Romanian merger market headed towards $1bn

The Romanian mergers and acquisitions (M&A) market could go up to one billion dollars over the next few years (compared with the $400 million in 2001), keeping up with the economic growth pace, Alexandru Aldea, head of Integrator, an IT management solutions developer, said.

He explained the low M&A value, which equals approximately 1% of GDP was mainly caused by the preference of the foreign investors for the companies in the countries neighbouring Romania, which had seen solid economic growth for years.

At the same time, the lack of a strong Romanian capital was yet another factor that impacted on mergers.

Most takeovers came in form of privatisations, such as the acquisition of Dacia by Renault, the takeover of Banca Agricola (Agricultural Bank) by Raiffeisen, of Sidex by Ispat or RomTelecom by OTE.

At the same time, mergers were conducted on the market of cable TV and ISPs.

Many of those transactions were followed by post-merger problems. They were largely caused by the incorrect appraisal of the intangible assets involved, such as technology or know-how.

For instance, RomTelecom’s market value shrank from $1.9bn in 1998 to $700-$800 million in 2002, a report by Schroder Salomon Smith Barney investment bank shows, in spite of the $1.5bn investment fed into it in that period, Aldea says.

The most important transactions worldwide included the takeover of Pharmacia by Pfizer, which paid $57.8bn and the acquisition of the controlling interests in Telecom Italia by Olivetti for $24.4bn.

The M&A contracts closed in the Central and Eastern European countries about to join the European Union rose to $9.1bn from $8.95bn in 2002. The number of agreements concluded fell 19%, to 753, though.

The most significant such transactions were those in the Czech Republic, where the mergers and acquisitions amounted to $3.51bn in 2003. The statistics, however, does not include the two big transactions completed early in December 2003, the acquisition of 49% in Czech mobile telephony operator Eurotel by Cesky Telecom for more than $1bn and the sale of the 27% in Cesky Telecom held by foreign TelSource consortium for $816 million.

Second in terms of M&A was Poland, $1.762bn, followed by Hungary $1.369bn.

The frequency of M&A agreements, which generate significant revenue for investment banks, has substantially shrunk in the last three years, because of the stock markets decline, economic uncertainty and a spate of corporate scandals.