The M&A market in Poland may see an increased activity of PE funds in 2017

Allegro, the largest auction website in Poland (©Allegro)

In 2016 a number of M&A transactions noted in Poland was smaller than in 2015 – till the mid-December there were 171 transactions, according to Navigator Capital & FORDATA's “Mergers & Acquisitions, 2016” report.

“The results from 2016 confirmed that records in terms of number of transactions in Poland are already behind us,” Jan Kospin, the Director of Navigator Capital Group, said.

“We anticipate that 2016 will close at a stable level of approx. 180 transactions. Admittedly, this is approx. 30 per cent decrease compared to record results of 2015 but this is not a bad result compared to previous years – 2013 closed at 135, and in 2014 – 158 transactions were closed,” Kospin says.

“The results achieved in 2016 could be similar to 2015 but the political scene has brought a completely different approach to the domestic and European market, as well as high uncertainty, which dampens the enthusiasm of investors. For nearly two years we have been observing a decline trend in value of transactions in Poland. Transactions with a value less than PLN100m dominated those with disclosed price. Throughout the year, we recorded only 11 transactions with a value exceeding EUR100m. Though, we have to admit that the end of the year surprised us very positively bringing two transactions with unprecedented value on the Polish market: sale of Allegro Group by Naspers group to Cinven, Permira and Mid Europa Partners funds for almost EUR3.04bn and sale of 32.8 per cent stake in Pekao by Unicredit to PZU and PFR for almost EUR2.3bn. In comparison with the last 4 years the largest transactions in a given year had a value from EUR351m to EUR585m (except the acquisition of Polkomtel by Cyfrowy Polsat in 2013),” he adds.

Companies from Media/IT/Telco sector dominated among targets, while financial institutions (17 per cent) and PE/VC funds (12 per cent) were most active among buyers.

The 2016 biggest deals

Bridgepoint Europe venture capital fund has acquired Smyk Group, which is a toys and juvenile products retailer. Smyk has been present on the Polish market since 1952. It currently operates over 125 stores in Poland and plans on expanding in other CEE countries.

Finnish state-owned energy company Fortum Holding has acquired nearly 112 million shares which represent 93 per cent stake in Duon Group, Polish WSE-listed energy company, in a tender offer. Duon is one of the largest Polish energy companies and the main competitor of the state-owned PGNiG Group. Company’s main products are LPG-gas and electricity. It operates on the TPA (Third Party Access) basis.

The largest FCMG wholesaler in Poland, WSE-listed Eurocash Group, has completed an acquisition of EKO Holding. The value of the transaction was not disclosed. EKO Holding currently owns and operates 250 supermarkets, mainly in south-western Poland. The purpose of this acquisition is to enhance the Eurocash’s supply chain efficiency, develop new competences and increase the scale of the company’s operations. The company’s board also hopes to achieve synergy effects and help compete with the discount stores.

Emest Investments PE fund has agreed to acquire 100 per cent stake in a debt collection company, GetBack, from a WSE-listed bank Idea Bank, for a consideration of EUR192m. GetBack operates on the Polish and Romanian markets. The sale of its assets will help Idea Bank decrease its financing costs and strengthen its capital base.

Alior Bank agreed to purchase 87.2 per cent stake in the core business of Bank BPH from GE Capital Group for a consideration of ca. EUR290m. After the deal, Alior Bank’s asset base amount to ca. EUR13.6bn, which will rank it 9th among the Polish banks. The bank expects that the yearly synergy effect will amount to EUR68m on a pre-tax basis.

Ineos Enteprises, a part of the Swiss group Ineos, agreed to sell its subsidiary, Ineos Styrenics to WSE-listed Synthos S.A. for a consideration of EUR80m. Ineos Styrenics operates in Great Britain and is the world’s largest manufacturer of expanded polystyrene (EPS). Synthos is the largest European producer of synthetic rubbers and one of the largest producers of EPS. Ineos Styrenics has 3 manufacturing plants, two of which are located in France and one in the Netherlands. The company currently employs ca. 250 people. Its EPS manufacturing capacity of 310 thousands of tons represents 20 per cent of the European production capacity.

The fourteenth tender in the past seven years has finally brought a decision in the matter of purchase of KHS Krosno S.A. The RSA based fund, Coast2Coast, bid EUR28.2m for the organized part of an enterprise with a 90-year tradition of glass manufacturing. In addition, Krosno Glass Sp. o.o. had to pay for inventories and capital expenditures of the target since August 2014 and as a result the total value of the transaction increased to EUR43m. KHS ‘Krosno’ S.A. employs approx. 2,200 workers and export its products to 60 countries.

China Everbright International, a Chinese state-owned investment company operating in the environment protection industry, has agreed to acquire majority stake in Novago from the PE fund Abris Capital Partners. The value of the deal amounted to EUR123m. Novago is one of the leaders of the waste management industry in Poland. The company specializes in waste recycling, production of refuse-derived fuel and electricity. The 3 per cent stake in Novago still remains in hands of the city of Mława. This deal was the largest Chinese FDI in Europe and one of the largest Chinese investments in the CEE region.

