The Emergence of Central European Investors in the M&A Arena

Published in Les Echos on Friday, August 16, 2024 ?

Fusions-acquisitions?: l'irruption des investisseurs d'Europe centrale

Over the past twelve months, Daniel K?etínsky, one of the leading Czech businessmen, has acquired 20% of the German thyssenkrupp Steel , successfully launched a takeover bid for International Distributions Services (IDS), the parent company of Royal Mail, the British postal operator, and taken over Casino and Editis in France. He is the most prominent among the half-dozen Czech investors who have been targeting assets in Europe and around the world. For instance, AGROFERT, a.s. has become a leader in the European fertilizer industry, PPF Group is developing Internet logistics through its stake in InPost Group , KKCG Group is building a pan-European lottery operator with Allwyn , and skupina Sev.en and ENERGO-PRO are investing in energy and mining assets in Europe, the United States, Asia, and Australia.

According to UN Trade and Development (UNCTAD) , Czech companies, from virtually nothing twenty years ago, had invested $57 billion abroad by the end of 2022. This figure has been bolstered by operations in the past eighteen months worth €14 billion, according to Dealogic . This marks the highest growth for a country without natural resources, with its foreign investments now surpassing those of Portugal at $62 billion.

Czechs are not alone in this trend. Hungarian bank OTP Group , operating in twelve countries following a series of acquisitions, has a price-to-book ratio three times higher than its Western competitors. Hungarian airline Wizz Air , created twenty years ago, transported 60 million passengers in 2023 after attempting a takeover bid for easyJet in 2021. From its native Estonia, Bolt is the only global competitor to Uber and is preparing to go public after a funding round valuing the company at €7.5 billion. Polish food industry leader Grupa Maspex , launched thirty years ago, has made twelve acquisitions in Central Europe and achieved €4 billion in annual sales. The rise of Ukrainian poultry leader MHP , particularly after its acquisition of Slovenian Perutnina Ptuj Group , is worrying Western competitors. In total, Central and Eastern Europe companies (excluding the former USSR) had invested cumulatively nearly €190 billion abroad by the end of 2022, eight times more than twenty years ago.

What are the reasons and mechanisms behind the rise of these Central European groups???

Firstly, Central European champions benefit from the freedom of action typical of unlisted groups controlled by their founders. They can approach operations as strategic operators, venture capital funds, or family offices. They can be more flexible than others, sometimes accepting to remain long-term minority stakeholders or stuck at a 50-50 split, and they sell their stakes without drama if the relationship doesn't work out.

Furthermore, at the root of the major successes of the East is often an original intuition, generally contrary to popular belief. Daniel K?etínsky built Energeticky a pr?myslovy holding, a.s. fifteen years ago by betting that the green transition would be longer and more carbon-intensive than expected. Wizz Air recognized early on the opportunity presented by Eastern Europe's migrant workers, then replicated this model in Abu Dhabi for South Asian workers. Bolt bet on a more harmonious relationship with regulators and drivers than its competitors.?

The expansion has primarily been driven by private groups but has also been supported by public authorities in some countries. In Poland, large public companies have led the charge, such as the oil company ORLEN S.A. with service stations in Germany and Austria and gas and oil fields in Norway, or the copper leader KGHM Polska Mied? S.A. with assets in Chile, the United States, and Canada. In Hungary, the state fund Corvinus Nemzetk?zi Befektetési Zrt. supports domestic groups' acquisitions as a minority partner.

All this certainly does not mean that Central and Eastern Europe is no longer an attractive destination for French and Western investors. Over the past twenty years, foreign investment stock in Central and Eastern Europe (excluding the former USSR) has more than tripled to reach €1.1 trillion. We simply need to get used to flows also coming from the East.

Bozidar Djelic, Managing Director, Lazard Frères, in charge of Central and Eastern Europe