park 14 retail parks Sekyra Groups Slovak projects Grand Hotel Kempinski High Tatras Skylink in Slovakia CSOB d.s.s.
Real Estate* Real Estate* Services Real Estate* Real Estate* Services
Acquisition (50%) Acquisition (100%) Acquisition (100%) Acquisition (100%) Acquisition (100%) Acquisition (100%)
Unibail-Rodamco Czech Property Investments Best Hotels Properties Czech Property Investments JF Hamilton Group Best Hotels Properties
Media & Entertainment Finance & Insurance
Acquisition (100%) Acquisition (100%)
M7 Group Postova Banka
Luxembourg Slovakia International
31 15 9
Prigan Holding
Construction
Minority stake purchase Minority stake purchase (4.9%)
European Bank for Reconstruction and Development Time Warner Inc
Central European Media Enterprises in Slovakia
Media & Entertainment
United States
35
Ukraine
As the statistics illustrate, 2011 was not a banner year for M&A transactions in Ukraine. The volume of reported deals was at its lowest since 2008, and the total value of those deals although higher than the lowest point in 2009 (when the economic crisis was at its worst) was significantly lower than in 2010.
The year witnessed some very interesting cross-border transactions, not the least of which was the nearly 1 billion privatisation of Ukrtelecom, the state-owned fixed line telephone monopoly, by EPIC. Although a fair amount of the other transactions that occurred could technically be classified as cross-border, by far the majority of all transactions in 2011 were in fact among Ukrainian and/or Russian buyers and sellers, whether acting through their foreign holding companies or locally. In fact, the Ukrainian market has not really seen the level of interest by foreign strategic investors that it witnessed in the years leading up to the crisis, with only a handful of transactions involving foreign strategics in the last few years. Investors in certain industries, particularly in the banking sector, have been hard hit, and the overall negative economic outlook, coupled with what many view as a declining level of democracy and a failure by the government to institute real reforms and stamp out corruption, have held back significant foreign investment. Despite this, in 2011 the market witnessed a number of transactions involving foreign private equity firms. These included a transaction by a seasoned veteran to the Ukrainian market, Horizon Capital, which together with Hartwall Capital, purchased a 60% stake in the Inkermann Wine Factory. In addition, Advent International, a US-based private equity firm, acquired a controlling stake in Isida-IVF, the Ukrainian based provider of medical treatment and healthcare services. Also, ADM Capital recently announced a US $35 million investment into a joint venture with Concern Galnaftogaz to help develop its chain of petrol filling stations. So what does 2012 hold for the Ukrainian M&A market? Ukraine has the underlying fundamentals to make it an interesting country for investment not only by Ukrainian and Russian investors, but particularly by strategic investors in the medium to long-term. It has a large population with plenty of room for growth amongst the middle class, and offers agricultural resources that are in short demand in the wider world. Opportunities also exist in such areas as conventional/alternative/renewable energy, infrastructure, telecommunications, the IT sector and consumer products, to name but a few. In many of these sectors, in order for the leading companies to begin realising their potential, significant investments as well as leading expertise are required, and in the near term this can often come from foreign strategic investors.
36
Although we do not expect a significant increase in the volume or the value of deals in 2012, we can already see that the types of players in the market, as well as the sectors involved, are likely to be similar to 2011. For example, we expect to see more market consolidation amongst domestic businesses, particularly in sectors such as agriculture/livestock, mining/metallurgical, financial services and in the telecommunications and IT sectors, with Russian investors likely to continue to play a leading role. A few privatisations, particularly in the power sector, are expected and will provide existing players in the market an opportunity to increase and consolidate their holdings. We also expect to see existing private equity players play an increasing role, particularly with respect to companies that have difficulty in raising financing or accessing the capital markets through IPOs in Warsaw and other platforms. And we may even see some exits by private equity players to foreign strategics, which will only help underscore to others the potential for growth that Ukraine has to offer. In short, whilst 2012 will again not be a banner year, we are likely to see more foreign investors exploring if not entering the market than in the previous few years. Adam Mycyk Partner, Head of Banking Department CMS Kyiv adam.mycyk@cms-cmck.com Graham Conlon Partner, Head of Corporate Department CMS Kyiv graham.conlon@cms-cmck.com
37
The Ukrainian M&A Market
Deals by Value and Volume in Ukraine (2008-2011)

