Buy before you will be bought – the Polish market of mergers and acquisitions

A growing number of enterprises carry out mergers and acquisitions transactions, the largest of which are widely commented in the media. The year 2011 is mostly connected with the takeover of Polkomtel by Zygmunt Solorz-Żak and the purchase of Presspublika by Grzegorz Hajdarowicz. In addition to the transactions commented in the media, this year brought also a revolution in the field of M&A in SME sector.

According to the Allen&Overy report, the Polish M&A market in 2011 was, together with the Russian one, the most dynamic in EMEA. It is proved by the last year activity of the OCCP (Office of Competition and Consumer Protection) which received almost 200 applications for permission to carry out a transaction. Let us remember that the OCCP deals only with major transactions that may result in disturbance of the market balance and a restriction of competition (I refer here to www.uokik.gov.pl/fuzje_pod_kontrola.php).

This means that there were much more transactions on the market. Last year M&A market in the SME sector increased by almost 20% in relation to the productive year 2010 (in terms of transactions carried out). The most active branches include commerce, telecommunications, IT and private medical services.

So what actually makes owners of SME decide more often to carry out a transaction? Above all, it is a cash resource. The previous financial crisis very clearly distinguished enterprises with healthy foundations and those which cannot adapt to the changing economic conditions. Companies that had strong business foundations, a proven model and could responsibly carry out ther finances were able to accumulate significant cash deposits which can be now spent on the development through mergers and acquisitions. The owners of these companies are now driving the transactions market and consolidate their branches.

And what about companies that suffered in the crisis? If they are not absorbed by the competition and have a healthy business, they can look for help in private equity funds. A good business model, an experienced and determined Board of Directors, are like a fly catcher for these institutions. The funds have huge cash resources and their managers have already learned to take into account the turbulence on the market of financial models, so they have slowly started to hunt. It is worth to make use of their experience and capital to take over other companies in the nearest future. TP Emitel has been taken over by 1.7 billion by Montagu Private Equity and it has not been the biggest transaction so far.

The last and the present years can be summed up in one sentence: buy or be bought. This cruel truth from the animal world fits perfectly to the fight for the market leader. Consolidation applies to every industry and it only depends on us which role we will have in this process.

Mikołaj Lipiński
Partner, Corporate Finance Department