Mergers and acquisitions set to continue

Banking, manufacturing and tech-sector deals will drive mergers and acquisitions (M&As) in Poland and throughout Central and Eastern Europe this year and beyond, according to PricewaterhouseCoopers' (PwC) regional report for 2002. "We can expect further financial service consolidation and the big factor is going to be the global consolidation of that industry," PwC Poland president Peter Driscoll said during a presentation last week. Financial services accounted for 15% of all private-sector deals during 2001 in Central and Eastern Europe, and the bulk of the most lucrative regional transactions, PwC said. PwC, the international corporate consultancy, surveyed more than 800 disclosed deals in Poland, the Czech Republic, Hungary, Bulgaria, Romania, Russia and Slovakia. Western European banks' appetite for eastward expansion promises more deals this year as foreign players eye undeveloped life insurance and financial-service related markets. Consolidation between existing mid-sized banks will leave a handful of institutions covering the whole of Poland, local bank watchers said. On a regional level, PwC notes that half of the current players could disappear in the next five years. "Competition for market share will fuel consolidation within the region," PwC said. "It's commonly agreed that the region is over-banked and banks as well as other financial institutions are beginning to rationalize their portfolios."

Manufacturing consolidation The same goes for manufacturers: Too many companies are fighting for too little business. Manufacturing deals numbered 201 among CEE countries last year, the most active M&A sector. "Too many companies that need to merge go out of business," Driscoll said of Poland. The report also projects increased M&A activity among telecom and media firms. This, as the IT bubble burst worldwide, and transactions fell some 30% year on year in the Czech Republic, Hungary and Poland, PwC noted. "We should observe a tendency of funds willing to exit investments," the report said. Both the volume and value of deals plummeted in Poland over 2001 as sentiment worldwide was dampened by economic slowdown in the United States, and crushed after Sept. 11. Poland penned some 207 deals in 2001, off 34% from 2000's pace. Just 22 were completed following the attacks in America.

Declining image Those factors also contributed to a sharp decline in deals involving foreign partners; tailing off to 97 from 147 in 2000. PwC officials, who stopped short of outright government criticism, said that Poland's image among foreign investors has taken a hit. The Democratic Left Alliance (SLD) government has slowed privatization in favor of consolidation in numerous sectors, spurring new focus on the country's dealings with foreign investors. "The reputation of Poland has suffered relative to its competitors," Driscoll said. "There needs to be more transparency in privatization policy so investors can understand which assets are available to purchase and which are not."