500 442 403 422 323 6,232 250 4,542 3,440 4,747 5,000 10,000
2008
2009
2010
2011
Top 10 Deals in Ukraine (2011)

Target Company Industry Deal Type Buyer Country of Buyer Austria Ukraine Russia Deal Value (m) 950 580 410
Ukrtelecom Azot Donetsk ElectroMetallurgical Works Severodonetsky Azot Nadra Bank PrivatBank SABMillers Russian and Ukrainian beer businesses XXI Century Investments Public Marine Specialized Port of Nika-Tera Black Sea Industries
Telecom & IT Manufacturing Manufacturing
Privatisation (92.79%) Acquisition (95.63%) Acquisition (100%)
EPIC Group DF Mechel Steel Group
Manufacturing Finance & Insurance Finance & Insurance Food & Beverages
Acquisition (100%) Acquisition (89.97%) Minority stake purchase (24.99%) Acquisition (100%)
Group DF Dmitry Firtash; Ivan Fursin Triantal Investments Anadolu Efes Biracilik ve Malt Sanayi n.a.
Ukraine Ukraine Cyprus Turkey
370 304 299 275*
Services
Minority stake purchase (30.85%) Acquisition (100%) Acquisition (100%)
n.a.
129
Transportation & Warehousing Food & Beverages
Group DF Kernel Holding
Ukraine Ukraine
110 109
38
CMS and DealWatch
CMS
CMS aims to be recognised as the best European provider of legal and tax services. Clients say that what makes CMS special is a combination of three things: strong, trusted client relationships high quality advice industry specialisation We combine deep local expertise and the most extensive presence in Europe with cross-border consistency and coordination. CMS has a common culture and a shared heritage which make us distinctively European. CMS operates in 30 jurisdictions, with 54 offices in Western and Central Europe and beyond. CMS was established in 1999 and today comprises 600 Partners and over 2,800 lawyers. CMS is headquartered in Frankfurt, Germany. www.cmslegal.com
DealWatch
DealWatch is the leading provider of emerging market M&A information. It offers proprietary interviews and transaction valuations, an unrivalled deal database, forecasting tools, league tables and analyses. It gives M&A professionals tools to get to deals first, and to make better valuation decisions once they get there. DealWatch is part of the Emerging Markets Information Service (EMIS). DealWatch offers: The News section, prepared by the team of financial journalists, includes articles unraveling the dealmakers plans and intents. The Database section encompasses detailed transaction information, background and company valuations and presents it in a tabular, database form. The LeagueBoard is a tool for generation of rankings of financial and legal advisors taking part in the transactions. The Analysis section stores analytical reports and research documents. Finally, the DealMonitor monitors the deals that are about to happen and helps identifying the hottest M&A markets. DealWatch currently covers the Central and Eastern Europe, Southeastern Europe, the Commonwealth of Independent States, Central Asia, India, China and Latin America. The database is designed to help investors and business owners quickly identify future M&A deal and Equity Capital Market (ECM) activities, trends and opportunities in the emerging markets. DealMonitor is a component of the DealWatch product, offered as a part of the companys flagship Emerging Markets Information Service (EMIS) product line. DealMonitor, a component of the DealWatch is an exclusive database and forecasting tool designed to help investors and business owners quickly identify future M&A deal activities, trends and opportunities in the emerging markets. Equipped with solid database and powerful graphical visualizations, DealMonitor presents global heat maps of the most active M&A markets, worldwide, in a clear, comprehensible manner. www.securities.com/dw
39
CMS Legal Services EEIG (April 2012)
CMS Legal Services EEIG is a European Economic Interest Grouping that coordinates an organisation of independent member firms. CMS Legal Services EEIG provides no client services. Such services are solely provided by the member firms in their respective jurisdictions. In certain circumstances, CMS is used as a brand or business name of some or all of the member firms. CMS Legal Services EEIG and its member firms are legally distinct and separate entities. They do not have, and nothing contained herein shall be construed to place these entities in, the relationship of parents, subsidiaries, agents, partners or joint ventures. No member firm has any authority (actual, apparent, implied or otherwise) to bind CMS Legal Services EEIG or any other member firm in any manner whatsoever. CMS member firms are: CMS Adonnino Ascoli & Cavasola Scamoni (Italy); CMS Albiana & Surez de Lezo, S.L.P. (Spain); CMS Bureau Francis Lefebvre (France); CMS Cameron McKenna LLP (UK); CMS DeBacker (Belgium); CMS Derks Star Busmann (The Netherlands); CMS von Erlach Henrici Ltd (Switzerland); CMS Hasche Sigle (Germany) and CMS Reich-Rohrwig Hainz Rechtsanwlte GmbH (Austria). CMS offices and associated offices: Amsterdam, Berlin, Brussels, London, Madrid, Paris, Rome, Vienna, Zurich, Aberdeen, Algiers, Antwerp, Beijing, Belgrade, Bratislava, Bristol, Bucharest, Budapest, Buenos Aires, Casablanca, Cologne, Dresden, Duesseldorf, Edinburgh, Frankfurt, Hamburg, Kyiv, Leipzig, Lisbon, Ljubljana, Luxembourg, Lyon, Marbella, Milan, Montevideo, Moscow, Munich, Prague, Rio de Janeiro, Sarajevo, Seville, Shanghai, Sofia, Strasbourg, Stuttgart, Tirana, Utrecht, Warsaw and Zagreb. www.cmslegal.com
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Emerging Europe - M&a Report 2011, A Joint Study by CMS and DealWatch

