BDO M&A Horizons, published quarterly, analyses recent M&A activity on a regional and sector basis and provides in depth analysis on potential activity in the next few months, as illustrated by our Heat Charts. In a global market of bewildering activity and endless choices, we provide some of the context necessary to navigate it.
HORIZONS
MERGERS & ACQUISITIONS
ISSUE 2 | 2022
WHAT DOESTHE FUTURE HOLD FORUKRAINE? GLOBALVIEW: DEAL ACTIVITY SETTLES BACKTO PRE-COVID LEVELS
VIEWS FROM AROUND THE GLOBE REGIONAL VIEW
TMT NATURAL RESOURCES REAL ESTATE SECTORVIEW
HORIZONS | BDO'S GLOBAL VIEWOF MID-MARKET DEAL ACTIVITY
CONTENTS
GLOBAL VIEW.................................................. 01 WHAT DOESTHE FUTURE HOLD FORUKRAINE? ...................................... 03 GLOBAL. ........................................................... 07 REGIONAL VIEW.............................................. 09 SECTOR VIEW. ................................................. 58 SOME OF OUR RECENTLY COMPLETED DEALS......................................... 69
BDOGLOBAL CORPORATE FINANCE 2,020 COMPLETED DEALS IN 2021
OF OUR DEALS ARE
PRIVATE EQUITY INVOLVEMENT DEAL
ONE OF THE MOST ACTIVE ADVISERS GLOBALLY *
BORDER CROSS 2,500
DEAL VALUE OF WITH A TOTAL $128.6bn *1st most active M&A Advisor Globally – Pitchbook league tables 2021 1st most active Advisor & Accountant Globally 2021 – Pitchbook league tables 2021 2nd leading Financial Due Diligence provider Globally – Mergermarket global accountant league tables 2021
ISSUE 2 | 2022
WELCOME WELCOME TOTHE SECOND EDITIONOF HORIZONS IN 2022, INWHICH BDO M&A PROFESSIONALS AROUNDTHEWORLD PRESENT THEIR INSIGHTS ON MID-MARKET DEAL ACTIVITY ANDTRENDS
North America has continued to take the largest share of deal activity, whilst China has lost a big share, probably reflecting the return of lock downs in the country. The TMT sector continues to see the largest share of deals and predicted activity. In our sector view, we look at TMT, Natural Resources and Real Estate. Cybersecurity is the driver of a strong M&A start to 2022 for TMT. On Natural Resources, we see a dip in recent deal activity and believe that the energy transition is set to rive future M&A in the sector. On Real Estate, we analyse how inflation is likely to have a strong effect on the sector.
The cover may have been a big give away, but our special article for this edition focuses on Ukraine, and we thank our resilient M&A colleagues there who continue to work and participate in our global M&A business, despite what they are enduring. Focus on the Ukraine is a balanced view on the country and looks at the future of M&A activity and what the country itself will look like after the end of this terrible war. Zooming out, the outstanding global deal activity following the beginning of COVID seems to have settled to more manageable levels for M&A practitioners. Private Equity has continued to make up a larger proportion of completed deals at levels that are higher to pre-COVID, both in volume and value.
Along with the market, we experienced a record breaking year with 2,020 deals completed which also saw BDO ranking in top position in global M&A league tables. We are delighted to be recognised as No. 1 M&A advisor globally by Pitchbook . We hope that you enjoy this edition of Horizons and look forward to focusing on happier themes in future Horizons publications. Stay safe and well.
SUSANA BOO INTERNATIONAL CORPORATE FINANCE COORDINATOR
JOHN STEPHAN HEAD OF GLOBAL M&A
john.stephan@bdo.co.uk
susana.boo@bdo.global
HORIZONS | BDO'S GLOBAL VIEWOF MID-MARKET DEAL ACTIVITY 01
GLOBALVIEW
DEAL ACTIVITY SETTLES BACK TO PRE-COVID LEVELS
After a huge spurt in deal activity in the 15 months following the onset of COVID, deal activity now seems to have settled back to the pre-COVID levels. That in itself is great news for all of us involved in the M&A industry as the recent levels felt unsustainable. We struggle to remember when we last went through a period when the major constraint on deals was the availability of due diligence teams to start their work. Two-month lead times has become common, which was having an effect on the M&A market and the ability to get deals done in orderly time scales. The current level of around 2,000 deals/quarter feels much more sustainable.
Looking around the world, we saw a mixed picture with around half of the regions down on deal activity compared to the prior quarter and the other half up. The most marked shift was with the world’s two largest regions for deals, where North America was up over 18% and Greater China was down nearly 45%. This most likely reflects the return to lock downs in China as COVID infections have spiked again.
In terms of sectors, the first quarter of 2022 saw a vast amount of activity in TMT which was up nearly 20% on the prior quarter in number of deals. That meant that over one in three deals were TMT which is a near all time high for the sector. In contrast, most other sectors saw a contraction in deal volume of double-digit percentages with the exception of Leisure which is starting to make a comeback after a torrid time in COVID and Pharma, Medical & Biotech. The other sector giant, Industrial & Chemicals, unusually saw over 20% less deal activity and represented only 17.5% of total deal activity.
Looking at the mix of deals, we observe that private equity has continued to make up a larger proportion of transaction and remains well ahead of pre-COVID levels in terms of both volume and value. In the last quarter private equity led deals represented around one third by volume and value. Pre-COVID that was more like one quarter. We believe this reflects the huge amount of uninvested private equity funds and the continued growth of the industry, which we expect therefore to continue.
