Are we facing a further slowdown in the M&A market due to the macroeconomic situation? Or, after the recent parliamentary elections in Poland, will the market quickly return to upward trends, after a brief pause continuing the best economic period in modern history, and can we expect further records? The truth may lie in the middle, as there is no shortage of challenges for the economy. Izabela Zielińska-Barłożek, Krzysztof Libiszewski and Anna Dąbrowska – partners with over 20 years of transactional experience, responsible for Wolf Theiss’ Corporate M&A team since July this year – share their insights on the current and anticipated situation in the Polish M&A market.
The M&A market is constantly changing and, although a number of transactions are still taking place, in terms of value they are smaller than in previous years. Apart from previously planned transactions, investors tend to want to take advantage of opportunities and temporary lower valuations.
According to industry reports and Wolf Theiss’ expert observations, 2022 was one of the record years for the Polish M&A market. Despite the effects of the Covid-19 pandemic and the war in Ukraine still being felt on the economy, the value and number of deals reached levels higher than in 2021.
Krzysztof Libiszewski points out that both sector investors and Polish and foreign private equity funds remained active in the market in 2022. Wolf Theiss’ expert observations show that, as in previous years, very often sector players and funds competed in auction processes to acquire the same entities (targets). Moreover, there was unabated interest in transactions in the TMT, new technology, healthcare and biotechnology, manufacturing and energy sectors.
This trend, albeit on a significantly reduced scale, is also evident in the current year. This is because in the first half of 2023, the economic slowdown in Poland and the state of the market’s expectation of positive signals for the economy are noticeable.
Market analyses show that also in global terms, both the number and value of transactions have decreased in 2023.
As Anna Dabrowska comments, it can be assumed that the global statistics generally correspond to the trends in Poland. Participants in the M&A market seem to agree that the still high inflation and problems with supply chains are significantly affecting the market. At the same time, there are reports of some targets being withdrawn from sales processes in the face of increasingly unfavourable valuations. On the other hand, as Anna Dabrowska notes, there is still a belief that in the short term we can return to high dynamics in the market again. In view of the significant funds raised by private equity funds in previous years, it is estimated that they will remain active and seek new transaction opportunities.
Although the global trend influences the assessment of the situation in Poland, it can be seen that despite the decrease in the global value of transactions, many of them are coming to fruition, adds Izabela Zielińska-Barłożek. This may be an effect of diversification and the capital’s search for attractive valuations. Some assets have been overvalued if only because of further macro and geopolitical challenges, as well as the impact of the Polish Deal, although the latter factor only applies to a group of smaller companies. Krzysztof Libiszewski also notes that in a situation of uncertainty, funds and strategic investors are also reducing their risk, focusing on smaller assets. As a result, many transactions can still be expected, although we will not necessarily witness records in terms of the value of the M&A market in Poland. In his opinion, an additional factor that clearly has a cooling effect on the Polish market is also the tightening of banks’ credit policy and the still relatively high interest rates.
ESG has been one of the important trends in this market for some time. Investments towards green energy, ‘ethical business’ companies and a move away from fossil fuels are simply inevitable at this point. Market participants already see a number of positives associated with the sustainability trend. Indeed, ESG investments have high reputational as well as purely financial benefits, i.e. in terms of the expected returns on their investments. In the advisory sector, changes in this regard can also be observed, as advisers have begun to appear on the market, offering ESG-oriented research of potential targets. Although Izabela Zielińska-Barłożek hopes that the trend of searching for and carrying out socially and environmentally beneficial transactions will become a permanent feature of the global and Polish economy, in her opinion, at this point it does not seem that this type of research will become a permanent feature of all transactions and an indispensable element of the landscape of this market in the near future.
Another aspect to consider when assessing the M&A market is national policy. However, according to the experts at Wolf Theiss, this does not seem to be a factor that significantly affects the M&A sector in Poland. As they note, although the temperature of the political dispute has sometimes been high in our country in the past, in their opinion, investors have approached it with detachment and it has not had a key impact on business decisions. The formation of a new government and the possible unblocking of funds from the National Reconstruction Programme will have a stimulating effect on the M&A market and the economy as such.
In the unanimous opinion of the experts at Wolf Theiss, the still unsettled geopolitical situation and the radically increased level of economic interventionism by governments is a global phenomenon and not an exclusively Polish trend. In this context, in their view, investors do not treat the aforementioned factors as specific only to the Polish market and do not consider it immune to negative external stimuli. A response to the situation of multidimensional uncertainty and the complicated situation of the judiciary in Poland may be the widespread phenomenon of submitting potential disputes, resulting from M&A transactions, to arbitration tribunals. “Our observations show that, both in 2022 and in the current year, arbitration provisions have been consistently very popular. Certainly, much more threatening in terms of the impact on the M&A market are high inflation and central bank interest rate policy, which negatively affect financing conditions in particular,” they conclude.
Author: Wolf Theiss Poland
