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Real Estate Sector Rules Moderating M&A Sector in 2018, Says EY

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Although the mergers and acquisitions market appeared to be moderating in 2018, the number of foreign investors grew compared to the preceding years. The most attractive sectors for foreign direct investment were the real estate and technology industries, EY’s annual M&A index reveals.

Last year a total of 107 M&A deals were signed, boosting the market to an estimated value of USD 3.35 billion. The number of deals in 2018 was down by 20% compared to the preceding year, which led to the shrinking of the estimated market value from 2017’s USD 4.02 bln, data from the EY M&A Barometer survey shows.

The estimated value of transactions of less than USD 100 million reached USD 17.8 mln in 2018. However, the value of the deals was published in total in 19 cases only, with five transactions being above the USD 100 mln threshold.

The real estate sector was once again the most attractive for FDI in 2018. A total of 27 deals were announced for the sector, equaling the number of deals a year earlier. The IT and technology sectors followed close to the real estate industry with 15 deals, respectively.

“Despite a favorable economic environment, the local transaction market has been affected by the insecure sentiment of geopolitics,” says Ferenc Nagy, M&A Manager at EY.  

“With the exception of the real estate market, we have experienced the slowing of merger and acquisitions processes,” Nagy says. He added that it appears that both vendors and buyers seem to be on hold to see how the environment changes before deciding on deals.

More Foreign Investors

Although almost half of the mergers and acquisitions in Hungary had Hungarian businesses as buyers, two out of the three biggest deals were carried out by foreign businesses. Furthermore, the ratio of foreign investors grew to 40% from the preceding year’s 28%. The number of Hungarian firms executing M&A deals abroad also grew, albeit marginally, up to 13 from the 12 of 2017.

The biggest deal in Hungary saw market leading pet food manufacturer Partner in Pet Food Group purchased by private equity firm Cinven for USD 607 mln.

“Beyond the number of deals, the number of strategic investors went up significantly in 2018. This year, we expect the ratio of financial investors to grow, due to the recently increased activity of venture capital funds,” Nagy adds.

By Comparison...

To put the 2018 data into some context, in 2017, the value of the M&A market rose 150% to USD 4 bln. The number of mergers and acquisitions increased by 21% to 133, as compared to 2016. 

Although International law firm Allen & Overy’s “Global Trends in Private M&A” report showed that M&A activity worldwide was still vibrant during 2017 – even if slightly less so compared to 2016 levels –, the Central and Eastern Europe region saw a downward trend, however, with the decline particularly pronounced in Hungary, albeit set against a high bar in 2016.

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