GLOBAL MID-MARKET M&A
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Trade Volume
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PE Volume
ISSUE 2 | 2022
02
THE OUTLOOK LOOKS SUPPORTS CONTINUES HEALTHY M&A MARKETS Despite the levelling off in deal activity to pre-COVID levels, the outlook remains remarkably strong. For the seventh quarter running our heat charts showed high levels of rumoured mid- market deals. For the sixth quarter in a row there are over 10,000 rumoured deals.
That compares to more recent historic numbers of 8,000 or more. That supports the positive outlook for M&A markets. We expect this picture to be supported by the availability of cash in private equity and capital markets coupled with relatively cheap debt. Inflationary pressures, fuelled by soaring energy, raw material and food prices exacerbated by the unwanted war in Ukraine and sanction imposed on Russia
may impact this with falling levels of real income and demand. Interest rate may rise but would still continue to be at low historic levels making equity investments more attractive. We believe there will continue to be high deal activity across owner managed business, private equity and larger corporates. GLOBAL THEMES THAT ARE INFLUENCING M&A Despite the negative impact of inflationary pressures, the availability of cash to invest should continue to fuel M&A activity. The continued growth of private equity funds should continue to be a major factor. We also expect strategic buyers to continue to be active in the market as they seek to add to capability, especially technology and digital. The other big theme is the growth of ESG as companies and investors seek to acquire companies with activities that benefit the carbon footprint of the world.
GLOBAL BDO HEAT CHART BY REGION AND SECTOR
TOTAL % *
North America
493 331 333 187 354 194 182 42 33
2149 21%
Greater China
263 649 205 136 168 166 162 51 116
1916 19%
CEE
171 162 92 88 36 59 64 33 26
731 7%
Southern Europe
209 209 112 188 66 58 92 32 13
979 10%
India
92 73 56 50 50 55 17
8 5
406 4%
Latin America
138 32 75
25 14 125 45 32 9
495 5%
Nordic
58 55 34 30 25 12 15
4 7
240 2%
UK/Ireland
147
81
79 74 26 59 32 45 5
548 5%
Australasia
79 62 49 49 44 39 58 18 7
405 4%
JOHN STEPHAN HEAD OF GLOBAL M&A
DACH
85 110 60 54 59 26 12
3 10
419 4%
Other Asia
77
70 29 45 30 24 18 15 5
313 3%
South East Asia
96 90 79 57 21
65 44 15 34
501 5%
john.stephan@bdo.co.uk
Japan
60 49 36 25
9 11 14 6 5
215 2%
Middle East
26
7 15
5
5 16 8 4 2
88 1%
Africa
48 38 35
18 16 35 27
2 5
224 2%
Benelux
26 47 32 33 38 13 6 5 3
203 2%
Israel
37
31 30 25 16 18 15
7 10
189 2%
TOTAL
2,105 2,096 1,351 1,089 977 975 811 322 295 10,021 100%
* Percentage figures are rounded up to the nearest one throughout this publication. Note: The Intelligence Heat Charts are based on 'companies for sale' tracked by Mergermarket in the respective regions between 1 January 2021 and 30 June 2021. Opportunities are captured according to the dominant geography and sector of the potential target company. Mergermarket’s Heat Chart of predicted deal flow is based on the intelligence collected in our database relating to companies rumoured to be for sale, or officially up for sale in the respective regions. It is therefore indicative of areas that are likely to be active in the months to come. The intelligence comes from a range of sources, including press reports, company statements and our own team of journalists gathering proprietary intelligence from M&A across the regions. The data does not differentiate between small and large transactions, nor between deals that could happen in the short or long-term.
HORIZONS | BDO'S GLOBAL VIEWOF MID-MARKET DEAL ACTIVITY 03
WHAT DOESTHE FUTURE HOLD FORUKRAINE? WHY UKRAINE HAS THE POTENTIAL TO BECOME THE EU’S LARGEST INVESTMENT AND RENAISSANCE HUBWHENTHEWAR ENDS.
BEFORE THEWAR – A STRONG ECONOMY From 2009 to 2013 Ukraine saw
continuous GDP growth, reaching USD 183.3bn in 2013. However, as a result of Russian aggression against Ukraine in 2014, which saw Russia annex Crimea and occupy part of the Donetsk and Lugansk regions, the Ukrainian economy and investment climate collapsed. In 2014 GDP fell by 21.1% to USD 131.8bn and in 2015 dropped by another 31.3% to USD 90.6bn, a fall of 50% in just two years. As a result the country’s M&A market dropped from about USD 4bn in 2013 to USD 410m 2015. At the end of 2014/beginning 2015 the conflict was frozen in Eastern Ukraine, while part of the Donetsk and Lugansk region was left under occupation and was no longer under Ukrainian control. The economy started to recover with Ukraine’s Government making economic, legal and regulatory reforms towards the implementation of EU standards. As a result, the investment climate improved and the M&A market grew to USD 1.6bn in 2019. However, as with all economies around the world, the COVID‑19 pandemic had a severe impact, and the M&A market declined sharply to USD 190m in 2020. After most COVID-19 restrictions were lifted, and due to pent-up demand, 2021 was a very successful year for the country’s economy: GDP grew to almost USD 200bn, overreaching 2013 levels, and according to estimates the M&A market reached almost USD 2.7bn with 120 deals. However, a few big deals which were signed at the end of 2021 are still pending and are not yet closed, with buyers citing ‘adverse change clauses’.