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Emerging Europe: M&A Report 2011

16 Hungary 20 Poland 25 Romania 28 Russia 33 Slovakia 36 Ukraine 39 CMS and DealWatch

Helen Rodwell CMS Head of CEE Corporate Practice helen.rodwell@cms-cmck.com

Top Emerging Europe Legal Advisors by Number of Deals (2011)

Emerging Europe Overview

Deals by Value and Volume in Emerging Europe (2008-2011)

Number of deals (left hand scale)

Total value of deals (bn, right hand scale)

Deals by Sectors (2011)

Number of Deals by Sectors in Emerging Europe (2011)

Food & Beverages, 276

Finance & Insurance, 409

Share of Sectors from Total Value of Deals in Emerging Europe (2011)

Telecom & IT 9.2% Finance & Insurance 12.3% Manufacturing 11.4%

Top 20 Deals (2011)

Russia Russia Russia Russia Hungary Belarus Russia

2,525 2,440 2,317 1,938 1,880 1,852 1,748

Minority stake purchase (5%) Minority stake purchase (4%) Acquisition

Russia Russia Russia, Ukraine

Russia Russia Turkey

1,544 1,517 1,462*

Mining (incl. oil & gas)

LukOil GZE X5 Retail Group

Russia Poland Russia

n.a. Tauron Polska Energia n.a.

n.a. Poland n.a.

1,259 1,213 1,067

Energy & Utilities

Food & Beverages: Retail

The Bulgarian M&A Market

Deals by Value and Volume in Bulgaria (2008-2011)

Number of deals (left hand scale)

Total value of deals (m, right hand scale)

Top 10 Deals in Bulgaria (2011)

Real Estate* Utilities

Acquisition (100%) Privatisation (33%)

InvestKredit Bank AG EVN; PAC Doverie; Undisclosed investors

Austria Austria; Bulgaria

The Czech M&A Market

Deals by Value and Volume in the Czech Republic (2008-2011)

2,000 2,099 1,556 0 2008 2009 2010 2011 0

Number of deals (left hand scale)

Total value of deals (m, right hand scale)

Top 10 Deals in the Czech Republic (2011)

Utilities Real Estate*

Minority stake purchase (3%) Acquisition (100%)

n.a. Meyer Bergman; Healthcare of Ontario Pension Fund Rockspring/ECE

249 219 191 154 135 96

Czech Property Investments

The Hungarian M&A Market

Deals by Value and Volume in Hungary (2008-2011)

1,532 2008 2009 2010 2011

Number of deals (left hand scale)

Total value of deals (m, right hand scale)

Top 15 Deals in Hungary (2011)

Country of Buyer Hungary China Germany

Deal Value (m) 1,880 743 485

Mining (incl. oil & gas) Manufacturing Education & Healthcare

Minority stake purchase (21.2%) Acquisition (58%) Acquisition (100%)

Government of Hungary Yantai WanHua Polyurethane Fresenius Medical Care

Acquisition (100%) Acquisition (74%) Privatisation (25%) Acquisition (100%)