More Transactions but Lower Deal Value: Austrian M&A Market 2022 without very large deals and substantially lower deal value

Q1/2023 with only €1.1 billion aggregated Deal Value out of ten deals with disclosed deal values

Vienna, 4th April, 2023, by Dr. Winfried Weigel, weigelCF, www.weigelCF.com

Q1/2023 is likely to be the slowest start into a new M&A year since 2008. The largest deal was the €525 million buy-back of a 25% Energie Steiermark AG (ESTAG) financial stake from its long-term Australian financial investor Macquarie Infrastructure by the Federal State of Styria. The deal was immanent for almost ten years and last rumoured for the past two years. The second largest transaction was the sale of 80% of Kommunalkredit Austria by Financial Investors Interritus (Patrick Bettscheider) and Trinity Investments to Swedish Private Equity Investor Altor Equity Partners. The rumoured value of the bank was mentioned to be €500 million based on a book equity value of €433 million. That would be equivalent to a purchase price of €400 million. mergermarkets noted a deal value of €322 million.

Total reported deal value 2022 was €11.4 billion resulting from 44 Austrian (target or buyer or seller from Austria) M&A transactions (change of corporate control or acquisition of a controlling stake according to takeover regulation, with exceptions as we will see). We registered an aggregated deal value of €23.7 bn resulting from 32 transactions in the previous year, up from €13.2 bn deal value from 33 transactions in the first Corona year 2020.

In total, we counted 259 Austrian M&A deals, compared with 232 in 2021 and 181 deals in 2020. In terms of number of deals the Austrian M&A activity was strong, but very large deals were missing.

We counted 15 M&A Deals with reported deal values of aggregated €6.4 bn in Austria, thereof only three domestic deals with only €362 mn deal value and one deal between a foreign buyer and seller, the largest Austrian deal announced in 2022. For 2021, we reported an aggregated deal value of €10.3 bn from 13 M&A Deals in Austria. The total number of identified M&A transactions 2022 in Austria was 131, 18% higher than the 111 identified deals in 2021 and 52% higher than the 86 M&A Deals in Austria 2020.

Only 34 of the 131 Austrian target companies showed Austrian buyers, 8 domestic deals (Target + Acquiror = AT) were foreign divestitures. 97 deals in Austria were foreign acquisitions, thereof 18 foreign divestitures to foreign buyers and 79 acquisitions from Austrian sellers.

The 128 Austrian transactions outside of Austria (Buyer or Seller = AT) are split between 103 acquisitions and 25 divestitures. That compares with 86 foreign acquisitions and 35 foreign divestitures in 2021, a total of 121 foreign Austrian deals.

The 16 foreign Austrian acquisitions with reported deal values in 15 different countries had an accumulated deal value of €1.9 bn, the top five deals by four Austrian corporate investors accounted for €1.5bn thereof. In 2021 we only had 10 Austrian acquisitions abroad with revealed deal value, but an accumulated €9.5 bn transaction value (5 times as much), therefor, the average transaction value was much larger.

We counted 13 Austrian corporate divestitures abroad to acquirors from as many countries with an aggregated transaction value of €3.1 bn. That compares to 9 Austrian divestitures abroad with disclosed deal values and an aggregated deal value of €3 bn in 2021, again the average transaction size in 2022 was lower than in the previous year.

While we reported of a glorious year 2021 with a positive outlook for 2022 despite dark clouds from already rising interest rates, already rising inflation rates, already rising energy prices, rising container freight rates, and disruptions in the international supply chain for many products. 2022 suffered a big set-back for financial markets, including for the M&A market. Without the very large deals the transaction value will always look weak, but overall we even saw an increase in deal activity based on the number of deals, both based on all reported Austrian M&A deals and on the no. of deals with reported deal value.

Four key takeaways:

1.?We have a war in Europe, and Austria was economically always a gateway to the CEE markets. We have a separation between East and West along the Russian borders and spilling over into some neighboring countries. An end of the conflict is not in sight and the situation may further escalate. We also face a climate and energy crises that remained unresolved for the past 20 years and that culminated with the sanctions and embargo against Russia and the sharp reduction of fossil fuel and gas exports into the EU and as a consequence, temporarily exploding fossil fuel prices.

2. Transaction values / valuations are highly correlated with capital markets. The ATX had a stellar performance in 2021 when it rose by 36% and peaked after a 10 year rally, in line with the globally leading stock markets. In 2022, the ATX declined by 19% and only gained back 3% in Q1 / 2023. That means a similar reduction of valuations, partially compensated by high inflation and still strong corporate profitability and most likely the highest level of paid-out dividends of listed Austrian companies.

3.?????Unicorns / start-up and growth company fund rounds exploded in 2021 after an already stellar performance in 2020, and 2022 confirmed a high level of activity. But we started to see down rounds in 2022 and see a strong increase in downrounds in 2023 YTD. We excluded 15 Austrian funding rounds in 2022 with a reported deal value of € 610 million from our M&A analysis. ?

4.?????SPACs / de-SPAC-ing technically include a reverse takeover but should not be considered as M&A transactions but as capital market transactions, just like IPOs. SPACs were booming in 2022, sparked by negative interest rates as investors could park big amounts of investment capital in special purpose vehicles for small but positive interest rates in a negative interest rate environment. Interest markets turned in 2022 and investors take out their money and regularly decline investment opportunities or SPACs do not even find the right investment opportunity. Most of the SPACs will return their money at the end of the contractual acquisition period.