BIG PICTURE
• Ukraine is the second largest country in Europe and has a coastline along the Sea of Azov and the Black Sea. It covers about 600,000 km2, with a population of about 42 million. It was about 47 million before 2014, when Russia annexed Crimea and occupied part of the Donetsk and Lugansk regions of Ukraine. Russia started a war against Ukraine in February 2022. As a result, around 10.5 million people have moved from their homes, including four million people, mainly women and children, leaving Ukraine as refugees, and about 6.5 million moving mainly toWestern Ukraine • Ukraine has been named one of the largest agriculture and food producers/ guarantors for world food security • According to the Global Sourcing Association, Ukraine is the #1 outsourcing destination globally and has more than 200,000 highly‑skilled IT professionals • Many IT and tech start-ups have originated fromUkraine and their founders raised USD 2.35bn in 2021 (mainly not accounted for in the M&A market size of Ukraine as most of these start-ups’ head offices moved to either the US or the EU).
ISSUE 2 | 2022
04
M&A MARKET FREEZES AS CONFLICT BEGINS
Projections, given the ongoing conflict, are subject to great uncertainty and large downside risks. These projections are predicated on massive declines in imports and exports, given the trade disruptions and the blockade of the Black Sea ports, a collapse in public and private investments and a big drop in household spending, reflecting the displacement of large numbers of people, loss of incomes and livelihoods. Over the medium-term, the damage to Ukraine’s production and export capacity and loss of human capital are expected to have lasting economic and social repercussions. A major reconstruction effort is going to be necessary, complemented by institutional, structural and financial sector reforms to support private sector-led growth, but this will all be contingent on achieving substantial external financing on concessional terms.
In 2013, the most active sectors in the country’s M&A were agriculture and food, banking, FMCG, energy and TMT. In 2021, TMT became Ukraine’s biggest growth industry and exports of outsourcing and programming services reached USD 6.8bn (five times higher than the USD 1.3bn recorded in 2013). According to the Global Sourcing Association, Ukraine has become the #1 outsourcing destination globally and is home to more than 200,000 highly‑skilled IT professionals. The restart of the big and medium-sized privatisation of state-owned enterprises became an additional driver of the country’s M&A market. In 2021 there were 36 M&A deals worth USD 813m in TMT, 19 deals worth USD 234m in the agro sector, 10 deals worth USD 124m in Energy, Mining & Utilities, and six deals worth USD 650m in Real Estate and Construction. The tension arising from the deployment of Russian army to the Ukraine-Russia border has effectively frozen the market from December 2021.
VITALIY STRUKOV
THE ECONOMIC IMPACT OF THEWAR
CORPORATE FINANCE MANAGING PARTNER
From February 2022 onwards, the war has completely disrupted maritime trade (amounting to half of the country’s total trade and 90% of its grain trade); it has heavily damaged the country’s critical infrastructure and has triggered a massive displacement of people. In a March 2022 report, theWorld Bank forecasted that Ukraine’s GDP would drop by 45% this year and that there would be a weak recovery thereafter.
vstrukov@bdo.ua
Sources: BDO research, Statistics of Ukraine, UkraineInvest, World Bank, FAO, IMF, Mergermarket.
HORIZONS | BDO'S GLOBAL VIEWOF MID-MARKET DEAL ACTIVITY 05
LOOKING AHEAD
DID YOU KNOW? REMARKABLE FACTS ABOUT UKRAINE
In the coming years, a major reconstruction effort is expected to push Ukraine’s GDP growth to over 7% by 2025, amid a slow restoration of its production and export capacity and the gradual return of refugees. Per estimates, the current damage to the Ukrainian economy, its critical infrastructure, residential real estate, production plants, etc. is already more than USD 500bn. Looking ahead, there will be a big demand for construction and reconstruction, new energy production and supply for agriculture and food production with even bigger volumes and exports than has been the case historically – these industries and sectors will be the drivers for Ukraine’s future M&A market. The TMT sector is likely to be the first ‘rescuer’ for Ukraine’s economic recovery as it depends less on infrastructure elements and human capital movements than other sectors. Finding a peace and security agreement in 2022, potentially accepting Ukraine as a candidate to join the EU and creating a restoration plan for Ukraine which could be supported by the EU, the US and other developed countries can all act as guiding lights for the future of Ukraine.
