M&A in the time of pandemic

In the earliest months of the pandemic, M&A activities were suspended. The companies shifted the attention to keeping business running, adapting to new conditions and safety of their employees. Deals were postponed or even canceled. In the second half of the year, however, decision-makers realized the importance of acting fast to help their businesses adapt to the changing realities and emerge out of the downturn as winners.

The decline in GDP meant limited perspectives for organic growth. Poland recorded a GDP decline of 2.8% last year, while in the euro area it was 6.6%, according to Statistics Poland (GUS) and Eurostat data. As companies had to look for growth opportunities elsewhere, they turned to M&As, Piotr Mietkowski, head of investment banking for CEE, CIS, Greece and Turkey at BNP Paribas Group, explained in an interview with Business Insider.

Grzegorz Piechowiak, a co-founder of consultancy firm JP Weber, expects M&A activity to stay high for another two or three years — a trend similar to the period after the financial crisis of 2008-2009. After the pandemic came, some business owners started considering selling and monetizing their assets, he told Polish daily Rzeczpospolita.

IT, pharma, and services in the spotlight

In Q1, there were 76 M&A deals on the Polish market — 21 more versus a year ago. Investors were particularly interested in the IT, media, and telecommunications sectors amid growing demand for e-commerce and online entertainment services. The deals in this sector accounted for about 16% of all acquired entities. In absolute numbers, however, the number of transactions decreased to 12 from 19 in Q4 2020, online database provider Fordata reported. It attributes the decline to overvalued prices, reduced investment budgets and to pandemic-related uncertainties that remained from last year.

The medical and biotechnology sectors came into the spotlight as pharmaceutical companies are gaining investment attractiveness in the long term. The number of deals grew to 10 from eight in the previous quarter. In the first three months of the year, DOZ, the operator of Apteka Dbam o Zdrowie pharmacy chain and one of the main players on the Polish pharmacy market, took over Euro-Apteka, Super Zdrowie, and MLV 18. Polmed, which offers healthcare services through a chain of clinics, purchased Starmedica, Medyk Szpital and Romed, while Neuca acquired Pomerania Investment, the owner of the private insurer Zdrowie SA.

The interest in the service sector returned after the silent Q4 as investors are looking for ways to strengthen the supply chain, distribution and sales. In Q1, the deals accounted for just over 9% of the total, while a quarter earlier there were no transactions at all.

Top three

In Poland, the largest deal this year so far was Germany’s Allianz’s purchase of Aviva’s Polish business in March for PLN 11.7 billion (about €2.5 billion). The deal, which should double Allianz’s revenue in Poland, involves the sale of life and non-life insurance, pensions, and asset management businesses.

It completed the plan of Aviva’s CEO Amanda Blanc to boost the insurer’s share price by offloading non-core assets and shifting the company’s focus to its core operations in Britain, Canada and Ireland. Polish deal followed the disposal of Singapore business and sale of units in Italy and France. “The sale of our Polish business is an excellent conclusion to the refocusing of our portfolio announced just eight months ago,” Blanc said after the deal announcement toward the end of March.

The same month Polish parcel locker operator InPost agreed to acquire French logistics company Mondial Relay from Hamburg-based Otto Group in a move to expand internationally. InPost, which owns over 12,000 parcel lockers in Poland and Britain, said it was planning to spend about PLN 2.5 billion on the acquisition, which is expected to almost double its revenue.

“Mondial Relay gives us an immediate footprint in one of Europe’s largest e-commerce markets,” Rafał Brzoska, founder and CEO of InPost said in a statement. The acquisition also includes the Mondial Relay's activities in Belgium, Luxembourg, the Netherlands, Portugal and Spain.

In February, Spanish Cellnex announced a PLN 7.1-billion agreement with Poland's Cyfrowy Polsat to take over Polkomtel Infrastruktura. Mirosław Błaszczyk, CEO of Cyfrowy Polsat, said the deal with Cellnex would allow for the faster and more cost-efficient deployment of connectivity services for the customers. The Polish company has been looking to sell its mobile towers as it seeks to offset some of the costs of upgrading its network. Polkomtel Infrastruktura operates both the passive and active telecoms infrastructure for Cyfrowy Polsat, which encompasses around 7,000 telecommunication towers and sites.

M&A goes digital

Globally, M&A deals have surged in most sectors of the economy, with the technology industry taking the lead. Covid-19 gave businesses in all industries a preview of their virtual futures and both tech and non-tech companies rushed to buy and build their way into the opportunity, Bain & Company consultancy wrote in “Global M&A Report 2021.”

Rapid digitalization has underpinned the M&A recovery by enabling M&A processes to be conducted virtually, even as the world was in lockdown. Covid-19 accelerated M&A digitalization by many years, Bain & Company said. It says M&A plays a key role in meeting growth goals and developing new capabilities to compete in an increasingly disruptive environment and expects a further surge in deals this year.

More support for M&A came from growing interest in special purpose acquisition companies — vehicles formed solely to raise capital through an initial public offering (IPO) and then acquire an existing private company. SPACs have emerged as an alternative to IPOs because they provide companies with a faster way to enter the public markets and investors with more time and flexibility to find the best acquisition targets.

"For the last six to eight months, SPACs and direct listings have been on the top of the agenda of every client call and all accompanying conversations with lawyers, banks and so on," said Peter Fricke, head of Deutsche Börse Venture Network, cited by S&P Global.