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The number of mergers and acquisitions in the Czech Republic has increased by 43% in H1 2013

► In the Central and South Eastern European (CSE) countries, the number of transactions has increased by 20.7% ► The Czech Republic is a strong regional investor by international comparison, having completed more outbound transactions than any other country in the CSE region ► The value of the disclosed transactions in the Czech Republic has increased, with the largest amounts having been invested in the manufacturing sector, services and real estate property

The mergers and acquisitions (M&A) market in the Czech Republic outpaced in H1 2013 the market of the entire region of Central and South Eastern Europe (CSE) compared with H1 2012 and, as regards the number of completed transactions, posted its best result since the 2009 recession. This significant increase in transaction activity stemmed from the general trend in the Central European region as well as a marked success rate of transactions in sectors that were ignored last year, e.g. IT and chemicals.

In H1 2013, Czech investors carried out 73 transactions, i.e. a 43% increase year on year, including 17 outbound acquisitions. When the 26 inbound transactions are included, there are 99 completed transactions for the first half of the year, the strongest showing in transaction activity since the economic downturn of 2009. Deals with disclosed value in H1 amounted to USD 1.18 bn compared to USD 1.52 bn in the preceding year.

“This unequivocally positive trend confirms three crucial factors: growing demand for acquisitions of Czech companies, an increase in the number of closed deals, and boosted activity of Czech companies abroad. Since no large company was sold, however, the total value of the transactions is lower than in the previous year. This is because the statistics do not include the acquisition of Net4Gas (deal value of USD 2.05 bn) that had not been completed by the H1 end,“ says Petra Wendelová, Partner for mergers and acquisitions at EY in the Czech Republic.

The Czech Republic is a strong regional investor by international comparison, having completed more outbound transactions than any other country in the CSE region. “The interest of Czech companies in outbound investments has been steadily increasing for several years now. For example, the Czech Republic is currently the second strongest investor in Hungary. Czech (and Polish) companies traditionally also enjoy a good reputation in the Balkans, where they have been recently very active. A Czech investor is perceived in this region as a carrier of innovations, capital and Western technologies. However, there are also technology predators, such as Tescan from Brno, that actively seek acquisition targets virtually all over the world,” says Petr Kříž, Executive Director, Transaction Advisory Services, EY in the Czech Republic.

Estimated M&A market size in the Czech Republic
The Czech M&A market shrank on a year-over-year basis by 14.8% to 2.34 bn due to fewer large transactions. Average transaction value (where disclosed) fell by more than half to USD 47 m. Transaction value was disclosed in 25% of deals in H1, making the disclosure rate 3% higher on a year-over-year basis.

The largest transaction implemented by Czech investors abroad was the purchase of Středoslovenská energetika, a.s. (49%) by Energetický a průmyslový holding a.s. (transaction value of USD 516 m).

Investor population
Strategic and financial investors were more active year on year. Financial investor activity increased more than 90%, bringing its total share in transaction volume to 21% (from 16% in H1 2012).

Domestic transactions lost some of their dominance to outbound deals, though transactions between domestic investors continued to comprise more than half of all deals. Inbound investment growth reflected the overall market trajectory.

Once again, domestic investors active abroad chiefly targeted neighbouring countries, i.e. Slovakia (5 transactions), Austria and Germany (2 transactions each). Inbound transactions were mainly carried out by investors from the USA (6 transactions) and Germany (5 transactions). This usual pair was joined by investors from Switzerland, who completed 5 transactions in the Czech Republic, chiefly in the manufacturing sector.

Industry sector analysis
Manufacturing (14 transactions) and services (12 transactions, but a 30% drop year on year) continued to be favourite investment target industries. However, with 13 transactions the real estate sector managed to join them (note this EY analysis only includes real estate transactions carried out by real estate funds or holdings). Other sectors reporting significant growth in the period under review include trade (50% year-to-year increase to 12 transactions), energy (50% increase to 9 transactions), IT (increase from a single transaction in 2012 to seven in 2013) and chemicals (from one transaction in 2012 to five in 2013).