2023 looks as good as last year for the Romanian M&A market: there is liquidity, there are investors interested in Romania, several transactions need to be completed in important areas such as energy, real estate, healthcare and telecommunications. . Strategic acquisitions and optimization of the investment portfolio are among the main tasks for closing deals this year, as they support the process of business repositioning and growth consolidation. These are the conclusions of the PwC M&A conference: today’s decisions are tomorrow’s successful projects.

The video recording of the conference can be viewed here and here

Estimates of the global and local market

In 2022, the local M&A market, i.e. signed and completed deals, reached 5.4 billion euros, surpassing the pre-pandemic level, an evolution supported by the over one billion euro deal with the Neptun Deep field.

Dinu Bumbeca, managing partner of PwC in Romania: 2022 was a very good year for the M&A market in Romania, with important transactions that change the shape and take the development of certain sectors to a new stage. We expect 2023 to be just as interesting for the Romanian market.

In contrast, the global M&A market fell in 2022 below the record level of 2021 due to recession fears, but recorded values ​​are still above 2020 and pre-pandemic levels, according to PwC Global M&A Industry Trends. Europe, the Middle East and Africa (EMEA) saw more deals than the Americas and Asia Pacific, despite higher energy costs and regional volatility. And in the first half of 2023, the outlook is clouded by fears of slowing economic growth and high interest rates to curb inflation, exacerbated by a sharp decline in global stock valuations in 2022, the war in Ukraine, supply chain disruptions, tighter supplies and regulation.

We estimate that the market will return to growth in the second half of the year, with strategic acquisitions and investment portfolio optimization as targets as they support CEOs in repositioning the business and consolidating growth. Optimism also comes as 60% of CEOs worldwide indicated in the latest PwC CEO survey that they have no intention of delaying planned deals for 2023, despite fears of a recession, rising interest rates, falling valuations, geopolitical tensions and supply chain disruptions supplies

George Urece, Director of PwC in Romania and Head of M&A: There is a gap between the value of actually completed and announced transactions, with some due to be completed this year. In 2022, the M&A market finally returned to pre-pandemic levels, and this was the year when we can say that Romania has become a mega-transaction market, as we have three consecutive years of transactions worth more than one billion euros (CEZ in 2020, UiPath in 2021, respectively the Neptune depth in 2022).

We are optimistic about 2023, many deals are expected to be closed this year. In our opinion, the potential of the M&A market in Romania is €8 billion, and this target is only achievable if, in addition to the recently announced energy deal, a new mega deal is also announced.

We evaluate the M&A market from two perspectives: according to market trends, as well as investor interest. For example, when the war in Ukraine began, in the first part we saw a sharp drop in investor interest. Even in the very competitive deals we have done, there have been investors who were not present in the region and cited geopolitical instability as the main reason for not participating in the deal process. But investors who have already made a bet on the region continue to invest heavily. Romania has very good prerequisites for development, and mergers and acquisitions contribute to the realization of this potential.

Anda Rojanski, partner at D&B David and Baias: In 2022 we saw a record number of transactions analyzed by the Competition Council (…), the active sectors we saw are energy, industrials, healthcare and real estate. The market of medical services has been developing dynamically for more than 10 years with two or three large buyers. In 2022, we also saw two transactions that were conditionally approved in this market, which is rare for the Romanian market.

At the moment, activity is very intense, so we believe that investor interest will remain high in 2023. We also see Romanian entrepreneurs who have reached a high enough market share and importance to be investors and buyers, which can somehow change the rules and bring us to transaction market values ​​close to those of the Czech Republic or Poland.

We can say that last year Romania established itself in the top three in the market of Central and Eastern Europe, after Poland and the Czech Republic, two large markets, although we are still far behind in terms of cost. Although these markets are not as transparent, they are said to be worth more than 10 billion euros.