#1 EXPORTER OF SUNFLOWER OIL & MEAL IN THE WORLD WI TH APPROXIMATELY 50%OF MARKET SHARE FOR 2020/2021 #3 EXPORTER OF CORN & RAPESEED IN THE WORLD , #4 OF B A R L E Y , # 5 O F WH E AT AND HONEY, #7 OF OATS AND CHICKEN MEAT
18 UKRAINIAN COMPANI ES ARE L I STED AMONG THE TOP 100 OUTSOURCING COMPANI ES IN THE WORLD BY THE INTERNATIONAL ASSOCIATION OF OUTSOURCING PROFESS IONALS #2 SUPPLIER OF ORGANIC AGRICULTURE AND FOOD PRODUCTS TO THE EU
ISSUE 2 | 2022
06
HORIZONS | BDO'S GLOBAL VIEWOF MID-MARKET DEAL ACTIVITY 07
GLOBAL 10,021 RUMOURED TRANSACTIONS
P09 | NORTH AMERICA Q1 2022 NORTH AMERICAN M&A: TORRID PACE OF ACTIVITY SLOWS
P11 | LATIN AMERICA DEAL NUMBERS FALTER BUT VALUE CLIMBS
SECTORVIEW
e
e
P59
P63
P67
CYBER SECURITY
NATURAL RESOURCES
REAL ESTATE
ISSUE 2 | 2022
08
P15 | UNITED KINGDOM & IRELAND M&A MAKES A STRONG START TO 2022
P27 | DACH RELATIVELY STRONG M&A DEAL FLOW IN DACH MID-MARKET Q1 2022 AS DEALS IN PROGRESS AT YEAR END 2021 COMPLETED. OUTLOOK FOR REST OF 2022 UNCERTAIN GIVEN ONGOING UKRAINE WAR
P25 | BENELUX DEAL VOLUME UP AND PE ACTIVITY ACCOUNTS FOR BIGGER SHARE
P19 | CENTRAL AND EASTERN EUROPE M&A VOLUME PLUMMETS IN Q1 AFTER RECORD 2021
P31 | NORDICS SOFTER FIRST QUARTER FOR DEALMAKING AS THE MARKET NORMALIZES POST-COVID
P45 | GREATER CHINA M&A SLOWS BUT FOREIGN INVESTMENT SURGES
P 41 | INDIA DEAL VOLUME ANDVALUE SOARS IN BUSY FIRST QUARTER
P37 | AFRICA M&A DEALMAKING ACTIVITY FALLS TO DECADE LOW LEVEL
P49 | SOUTH EAST ASIA DEAL VOLUME AND VALUE RECOVER STRONGLY IN POSITIVE QUARTER
P51 | AUSTRALASIA DEAL ACTIVITY REMAINS AT ELEVATED LEVELS THOUGH SHY OF 2021’S RECORD-BREAKING HIGHS
P35 | ISRAEL DEAL ACTIVITY STALLS IN Q1 BUT OUTLOOK LOOKS BRIGHTER
P21 | SOUTHERN EUROPE DEAL VOLUME RISES WITH PE ACTIVITY LEADING THE WAY
-20% to -11% 1% to 10% 11% to 20% 21% to 30% 31-40% 41-50% 51-60% Key % movement -30% to -21% -10% to -1% 0
-20% to -11% 1% to 10% 11% to 20% 21% to 30% 31-40% 41-50% 51-60% Key % movement -30% to -21% -10% to -1% 0
Note: The colouring illustrates the movement of expected transactions compared to the expected transactions in the previous quarter.
HORIZONS | BDO'S GLOBAL VIEWOF MID-MARKET DEAL ACTIVITY 09
NORTHAMERICA
Q1 2022 NORTH AMERICAN M&A: TORRID PACE OF ACTIVITY SLOWS
The pace of overall middle-market M&A activity slowed in Q1 2022 as market participants assessed the war in Ukraine and soaring inflation. The number of middle-market M&A deals fell from 699 in Q1 2021 to 594 in Q1 2022 while the dollar volume of deals in Q1 2022 fell by $17bn over the comparable period. While first quarter activity suffered from sky-high comparisons to last year's record-breaking volumes which were hard to replicate, there is no question the uncertainty from geopolitical tensions, lower GDP growth, inflation, and the commodity pricing boom severely dampened M&A activity in the quarter. The drop in dealmaking in Q1 follows a record two years when stimulus measures implemented to quell the aftershocks of the pandemic led to booming equity markets and record dealmaking levels. Conversely, severe stock market volatility in Q1 made it more expensive for public companies to
use the power of their market capitalization to acquire competitors or smaller rivals. Market dislocation in Q1 was also prevalent in the IPO, high yield and syndicated debt markets indicating the impact geopolitical events and rising interest rates had on capital markets across the board. Despite all its challenges the overall environment for buyouts remains robust and while year over year M&A volumes are down, Q1’s pace is in line with the pre‑pandemic years of healthy deal- making. While a number of corporates rushed to exit Russia and shied away from using their cash piles for large buyouts in the face of declining equity markets and rising inflation, private equity investors continued to make up a larger portion of the M&A activity overall as the dry powder to deploy remains at record levels making up a record high 49.3% and 40.6% of Q1 middle-market M&A dollar volume and number of deals, respectively. The torrid pace of healthcare M&A activity, which typically accounts for a big share of deals, slumped by more than half
BIG PICTURE
• Overall dollar volume and number of deals slows from record-setting 2021 • War in Ukraine and inflationary pressures create uncertainty for deal‑making • Corporate buyers hit the pause button to assess post-pandemic priorities • Private equity activity represents nearly half of all M&A activity in Q1.
PE/TRADE VOLUME &VALUE
1000
120,000
0 500 400 300 200 100 600 700 900 800
100,000
80,000
60,000
40,000
20,000
0
2008
2009
2010
2011
2012
2013
2014
2015
2016
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2020
2021 2022
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PE Value (USD M)
PE Volume
ISSUE 2 | 2022
10
NORTH AMERICA HEAT CHART BY SECTOR
TMT 493 23% Pharma, Medical & Biotech 354 16% Business Services 333 15% Industrials & Chemicals 331 15% Financial Services 194 9% Consumer 187 9% Energy, Mining & Utilities 182 8% Leisure 42 2% Real Estate 33 2% TOTAL 2,149
the war in Ukraine doesn’t escalate any further and the worrying increase in inflation moderates in the second half of the year. This optimism is shared by most North American deal advisors and is based on the sheer backlog of deals in the market as well as the underlying fundamentals of somewhat resilient debt and equity markets, abundant levels of cash and a relatively strong economy. Private equity M&A involvement will likely remain elevated as money managers are anxious to put dry powder to work and take advantage of lower valuations evidenced in Q1 and with less competition from distracted and overly cautious corporates.