The Polish can manufacturer Can-Pack S.A. took over a subsidiary of the Brazilian steel group, Cia Metalic do Nordeste S.A. The price for 100 per cent shares of the galvanized steel can manufacturer amounted to EUR90.7m. The target has been providing cans for beverage producers, mainly from the North and North-East of Brazil for 20 years and its market share is estimated at approx. 4 per cent. Can-Pack capital group, including over 30 subsidiaries, employs more than 4 000 employees globally. In Poland the company is engaged in can production, bottle closures, glass containers and packages used in the food and chemical industry.

FCapital Dutch (by R. L. Cullinan SA), the largest shareholder of AmRest (the biggest listed company in the region operating a chain of restaurants), as result of a tender offer announced in July 2016, acquired another 30 per cent stake in the company. The price in the tender offer, after a few weeks, was increased from EUR50.2 to EUR59.5 per share, resulting in a transaction value exceeded EUR89.2m and the share of the fund in the equity structure increased to 62 per cent. The largest stake in the company (8 per cent) has been sold by PTE PZU SA. After acquiring the control of AmRest the fund intends to support the development of the company through acquisition of the new brands and concepts, development of new products and services as well as existing brands and concepts in existing and new international markets.

PKO Leasing, a subsidiary of a state-owned PKO Bank Polski, has conditionally agreed to acquire 100 per cent stake in Raiffeisen Leasing Poland from Raiffeisen Bank International AG. The deal worth EUR191m will be financed by the PKO Bank Polski with its own funds. According to the statement from PKO BP, the transaction concluded in such shape should not adversely affect the financial condition of the bank and the whole Group. After concluding the deal, PKO Leasing will become a sole leader of the leasing industry in Poland. Its market share should amount to over 13 per cent. The company plans on integrating both entities in order to take advantage of the competitive edges and the complementarity of both business models.

Liberty Global, owner of UPC – the leader of the polish cable television market, has announced a takeover of Multimedia Polska, which is now the third largest cable television operator in Poland. The deal will not include insurance or energy assets of Multimedia Polska. The value of the transaction was EUR674.2m. Both companies combined had ca. 2.2 million subscribers in June 2016. This transaction will allow UPC to further strengthen their position on the Polish market.

Polish state-owned insurance company PZU and a state-owned Polish Development Fund (PFR) have reached an agreement with UniCredit Group regarding the sale of 32,8 per cent stake in Pekao. PZU and PFR jointly purchased the stake for EUR2.3bn. According to the published statement, PZU will hold 20 per cent of Pekao shares and the remaining 12,8 per cent will be in the possession of PFR. PZU has experience in acquisitions in the banking industry. The insurer acquired a minority package of Alior Bank shares in 2015. This year Alior Bank acquired Bank BPH. It remains unclear whether Pekao will merge with Alior Bank or will it operate as a separate entity. This deal allows PZU to become the largest financial group in the region of Central and Eastern Europe.

A Southern-African company Naspers has sold the 100 per cent stake in Allegro Group to a group of Private Equity funds which includes Cinven, Permira and Mid Europa Partners for a consideration of EUR3.04. The amount paid places this deal among the largest deals on the Polish M&A market. Naspers controlled Allegro since 2008 when it was acquired for EUR1.5bn. Naspers has realized a rate of return exceeding 100 per cent. Acquired Allegro Group includes, apart from Allegro, also Ceneo – a price comparison service.

What next in 2017

“The M&A market in Poland will continue to grow steadily in 2017, we anticipate similar results as in 2016,” Kospin says. “As well, we expect an increase in foreign investments mainly from Asia. First swallows have already been seen this year – China Everbright fund made so far the biggest Chinese investment in Poland in June, buying from Abris Capital fund Novago sp. z o.o, a company engaged in waste management, for EUR123m”.

“We also expect that 2017 could bring a lot of interesting transactions from PE funds, which in year 2016 have looked for new investments and dominated on the buy side. Mid Europa Partners have already sold Żabka retail chain, while Enterprise Investment decided to sell on the Warsaw Stock Exchange its 49 per cent stock of Dino supermarkets,” says Kospin.

He also thinks that there are going to be several M&A transactions in the health care sector. “Emotions rise among analysts who expected sale of Kompania Piwowarska or ABC Data. During next three years consolidation of the debt collection agencies sector should also proceed,” Kospin adds.

“Factors that we can observe and which have a negative impact on the investment market should be mentioned as well. Weak Polish currency, growing interest rates, falling unemployment and a smaller flow of foreign investment opportunities hamper financing possibilities for entrepreneurs. While 2017 should still handle this trend, 2018 could be the year with a slowdown and reduced number of investments, even those with lower values,” Kospin says.

The situation on the Warsaw Stock Exchange has also reversed over the passing year – the broad market index has gained 12 per cent since January 2017, thus exceeding the growth dynamics of the German DAX and the US NASDAQ indices. Most rewarding for investors were the last few months which helped offset the negative returns of WIG from 2015.

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