CEE Legal Matters is a proud partner of the 8th annual SEE Private Equity and Mergers & Acquisitions Forum due to take place in Belgrade on September 24.
Leading up to the event we spoke with Rob Irving, Private Equity Partner and Co-Chair of the Global Private Equity Group of Dentons, an international law firm that is co-sponsoring the conference, in order to learn more about what we can expect next week.
CEELM:
Dentons is a sponsor of the “South-East Europe Private Equity and Mergers & Acquisitions Forum” — why did this event in particular get on your radar?
R.I.: Last year we co-sponsored the conference with EY, who brought it to our attention. M&A and private equity in SEE are core to our practice and being involved in the event and supporting the business and legal community involved in M&A in the region made a lot of sense for us. This is by far the highest profile conference dedicated to the topic of M&A in the SEE region. There are indeed some others dedicated to CEE and some other smaller ones but this particular conference is by far the biggest event and last year it experienced a renewal of sorts, registering very strong attendance and people who were very excited to be there.
CEELM:
You mentioned a revitalization of the annual conference. Was there something the organizers did in particular to drive that or is it more a reflection of the market?
R.I.: The market dynamics played a big role. M&A activity was generally quiet in the SEE region between 2001 and 2012, and especially after the crisis in 2008. While in Poland – which recorded the highest economic growth rate in the EU between 2008 and 2012 – big M&A deals regularly happened and to some extent in the Czech Republic as well, the former Yugoslavia was fairly quiet until 18 months ago, when pent-up demand seems to have been unleashed.
In Slovenia for example, more than 60% of the economy is state-owned directly or indirectly. This is a result of the fact that a lot of the privatizations carried out in the 90s or early 2000 were made to local groups which overleveraged themselves in the process. Once the crisis hit they had trouble repaying that debt, the banks foreclosed on the underlying companies and with some banks being nationalized the state ended up owning a great deal of the economy. When the Greek crisis first hit and southern Europe wobbled, the Slovenian government came under pressure from the EU and IMF to initiate a privatization program in order to not be forced into a bailout.
In Croatia, a bit of privatization is happening. However, more interestingly, there are a number of large domestic groups such as Agrokor, Adris grupa, or Atlantic Grupa that hold large diversified business portfolios. Increasingly, they are looking to optimize such portfolios by selling those assets which promise lower growth and reinvest in higher growth businesses.
In Serbia, while not a lot of big ticket M&A occurred in the aftermath of the crisis, the government is now very keen to start stimulating it and, as part of this, they are looking to privatize several companies including Serbia’s second largest bank, Komercijalna Banka,Telekom Srbija, and the Belgrade Airport – all of which seem to be generating interest. At this point it does however depend a lot of whether the type of buyers and the prices they are willing to pay match up with expectations of the government. For example, the primary interest in Telekom Srbija at the moment appears to be from financial buyers with less interest from strategic investors like Deutsche Telekom, Telekom Austria, or Orange that the government might have been more keen to attract.
CEELM:
You are moderating a talk on “The final wave of privatization across SEE” — what are the big common barriers that SEE jurisdictions have to overcome to finalize this final wave?
R.I.: Politically privatizations in SEE are always difficult, with questions revolving around whether the population is really behind them, whether the business community in the country in question are behind them, whether the government is truly committed – all of these are big questions especially when types of buyers and prices they are willing to pay may not be what they would have been 10 years ago.
There are two competing philosophies when it comes to privatizations: one according to which you should be very careful, find the right buyers, and wait for the right prices, as opposed to operating based on the assumption that it is better to get assets in private hands as quickly as possible and let the market play out. In the latter, you are more concerned with running an open, fair, and transparent tender process and letting the pieces fall where they may. It is difficult to say in which of these ways SEE countries will act. For example, Slovenia adopted the second philosophy in privatizing NKBM, its second-largest bank, while was more protective of Telekom Slovenia. In Serbia, for example, it is an open question as to what route they will take.
CEELM:
You have quite a varied panel in terms of profiles for the talk — what insights are you most looking forward to?
R.I.: I’m expecting some nice debates. Matej Runjak, a Member of the Management Board at the Slovenian Sovereign Holding, has been involved in some very high profile privatizations – both successful and unsuccessful – and it will be interesting to hear his insights as to what went wrong when it did and what were the key ingredients behind the successful deals.
It will also be interesting to also hear the comparison of Serbian and Slovenian privatizations with the former not being as influenced by EU state aid law. Despite the fact that Serbia does have an agreement with the EU, which requires it to use reasonable efforts to observe EU principles, it does benefit from more flexibility in their legislation than other countries, which can influence a deal greatly. For example, when you look at these transactions, the absolute need in EU privatizations to treat bidders equally and transparently can sometimes be difficult in the dynamic of a transaction where one bidder may want to bid with an apple and another with an orange. In a private transaction, one would have the flexibility to compare the apple with the orange, but in an EU privatization a seller must drive the deal in order to be in a position to compare apples and apples even though a buyer might be able to give you a better more attractive deal with an orange.
CEELM:
For anyone not attending this year, why should they not miss next years 9th South-East Europe Private Equity and Mergers & Acquisitions Forum?
R.I.: We hope to be back as a sponsor next year as this is an event which is very important to us. The region is going to continue to see a lot of M&A activity and an evolution in that activity in the next 12 months, so assessing the activity 12 months and forecast the longer term future at that time will be exciting. In some parts of the world you have a half dozen of these kinds of conferences whereas this is THE conference in SEE. So once a year having opportunity to draw a line for the previous year and look through the crystal ball and discuss the upcoming year is a must.
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