M&A in Central and Eastern Europe (CEE) has dipped slightly since 2012, with decreases of 15% in volume to 252 deals and 5% in value to EUR 30.1 bn. Unsurprisingly, energy, mining and utilities dealmaking accounted for the bulk of activity. Russia’s oil and gas industry is one of the world’s largest, driving activity in the region. Uniquely, many of the sector’s deals involve private investors.

Despite the lower number of deals M&A executives in Europe are becoming more optimistic about deal flow on the continent, according to research with 225 practitioners by global law firm CMS and Mergermarket.

Nearly half of the respondents (48%) expect that European M&A levels will increase in the next year; only 10% expect a decrease and the balance anticipate that deal-making figures will remain constant. 

Respondents from CEE, Russia and the Ukraine (64%) are the most positive and expect an increase in M&A activity.  They also are the most positive about the region’s growth prospects (84%).

On the buy-side, deal-flow in CEE is expected to be driven by increased appetite from foreign acquirers, followed by the availability of undervalued targets and private equity buyouts. On the sell-side, practitioners anticipate the biggest catalysts to deals will be non–core asset sales and distressed M&A.

Regulatory issues, disputes over the price between buyers and sellers and pressure to focus on returning funds to shareholders are seen as the main obstacles to M&A activity in CEE.

The top five sectors for M&A in Europe are expected to be: TMT (41% of respondents); Energy, Mining and Utilities (38%); Industrials and Chemicals (37%); Pharma, Medical and Biotech (35%); and Financial Services (34%).

Asia-Pacific is the number one regional target for CEE companies considering acquisitions outside of the continent, followed by North America. The main motivation behind acquisitions is growth in new geographies.

Thomas Meyding, Head of CMS Corporate Group, said, “Our research makes clear that confidence is returning to the European M&A market and many of the fundamentals underpinning the market are stronger than they have been for some time. 

The profile of buyers in Europe continues to change and we expect to see more evidence of this as M&A activity picks up.  Strategic investors with strong balance sheets are active in the mid-market, particularly with bolt-on acquisitions.  New investor groups from Asia-Pacific, particularly Chinese and Korean, are increasingly turning to Europe as part of their expansion plans. Russian and US investors are also more prevalent now than they have been over the last three years, especially in Western Europe.”

Helen Rodwell, CEE Head of Corporate Practice Group at CMS, said: “Whilst there is renewed buoyancy in the market and an expectation of increased deal flow, buyers, and the financing banks supporting them, are still risk-sensitive.  Any troubling due diligence findings prior to signing a transaction can quickly kill a deal and the discrepancy between buyers’ and sellers’ price expectations also remains a fundamental obstacle to deal closure.”

CMS remains the busiest M&A legal advisor in the CEE region in 2013, according to mergermarket M&A League Tables.