in Q1 2022 versus Q1 2021, as large pharma companies took a breather from the pandemic-fueled deal frenzy and a dramatic rise in valuations and adopted a more cautious strategic approach due to the market volatility caused by the geopolitical tensions and inflation concerns. Deal-making in the technology sector continued to lead the way, accounting for nearly half of all middle-market deals in Q1. Acquisitive companies across many industries believe that their business model needs to change dramatically in the foreseeable future, mostly because of the impact of technology has had on staying competitive which accelerated during the pandemic. Given the impact of the pandemic, new entrants and tech disruptions are redefining business models and changing the way of life. As a result, emerging industries such as TeleHealth, FinTech, and CleanTech are dominant areas of focus for M&A. As for the balance of 2022, North American M&A activity should remain healthy, albeit at a slower pace than the record-setting highs of 2021, assuming
NORTH AMERICA MID-MARKET VOLUMES BY SECTOR
2021
2022
1029
280
BOB SNAPE PRESIDENT
18
378
bsnape@bdocap.com
2
52
77
407
15
67
235
44
222
36
166
35
219
38
Technology & Media
Financial Services
Energy, Mining & Utilities
Pharma, Medical & Biotech Real Estate
Consumer
Business Services
Leisure
Industrials & Chemicals
North America
HORIZONS | BDO'S GLOBAL VIEWOF MID-MARKET DEAL ACTIVITY 11
LATINAMERICA
DEAL NUMBERS FALTER BUT VALUE CLIMBS
M&A mid-market activity in Latin America in Q1 2022 saw a total of 76 deals worth USD 10,122m, which represented falls of 19.1% in deal numbers and 1.6% in deal value compared with the previous quarter. In comparison with Q1 2021, the number of deals were down by 9.5% but value was up by 34.3%. However, overall the figures are not too bad considering that the average number of deals for the last five first quarters of the year is 79. The accumulated number of deals for the last 12 months was 435 deals with a value of USD 50,271m, which compares favourably with the total of 298 deals and USD 24,312m for the same period in the previous year, an increase in deal numbers of 46.0% and an increase in value of 106.8%.
Looking at the Q1 2022 figures, 26 deals worth USD 3,131m were PE transactions, representing 34.2% of the deal count and 30.9% of the quarter’s value, with an average deal value of USD 120.41m versus USD 139.83m for non-PE transactions. The average value per deal was USD 133.2m, an increase of 21.8% compared to the previous quarter. KEY DEALS AND SECTORS The quarter’s Top 20 deals totalled USD 6,530m, with Brazil leading the ranking in terms of target country with 11 deals worth USD 3,409m, followed by British Virgin Islands and Peru, each with two deals worth USD 714m and USD 640m respectively. Argentina accounted for one Top 20 deal, which was worth USD 350m in the TMT sector and was related to the acquisition of Prisma Medios de Pago S.A. Considering bidder countries, 36.9% of investments came from inside the region, with Brazil leading the ranking
BIG PICTURE
• Deal numbers fell by 9.5% but value rose by 34.2% compared toQ1 2021 • PE activity represented 34.2%of deals volume and 30.9%of deal value • Brazil led the way with 11 of the Top 20 deals worth USD 3,409mmillion • Looking ahead, 495 deals are announced or in progress, with sector activity likely to be dominated by TMT, Financial Services, Business Services and Energy, Mining &Utilities.
PE/TRADE VOLUME &VALUE 160
20,000
14,000 16,000 18,000
140
120
100
12,000
8,000 10,000 6,000 2,000 4,000
80
60
40
20
0
0
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021 2022
Trade Volume
PE Volume
Total Value (USD M)
PE Value (USD M)
ISSUE 2 | 2022
12
so the Central Bank will have to disburse more dollars to pay for the gas that the country is importing. However, this is also an opportunity, as having the world's third largest shale gas field opens new potential growth opportunities. It is also important to create the conditions to stop the country needing to import gas, to use the gas produced locally and, if possible, to export it. Argentina’s biggest deal in Q1 2022 saw equity investment fund Advent International, which acquired 51% of the shares of TMT company Prisma Medios de Pago in 2019, buy the remaining 49% for USD 350m and as a result become the company’s sole shareholder, as agreed in the first transaction. Prisma Medios de Pago provides end-to-end solutions including point-of-sale terminals, e-commerce payment gateways, transaction processing and value-added services to all types of retail merchants in Argentina.
