The summary of the mergers and acquisitions (M&A) activity in Bulgaria since the start of the year sounds like this: property deals are breaking price records, foreign investors are gradually returning, and an ever growing number of Bulgarian companies are looking for expansion abroad.
The year 2017 will be remembered with the domination of commercial property deals. Transactions worth over 850 million euro in total have been concluded (or announced), mostly for shopping malls, including the record purchase of Paradise Center in Sofia. In 2017, the largest deal in the country's banking sector was completed - the sale of United Bulgarian Bank. The year ended with a flop. After a period of prolonged negotiations in the spring Czech state-owned CEZ has selected a buyer for its Bulgarian business. However, in the mean time Future Energy, one of the companies in the winning consortium bankrupted.
Apart from the significant activity in the real estate sector, the M&A market in Bulgaria remains rather weak: the number of deals concluded in almost 11 months is about 60, compared to over 90 the year before. Most of those deals are valued at less than 50m euro - too small to attract strategic international interest. Still, there are some foreign buyers on the market, mainly as a result of the ongoing trend of investment funds purchasing shares in IT and other companies.
Bulgaria and the region
The boom of property deals is not isolated to Bulgaria, it is characteristic for the M&A market in the whole region. According to the latest M&A Barometer for Central and Southeast Europe published by EY, real estate was the market segment with the largest number of deals in the first half of 2017, followed by acquisitions of manufacturing assets and IT businesses. The observations of analysts in Bulgaria also outline similar trends.
"The market is active, with a particularly strong development in the real estate sector, specifically in the sale of shopping centers. Another active segments are greenfield deals and investments in production capacities, especially those related to the automotive industry," states Ilko Stoyanov, a partner with Schoenherr Sofia.
"Apart from the real estate sector (malls), the overall M&A market has been weak this year. There have been no acquisitions by international strategic players, with the obvious exception being the acquisition of Energoremont by Dietsmann (The Netherlands)," comments Dimitar Uzunov, director at Entrea Capital. "There have been, however, two acquisitions by Bulgarian companies in foreign markets (Chaos Group in the Czech Republic, and Fadata in Germany). We too are working on several such projects. This is a good trend and it shows that more and more Bulgarian companies are outgrowing the domestic market and are looking for chances for development beyond its boundaries," he notes.
EY data confirms Uzunov's conclusion. According to the EY study, in the first half Bulgaria was among the countries in the region with the highest share of outgoing transactions (17%). Those include, for instance, the acquisitions of production facilities by Monbat in Germany and Italy (as well as a planned investment in Tunisia), the purchases made by Euroins in Romania and in Russia, by Bulpros in Germany, as well as by the Bulgarian entrepreneur of Albanian origin Elvin Guri who has been selected as new majority owner of Telenor Banka in Serbia.
The large deals
Among the top 10 deals in the region in the first half of the year is the largest bank transaction in Bulgarian history - UBB was acquired by the Belgian KBC Group for 610m euro. The process of merging the operations of UBB with those of the other Bulgarian bank in the KBC Group - Cibank, is already underway.
Records have been broken in the real estate sector as well. The largest shopping centre in Sofia - Paradise Center, has become part of the portfolio of the South African investment fund NEPI for 252.9m euro, which is the highest price ever paid for a real estate asset in Bulgaria . NEPI is also the new owner of mall No.3 in Sofia -Serdica, which it acquired, together with the office part of the project, for 207million euro. The second largest of the capital's shopping centres, The Mall, also has new owners from South Africa - the Hyprop Investments fund, which paid 176m euro. New owners also entered Mall Varna, the Galleria malls in Burgas and Stara Zagora, the unfinished Galleria Varna (which has been renamed to Delta Planet Varna). A buyer has also been selected for Mall of Sofia, but the sale got stuck. Thus, the property market has already improved its result in the retail space segment relative to the pre-crisis 2008. Analysts forecast that by the end of the year the total volume of transactions with commercial properties will reach 1billionn euro.
Among the landmark deals finalised in 2017 is the exit of US investment fund Advent from Devin mineral water bottling company which was delayed by the crisis. Belgian investor Spadel paid 120m euro for the beverage producer. Another big sale was announced in the spring, when US tobacco giant BAT agreed to pay 105m euro for the leading cigarette brands of Bulgartabac Holding (a company associated with Delyan Peevski) and Bulgartabac's distributing company ELD.
The plan for the following months
Some big deals still on the horizon include the potential sales of Nova TV and bTV. The change of ownership in bTV will probably come as a result of a sale of its parent company CME, which has been targeted by some of the richest people in the Czech Republic and in Slovakia. The procedure for awarding a concession contract for the operation of Sofia Airport is expected to be relaunched within several weeks - this time with the participation of international consultants represented by the World Bank and the European Bank for Reconstruction and Development. Their absence was one of the deterrents to potential candidates for the airport in the previous tender cancelled in April. The selection of a consessionaire for Plovdiv Airport is also underway, with two candidates left in the race.
New deals are also expected in the banking sector. A single candidate has filed for regulatory approval to acquire the majority share of Sofia Municipality in Municipal Bank, while two Bulgarian banks have submitted binding bids for the purchase of Victoria Bank managed by the trustees of bankrupt Corporate Commercial Bank. Piraeus Bank Bulgaria might get a new owner, too.
"Bulgaria will not stay away from global trends. Investors will be looking for growth in same or related industries at the local level, in Bulgaria and in the region, as well as globally," states Pavel Hristov, partner with Hristov & Partners, who consulted the buyer of Devin. In his words, apart from the banking and financial services sector, where consolidation processes will continue, deals can also be expected in the field of high technology - "from artificial intelligence, through fintech to healthcare", in transport, as well as in retail.