There are two new forms of reporting we’ve seen in M&A practice when it comes to due diligence: IT and cyber reporting, relevant given the growing number of transactions that have a technology component as well as ESG. Globally, only 10-15% of investors say they have done proper ESG due diligence before entering into a deal. This is still a low percentage, but thanks to the Green Deal and all the regulations related to non-financial reporting and sustainability criteria in Europe, as well as in Romania, this exercise is becoming more common.

The consequence of all checks at the due diligence stage, which, as we see, is becoming more and more complex, is the extension of the period of analysis of the acquisition object.

Cornelia Bumbecha, partner of PwC Romania: Mergers and acquisitions tend to slow down during periods of uncertainty or market volatility, but at the same time, they can also bring many opportunities. Paradoxically, deals concluded in a difficult and difficult period often turn out to be the most successful. We believe that many Romanian companies should adopt mergers and acquisitions as part of their growth and business transformation strategies in order to strengthen their positions in the sectors and markets in which they operate and to take full advantage of the synergies resulting from the deal.

The M&A market in Romania remains active and interesting, with a high level of transactions year-on-year and increasing values ​​both in general and in leading sectors such as energy, real estate, ICT and healthcare. We have been and continue to work with entrepreneurs and investors in the process of transforming their business or in transactional processes that bring additional value.

How should companies prepare for the deal?

Andrea Bistricanu, director of PwC Romania: It is becoming increasingly difficult for companies and investors to create value. Therefore, every step in this difficult matter is important. In the pre-deal phase, before the actual transaction, companies discuss and plan the transformation and optimization processes that will create a successful transaction. During the transaction, M&A strategy and planning are very important, and in the post-transaction phase, integration is important to use the entire process effectively.

An important stage of the transaction process is the stage of Due Diligence. On the buy side, investors need to confirm the assumptions they are entering into the transaction with, and the due diligence analysis needs to be aligned with the sector they operate in and their strategy and priorities. This stage remains key for investors to understand the investment target, properly evaluate the business they are targeting, and plan their integration. If it is not clearly followed, it can lead to significant consequences after the transaction is concluded.

Andreja Mitirice, partner of PwC Romania: In recent years, both the European Commission and the OECD have paid great attention to fiscal transparency and its improvement. There are two legislative changes that have a significant impact on the mergers and acquisitions market, which have already been implemented or are in the draft stage at the European Commission level:

Directive on administrative cooperation in the field of taxation, adopted in 2011, which has been amended six times so far. The latest modification of the DAC7 is aimed at players of online trading platforms who have a market. They will have to collect information about the sellers and report it to the authorities. The reporting requirements take effect from 2023 and have already been transposed into Romanian law.

Another legislative change that has a significant impact on the M&A market is the ATAD 3/Unshell Directive, which is still under development. According to it, in the case of companies with mainly passive income (interest, royalties, dividends, rent), it is necessary to check their substance to find out whether they need to be reported to the tax authorities in each jurisdiction. There are three criteria on the basis of which companies determine whether they are covered by this directive: if the income is more than 65% passive income, if more than 55% of the income comes from cross-border operations and if the management of the company is transferred to a service provider. If the organization meets these conditions, it must undergo a new verification aimed at: having a registered office in the relevant jurisdiction, whether it has a bank account in the European Union, whether it has a director or how many employees. It is important that the business environment is already analyzing these aspects, given that the directive will be applied retrospectively and may lead to the loss of the possibility to apply provisions of double taxation agreements or European directives.

ATAD 3 also provides for significant fines. If a business entity falls under the scope of reporting and still does not comply with the rules, it risks a fine of 2% of the revenue received for the year, and if it submits false or false reporting, it risks a fine of 4% of the revenue, received for the year. income

Anda Rojanski, partner at D&B David and Baias: 2022 brought legislative changes that affected mergers and acquisitions. These are changes made to the law on commercial companies, such as a change in the competence to resolve merger and division issues, with a positive effect on reducing the duration of reorganizations. But also about the new CEISD national security control procedure, which may lead to an extension of the period between the signing and completion of the agreement.

Read the rest of the article on the PwC Romania blog

Article supported by PwC Romania​​​​​​​