with purchases worth USD 1,475m. All investments from Brazil were in their own country. The remaining investments came mainly from the US, with purchases worth USD 1,865m, followed by China (USD 700m), Mexico (USD 407m) and Singapore (USD 400m). The sector rankings were led by and TMT and Energy, Mining & Utilities, with total values of USD 2,339m and USD 1,465m respectively. POLITICAL AND ECONOMIC CONTEXT After many twists and turns, 2022 Argentina’s Congress approved an agreement with the IMF in March 2022. The agreement avoided the country defaulting but also exposed the internal divisions within the ruling party, as the vice-president and her close associates voted against it, which is why support from the opposition party was required. The rupture within the ruling party is already public knowledge, and with a view to the 2023 presidential elections, the movements of possible candidates are beginning to be noticed. After last year's legislative elections, the polls are now showing better numbers for the opposition party. However, it will
be interesting to keep an eye on the new pro-market space being presided over by economist and politician Javier Milei, who, to date, has been identified in different polls as the Argentinean politician with the most positive image. COVID-19 cases are on the decline in Argentina from the peak infection rate of 800,000 cases in the second week in January and have fallen for 10 consecutive weeks with the last week of the first quarter showing a fall of 99.25% from the 2022 high. According to the country’s Ministry of Health, 81.6% of the population are already fully vaccinated. The ongoing war between Russia and Ukraine has caused food prices to rise. This presents an opportunity for Argentina and its agricultural sector, which, as a large producer of grains, is in a favourable position because it means that more dollars will come in from exports. This is causing the government to pay special attention to raising withholding taxes to meet its IMF targets. Likewise, the rise in metal prices may also represent an opportunity to expand local gold production, as it has the ninth largest reserves in the world. On the other hand, fuel prices have also risen,
HORIZONS | BDO'S GLOBAL VIEWOF MID-MARKET DEAL ACTIVITY 13
LATIN AMERICA HEAT CHART BY SECTOR
TMT
138 28% 125 25%
Financial Services Business Services
75 15%
Energy, Mining & Utilities
45 32 32 25
9% 6% 6% 5%
LOOKING AHEAD
Leisure
Industrials & Chemicals
The BDO Heat Chart shows a total of 495 deals announced or in progress for the region, which represents 4.9% of the Global Heat Chart. Deal opportunities are likely to be concentrated in the TMT, Financial Services, Business Services, Energy, Mining & Utilities and Leisure sectors with 138, 125, 75, 45 and 32 deals respectively.
Consumer
Pharma, Medical & Biotech
14 3%
FERNANDO GARABATO PARTNER
Real Estate
9 2%
TOTAL
495
fgarabato@bdoargentina.com
LATIN AMERICA MID-MARKET VOLUMES BY SECTOR
PAULA KRITZ MANAGER M&A ADVISORY
2021
2022
pkritz@bdoargentina.com
129
31
5
50
2
10
39
10
4 1
43
8
80
12
29
4
58
4
Technology & Media
Financial Services
Energy, Mining & Utilities
Pharma, Medical & Biotech Real Estate
Consumer
Business Services
Leisure
Industrials & Chemicals
Latin/South America
ISSUE 2 | 2022
14
HORIZONS | BDO'S GLOBAL VIEWOF MID-MARKET DEAL ACTIVITY 15
UNITED KINGDOM& IRELAND M&A MAKES A STRONG START TO 2022
With rising inflation and the war in Ukraine, it is going to be hard to maintain 2021’s boom in M&A activity but global private equity and international trade buyers have been busy completing deals to date as they continue to seek investment opportunities in the UK & Ireland. Q1 2022 saw a strong start to the year with 153 deals announced with an aggregate value of USD 15.7bn. This represented an increase of 22% in deal volume from the final quarter of 2021 but a 15% decline in volume compared to last year’s record-breaking first quarter. Private equity buyers remained active in the region with one of three transactions being PE-led. However, the total aggregate value in Q1 2022 was USD 4.1bn with fewer large transactions reported as funds looked to spread the risk and became more cautious on valuations when trying to assess the impact of inflation and rising interest rates.
Despite the uncertainty of Omicron and the unfolding of the Ukraine crisis, the appetite of trade buyers remained strong with 102 reported deals totalling USD 11.6bn. Some significant transactions included Telefonica’s USD 220m acquisition of Incremental Group Ltd, a UK-based provider of IT services and Savvy Gaming Group’s acquisition of FACEIT for USD 500m as they merged it with ESL Gaming to create a ‘global esports ecosystem’. KEY SECTORS AND DEALS TMT remained the most active sector, accounting for nearly 40% of all transactions in the quarter. The technology sector remains a hotbed of activity from start-up companies through to global mega-deals. In Ireland, another two tech start-ups achieved unicorn status with food ordering platform Flipdish receiving a USD 100m investment from Tencent Holdings at a valuation of
BIG PICTURE
• Deal volume rose by 22% with 153 deals compared to Q4 2022 • PE buyers remained active with a third of all transacted deals • TMT accounted for 40% of all deals in the quarter • Strong M&A pipeline with 548 rumoured deals.
PE/TRADE VOLUME &VALUE
300
25,000
250
20,000
200
15,000
150
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5,000
50
0
0
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ISSUE 2 | 2022
16
LOOKING AHEAD
The Industrials & Chemicals sector experienced an uplift in activity with 20 transactions reported in the quarter. Most of these deals were cross-border as trade buyers turned to M&A to achieve growth and develop their global presence. Finally, the Pharma, Medical & Biotech sector remained resilient with 10 transactions, including the notable SPAC deal involving the USD 412m merger of psychedelic science leader Eleusis with
over USD 1.25bn, while Wayflyer, the fintech company engaged with providing revenue‑based financing to e-commerce brands, attracted USD 150m institutional funding at a market value of USD 1.6bn. Similarly in the UK, eight of the Top 20 transactions were in the TMT sector including Ontario Teachers Pension Plan investing USD 265m into the consumer credit platform Lendable at a valuation of £3.5bn and another unicorn fintech company GoCardless raising USD 312m at a valuation of USD 2.1bn. Business Services was the second most active sector with 22 transactions reported, including the acquisition of Autorama UK by Autotrader Group plc for USD 252m. M&A activity in Financial Services remained steady with 17 transactions including Exponent’s sale of Enra Group, a provider of lending and broking short term bridge mortgages services, to US hedge fund Elliot Management for USD 465m and Pollen Street Capital’s sale of 1st Stop Group, a local brokerage agency providing consumer loans, to Tandem Money for a similar value.
