Poland to see spike in M&A deals soon

Poland should see a spike in mergers and acquisitions in the coming months as foreign players target the European Union's sole economy to escape recession in 2009 in the hope that it will continue to outperform.

The region's investment bankers and observers of M&A activity say they have seen a surge in interest from foreign companies, while private equity funds active in the region say they have been negotiating a growing number of deals.

"Requests from companies that made a board decision of 'can you find us something in Poland?' are twice as high as before the crisis," said Tod Kersten, managing director at Close Brothers, a merchant bank focusing on mid-sized transactions.

"We're in a new Goldilocks scenario - debt is available in reasonable amounts, valuation multiples are at a level where people can stand to buy and people can stand to sell. On top of this, you have a rise in Poland's GDP (Gross Domestic Product)."

M&A activity is expected to pick up around the world with buyers seeking opportunities after a post-crisis dry spell. But many players expect Poland to attract a disproportionate share of deals as western peers grapple with cleaning up their financial systems and reducing massive debt.

Poland grew by 1.7% last year and analysts polled by Reuters expect the EU's largest economy to expand by 2.6% in 2010 compared with euro zone's 1.2%. Germany, Poland's main trading partner, is seen growing 1.5%.

While many of Europe's emerging markets, such as the Baltic states and Ukraine, were walloped in 2009 and are expected to limp through 2010, others like Poland and the Czech Republic fared considerably well, helping their markets outperform western peers in the second half.

The rapid rebound has so far kept a lid on deals as private equity players grumble that the correction was not deep enough to bring lofty valuations down to earth.

"Our pipeline is long and for at least a year and a half we have seen a large number of companies interested in doing something," said Monika Morali-Efinowicz, managing director at Advent International, a private equity fund.

"When valuations become more rational, private equity will be interested in doing transactions."

Advent completed Poland's first deal of 2010, buying 75% of publisher WSiP for USD 110 million on Monday.

Clearer Picture

After a volatile 2009 with only a handful of transactions, the next few months should show a better picture of the performance of companies in a more stable environment, a key factor in valuing potential acquisitions.

"Sellers would be more realistic, as well, seeing whether business justifies its price a few months into the year," said Oliver Murphy, M&A Transactions Partner at Deloitte in Warsaw.

Several private equity funds active in the region who are sitting on cash collected from investors more than two years ago will also feel growing pressure to spend. Some may also be looking for buyers for their current holdings.

"Last year, it was a brave man who did a deal. This year, it will be a brave man who doesn't," Murphy said.

Even the region's banks, which closed the credit spigot last year but were spared the woes of many of their western rivals and parents, say they are more willing to fund transactions in 2010 and are seeing renewed demand from possible buyers.

"Interest in doing deals is rising and demand (for funding) is reviving," said BZ WBK Chief Executive Mateusz Morawiecki, whose bank is one of Poland's most active in funding takeovers. "This will be an interesting chunk of the market."

Observers say several sectors in Poland are especially attractive for potential buyers, including consumer goods and retail, which have stood up surprisingly well to the negative trends from abroad.

The health and pharmaceutical sectors could see some interest as a growing number of Poles turn to private health providers and spend more on prescription drugs at the chemist.

In addition, the financial sector is ripe for consolidation.

"For some western banks, homemade problems might force them to sell one or another bank with central European participation and I can easily see some Polish institutions taking the chance to grow this way," said Alexander Dibelius, head of Goldman Sachs in Germany, Austria, Russia, central and eastern Europe.

Some players may even look for opportunities in Poland's ambitious USD 10 billion privatisation drive, taking a chance on more difficult cases, such as the chemicals sector.