5.?????BIG Data, data aggregation, data analysis, decision making tools: We have used the mergermarket database and extracted all M&A deals with target or buyer or seller from Austria and retrieved a sample of 802 transactions with an aggregated deal value of € 69 billion from 273 deals with deal values reported. Based on the review of the 273 deals with deal value and the analysis of the remaining 529 transactions without disclosed deal values we extracted 44 Austrian M&A transactions with disclosed deal values and identified a total of?259 Austrian M&A deals. We excluded all funding rounds in Austria or by Austrian investors or with unknown investors (counted for each country), financial minority investments below 25% (exception the largest 2022 Austrian M&A Deal with 24.9%), squeeze-out or buy-outs of remaining minority investors by the majority investor, acquisitions of specific assets, such as, e.g., real estate, renewable energy plants, oil & gas wells, patents or product licenses, or manufacturing plants. For the deals with disclosed deal value we excluded all deals that did not show any Austrian angle.

The 2022 Austrian M&A Market

The largest Austrian transaction 2022 with a target, seller or buyer from Austria was announced just before Christmas: the €3.8 billion acquisition of a 24.9% stake in listed Austrian oil & gas giant OMV by the Abu Dhabi National Oil Company (ADNOC). Terms and conditions of the transaction that requires regulatory approval were not announced, but the deal value can be calculated based on OMV′s share price. OMV is the Austrian state controlled oil & gas company that still owns 31.5%. The 24.9% OMV stake was transferred from the Abu Dhabi sovereign investment holding Mubadala Investments to ADNOC, transferor and transferee are both fully controlled entities of the government of Abu Dhabi. ?

In a statement the Austria state holding company OBAG (formerly known as OIAG) said, “Should all regulary approvals be granted, Adnoc would become a long-term oriented, strategic partner in all of OMV′s areas of business”. Indeed, the very active strategic partnership between the Republic of Austria and the government of Abu Dhabi goes back 29 years when Abu Dhabi acquired an initial 13% stake in OMV from OIAG in 1994 that were continuously increased to 24.9%. Following the formation of Mubadala Investment Company 2017, the shares were transferred from the International Petroleum Investment Company. Two years later the 25 year strategic partnership was celebrated.

We do not consider this transaction as acquisition of a controlling stake or even as a change of ownership. ADNOC will assume all ownership rights of Mubadala and was already signatory of many co-operation and joint ownership agreements with OMV. However, we have counted the € 3.8 billion market value as part of the total aggregated M&A Deal Value of ?€11.4 billion, without it, the real 2022 aggregated M&A deal value would be € 7.6 billion.

The 15 largest Austrian M&A deals 2022 are listed in the table underneath in black ink. We excluded rejected takeover offer for nitrogen business of the jointly OMV and ADNOC owned pedrochemicals subsidiary Borealis AG and the withdrawn takeover offer for the US subsidiary Benteler Steel & Tube Manufacturing Corp. (Group H/Q in Austria), as well as the 10% takeover offer by the long-term financial partner of the public majority shareholders of Vienna airport, Australian IFM Global Infrastructure Fund that already owned 40% and increased its stake to 43.4%. The deal value for the 10% offer was € 326 million.

The largest Austrian M&A Deals 2022 was indeed the € 810 million sale of the Borealis nitrogen business unit to Czech Agrofert as, the Czech chemicals and agricultural products trading company. The consideration achieved three months after the outbreak of the War in the Ukraine was indeed 80% higher than the Februar offer by Swiss EuroChem Group AG.

The second largest Austria M&A deal also is a divestiture of a business unit by an Austrian corporate, in this case a foreign divestiture, the sale of a 80% stake in the US-based hot briquetted iron plant by Voestalpine AG to its international competitor ArcellorMittal for USD 800 million based on a valuation of USD 1 billion). The question is, whether this is the sale of a manufacturing facility without cash flow rather than a sale of an operating business?

Table 1: Top 15 Austrian M&A transactions 2022*

The third and the eights largest Austrian M&A deals 2022 are a continuation of the Austrian Real Estate Saga around Immofinanz AG and S Immo AG and Immofinanz′s controlling Czech shareholder. Seit Mai 2022 h?lt die CPI Property Group 76,9% of Immofinanz (please see detailed analysis of three deals by the same participants last year): the public tender offer for 57.45% for Austrian real estate company S Immo AG by the Czech Real Estate Group CPI Property Group SA with a deal value of € 634 million. The tender offer was successful and CPI Property acquired 36.66% of the S Immo shares. Four months later CPI Property Group SA passed on a 23.51% stake in S Immo to its subsidiary Immofinanz AG at a 20% discount per share (€19.50 compared to its offer price of 23.50 p.sh.).

The fourth largest Austrian M&A deal was a foreign acquisition by an Austrian corporate: the €600 million acquisition of five business units in DE, F, I, ES and the USA by global brick, pipes and roof tiles manufacturer Wienerberger AG from its French competitor Terreal S.A.

Of the top 15 Austrian M&A deals 2022 we saw seven Austrian sellers and one public takeover in Austria (by a foreign company). We saw four foreign corporate buyers in Austria and we saw three Austrian corporate acquirors making acquisitions abroad, and in total 43 Austrian M&A deals with a combined transaction value of just €7.6 billion.

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Dr. Winfried Weigel?????[email protected]?????+41 76 443 2001

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