At the time of writing we are faced with the horrors of war, significant inflation forecasts and rising interest rates. Both the UK Chancellor and Ireland’s Finance Minister have revised the GDP growth forecasts downwards for this year, citing the conflict in the Ukraine as the reason. Despite this, the UK is still projected to grow by 3.2% and Ireland by 4.8%. At this point the M&A pipeline remains active with 548 deals in the pipeline as sellers continue to look to avail of increased valuations, while buyers seek to deploy capital. As expected, TMT is the hottest area of activity with 27% of all rumoured transactions, although this is often understated when compared to the percentage of completed transactions. It is interesting to note that the Consumer sector represents over 14% of pipeline transactions. This is likely to be driven by pent-up demand post-COVID. However, with inflation expected to average 7.4% this year, (i.e. it could be higher for several months) it is possible that many Consumer deals will have to be put on ice again until we get more certainty on the longer-term impact on consumer spending.
Silver Spike Acquisition Corp. Despite a lot of interest in the
Renewable Energy sector there is still a limited amount of reported M&A activity. There were only five mid-market transactions across the Energy sector during the first quarter, of which only two featured in the Top 20 transactions – these were Quantum Energy Partners’ USD 400m investment into Trident Energy mgmt. and Endeavour Energy’s acquisition of the UK upstream portfolio from MOL Hungarian Gas & Oil for USD 305m. We expect deal activity in this sector to increase as investment continues to move away from fossil fuels towards clean energy companies.
HORIZONS | BDO'S GLOBAL VIEWOF MID-MARKET DEAL ACTIVITY 17
UNITED KINGDOM & IRELAND HEAT CHART BY SECTOR
TMT
147 27%
Industrials & Chemicals
81
15%
Business Services
79 14% 74 14% 59 11%
Consumer
Financial Services
We are also likely to see a rise in distressed opportunities following the removal of Government pandemic support schemes combined with the impact of wage inflation and supply chain disruption. Overall, the UK & Ireland continue to remain of significant interest for international buyers which will drive more cross-border transactions in the TMT, Business and Financial Services sectors, particularly given the resilience of the economies as shown to date over the last three years.
Leisure
45 32
8% 6%
Energy, Mining & Utilities
Pharma, Medical & Biotech
26 5%
KATHARINE BYRNE M&A PARTNER
Real Estate
5
1%
TOTAL
548
kbyrne@bdo.ie
UNITED KINGDOM & IRELAND MID-MARKET VOLUMES BY SECTOR
2021
2022
209
59
17
10 3
67
32
8
74
20
75
17
34
7
51
7
22
91
Technology & Media
Financial Services
Energy, Mining & Utilities
Pharma, Medical & Biotech Real Estate
Consumer
Business Services
Leisure
Industrials & Chemicals
UK/Ireland
ISSUE 2 | 2022
18
HORIZONS | BDO'S GLOBAL VIEWOF MID-MARKET DEAL ACTIVITY 19
CENTRAL AND EASTERN EUROPE M&AVOLUME PLUMMETS INQ1 AFTER RECORD 2021
With the ongoing war between Ukraine and Russia causing uncertainty in the CEE region, there was understandably a significant fall in M&A activity in Q1 2022 compared to Q1 2021 and this was off the back of the M&A market consistently shrinking since Q3 2021. Despite this, average deal value was higher than in any of the previous four quarters. However, activity in Industrial &Chemicals fell to a record low. There were 47 deals completed in Q1 2022, which meant that the overall deal volume was 30% lower compared to Q1 2021. Overall deal value declined by 16% to USD 5.1bn compared to Q1 2021. The CEE region recorded an average deal value of USD 108m in the quarter, the highest seen since Q2 2019. The overall decline in value was mainly related to the fall in PE deals, with PE buyouts accounting for just 13% of total value in the quarter. By comparison, in Q1 2021 the PE percentage of deals was 29%, an unusually high figure in the region. PE volume also shrunk to eight from 13 deals in the first quarter of 2022.
Finally, trade value has been roughly consistent over the past couple of quarters. KEY SECTORS AND DEALS The quarter’s top-performing sector was TMT with 15 transactions, which represented 32% of the total volume. Energy, Mining & Utilities was in second spot with 10 deals and Industrials & Chemicals was third with just six deals. This was the lowest deal volume ever recorded in Industrials & Chemicals, with only a third of deal numbers compared to its 2021 quarterly average. The region’s top three deals were as follows: • EmiTel sp. z o.o.: Alinda Cordiant Digital Infrastructure Limited (Poland) bought a 100% stake in the Polish multi-asset digital infrastructure company. The deal value was USD 477m • Aspire Global plc: Neogames (Israel) acquired a 100% stake in the gaming and casino platform provider for USD 474m
BIG PICTURE
• Total deal volume (47 transactions) dropped by 30% in Q1 2022 compared to Q1 2021 • PE’s share of deal value was 16 percentage points lower than a year before • With 15 deals, TMT accounted for 32% of total transaction volume.
• Aegon Magyarország Általános
Biztosító Zrt. and UNION Insurance: Corvinus Nemzetközi Befektetési Zrt. (Hungary) acquired a minority interest (a 45% stake) in both insurance companies for USD 398m.
PE/TRADE VOLUME &VALUE
16000
100 120 140 160 180
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20
CENTRAL AND EASTERN EUROPE HEAT CHART BY SECTOR
TMT
171
23%
Industrials & Chemicals
162 22% 92 13% 88 12% 64 9% 59 8% 36 5% 33 5%
Business Services
Consumer
LOOKING AHEAD
Energy, Mining & Utilities
Financial Services
The BDO Heat Chart indicates that TMT (with 171 deals) and Industrials & Chemicals (162 deals) are expected to be the region’s top two performing sectors in the near future, accounting for 23% and 22% of the total future deal volume respectively. The economic landscape remains highly uncertain in the region due to the Russia‑Ukraine war. In addition, many countries in the region still haven’t recovered from the COVID-19 pandemic. Global supply chain issues and delays are also causing record inflation levels and supply difficulties. Interest rates are also rising in the region as central banks have decided to intervene in the fight against inflation. The war has resulted in the devaluation of local currencies against the EUR and USD, and there has also been a devaluation of the EUR against USD. Most of the currencies have now partly recovered, nevertheless this could turn out to present attractive investment opportunities in the region.
Pharma, Medical & Biotech
Leisure
MÁRK FEKETE MANAGING PARTNER
Real Estate
26 4%
TOTAL
731
mark.fekete@bdo.hu
CENTRAL AND EASTERN EUROPE MID-MARKET VOLUMES BY SECTOR
2021
2022
84
15
8 11 11
1 1
4
65
6
4
25
38
10
27
2
4
24
Technology & Media
Financial Services
Energy, Mining & Utilities
Pharma, Medical & Biotech Real Estate
Consumer
Business Services
Leisure
Industrials & Chemicals
CEE
HORIZONS | BDO'S GLOBAL VIEWOF MID-MARKET DEAL ACTIVITY 21
SOUTHERN EUROPE
DEAL VOLUME RISESWITH PE ACTIVITY LEADINGTHEWAY
Southern Europe’s mid-market M&A activity in Q1 2022 saw an increase in volume and a decrease in the value of completed transactions. Transactions totaled USD 15.4bn, an increase in deal numbers (14%) and a decrease in associated value (8%) compared to the previous quarter. The first quarter of 2022 also saw an increase in private equity-led transactions, a trend which has been ongoing since the beginning of the pandemic. The strong PE M&A activity was reflected in the fact that PE accounted for a record proportion of overall deal volume at over 40%.
KEY SECTORS Most sectors increased or maintained their turnover in the first quarter of 2022 compared to the previous quarter. The two exceptions were Consumer and Industrials & Chemicals, which suffered falls in deal numbers. The two sectors which had the greatest impact on the region’s increased M&A activity were TMT (up from 38 deals in Q4 2021 to 50 deals inQ1 2022) and Leisure (up from eight deals in Q4 2021 to 15 deals inQ1 2022). Overall, TMT was the best performing sector in mid-market M&A deals, regaining top spot from Industrials &Chemicals. As has been the case in previous quarters, the deals inQ1 2022 were heavily concentrated in Southern Europe’s three most active sectors, with Energy, Mining &Utilities, Industrials &Chemicals andTMT accounting for 62%of all deals closed in the quarter.
BIG PICTURE
• Mid-market M&A volume rose in Q1 2022 compared to the previous quarter, however average transaction value was lower • Q1 2022 saw a surge of private equity‑led M&A compared to Q4 2021 • TMT was by far the most active sector, accounting for a third of all deals closed • The outlook for the next quarter predicts further growth in M&A activity.
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ISSUE 2 | 2022
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KEY DEALS The Top 10 totalled USD 4.1bn,
The targets in the Top 10 deals were distributed across four countries, with French target companies at the top of the rankings with five transactions, followed by Italian target companies with three deals and Spanish and Cyprus target companies, with one deal in each country. Cross-border transactions composed the majority of the quarter’s biggest deals, with European companies accounting for six of the Top 10 deals. While the acquiring nations were varied, companies from Italy and France led the list of acquirers with three deals each.
The third biggest deal took place in the Energy, Mining & Utilities sector and comprised the acquisition of a portfolio of solar PV projects under development in Spain with an overall expected capacity of 508MW, by Green Arrow Capital SGR, for USD 452m. Green Arrow Capital is one of the leading independent Italian operators in the alternative investment world, with assets under management amounting to USD 1.92bn. Another notable deal from this quarter was the acquisition of a 100% stake in iXBlue SAS, a company specializing in delivering advanced navigation, photonics and maritime autonomy solutions by the French Groupe Gorge and ECA S.A. for USD 449m. The Top 10 deals were spread across several sectors, with the TMT sector again leading the way with three deals.
representing 26% of the volume of all mid-market transactions that took place in Southern Europe in Q1 2022. The biggest deal was in Business Services and saw the acquisition of the Association of Certified Anti-Money Laundering Specialists by French companyWendel SA for USD 500m. The second biggest deal was the Fintech start-up Scalapay, which became Italy’s first unicorn with a valuation of more than USD 1bn after raising USD 497m in Series B funding. The latest funding round was led by Tencent andWilloughby Capital, with participation fromTiger Global, Gangwal, Moore Capital, Deimos and Fasanara Capital. Scalapay offers a ‘buy now, pay later’ service for e-commerce companies around the world.
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