Money Buzz! Europa

Tag: invest europe

  • Undeterred by COVID-19, dealmaking in the CEE region remained steady

    Undeterred by COVID-19, dealmaking in the CEE region remained steady

    The disruption caused by COVID-19 to CEE’s M&A market was short-lived as dealmaking returned to the fore in the second half of the year, according to Mazars.

    Deal value in the CEE region rose by 11% to €49.2bn, compared to 2019, even as volume dropped by 16% to a total of 648 transactions.

    When not including Russia, the region’s largest economy, recorded deal value figures in 2020 saw a 28% year-on-year increase.

    International buyers continue to be attracted to the region, accounting for 49% of total deal value – investing €23.9bn – in line with previous years.

    Fabrice Demarigny, global head of financial advisory at Mazars, highlights how ”on a global level, the CEE picture is one of stability. The region continues to attract a strong and steady flow of inbound investment from around the world.”

    Private equity remained extremely active in 2020, with total disclosed buyouts in the region seeing a 40% year-on-year rise to €3.9bn.

    Private equity exits also fared well, with total disclosed value coming to €8.1bn, an 11% rise in 2019.

    Four countries continue to dominate the market

    The top four countries in deal value terms remained the same as in 2019 – Russia, Poland, the Czech Republic, and Austria.

    The region’s biggest market, Russia, accounted for four of the year’s ten largest transactions.

    Meanwhile, the biggest deal of the year took place in Austria, the most affluent of the CEE markets.

    This deal saw Austrian oil company OMV increase its stake in petrochemicals company Borealis from 36% to 75% for €5.712bn.

    The tech sector flourishes amidst the pandemic

    The highest number of inbound deals to the CEE region were technology-based, hitting a total of 57 deals worth €2.5bn – a year-on-year rise of 12% by volume, and 34% by value.

    In terms of inbound deal value, energy and utilities remained in the top spot, accounting for €9.1bn – a 20% rise year on year.

  • Romania: Investors are cautious, but don’t fully retreat

    Romania: Investors are cautious, but don’t fully retreat

    In Romania 46% of investors cancelled, decreased or paused investments, while 51% did no changes or increase in their investment plans, according to EY Attractiveness Survey Romania.

    Looking forward, investors are still optimistic and believe Romania will become more attractive after the COVID-19 pandemic will pass. Supply chain (35%) and manufacturing operations (36%) are regarded as main investment attractions.

    To increase the country’s competitiveness, the majority of foreign investors believe Romania should focus on its agriculture and IT assets. Romania should focus on its efforts on funding key issues like education, technological transformation and infrastructure.

    How was Romania performing in terms of FDI before COVID-19 emerged?

    In 2019, 78 foreign investment projects were carried out in Romania, a decrease of approximately 28% compared to the previous year (113 projects in 2018), placing the country on the 15th place in Europe. Nevertheless, it is important to mention that the value of FDI has not deacresed significantly from 2018 to 2019.

    A similar trend can be observed across the region, with CEE countries experiencing a decrease in the total number of FDI projects by about 20% compared to the previous year.

    2019 was a year in which foreign investors expressed a higher appetite for Western Europe, which held 80% of the European market share.

    While COVID-19 might have a negative influence on FDI dynamics in the future, in the past 13 years, following the succession to the EU, Romania has witnessed a considerable increase in terms of annual number of FDI projects, directly contributing to local economic growth.

    European countries, main investors in Romania

    At the end of 2019, the most important economies investing in Romania were, based on FDI stock data provided by BNR: Netherlands, with a share of FDI in the FDI stock of 23.2%, followed by Austria with a share of 12.6%, and Germany, with a share of 12.3%.

    Overall, the top 10 investor countries had a total share in total FDI stocks of 83.4%, while the top 20 countries had a share of in FDI stocks of 95.4%.

    It is noteworthy that the member countries of the European Union they had a share of 89.5%  in total FDI stocks, which emphasizes the EU’s role as Romania’s main strategic partner.

    FDI concentrated in Romania’s major cities

    Similar to other European markets,foreign investment was highly concentrated in major cities in 2019. Bucharest attracted 50% of the total number of announced FDI projects (a 10% increase from the previous year), while Timișoara took the second place, for the second year in a row, with a 11.5% market share.

    Regional areas of investment

    In the last decade, most FDI projects were implemented in the Bucharest-Ilfov region (59.3% of the total in 2015). A notable growth during this timeline can be observed in Western region of Romania (10%). During the same period, the Southern Region of Romania (Muntenia) attracted 15.5% more investment compared to the previous year.

    The North-Eastern region is characterized by a low FDI quota mainly due to the quality of local infrastructure, an aspect that isolates the region from the rest of the regions and implicitly from the activities that involves long-distance transport.

    If we compare the share of total FDI and the share of total GDP of the regions, it is easy to see how these indicators are interconnected.

    The South-Western region has the lowest share of total GDP (7.5%), being also the one that attracted the smallest FDI flow (after the North-East region). For Muntenia, Central Romania, Western, North-Western and South-Eastern regions, the values are relatively close, both in terms of weight in total FDI, as well as in terms of share in total GDP.

    However, they are far below comparing to the Bucharest-Ilfov region for both indicators, strengthening Bucharest’s strategic importance in terms of FDI. 

    Digital and business services sectors, leaders in FDI project numbers

    In 2019, in line with European trends, the digital and business services sectors  attracted the largest numbers of FDI projects, with a 36% market share for the digital sector and 16.7% share for business services. Together, they accounted for over 50% of the number of new jobs created.

    Occupying the third place, the agri-food business generated far less new jobs, being a much vulnerable sector, being also more vulnerable from revenue losses considering COVID-19 supply chain disruptions.

    Machinery and equipment manufacturing generated the second highest number of new jobs in 2019 (18.2% of the total number), even though there were 4 FDI projects announced last year.

    How can Romania retain its attractiveness post-COVID-19?

    Our survey shows investors decisions will be driven by the following market factors: social and political stability (66%), labor supply – skilled and unskilled (65%), cost-competitiveness of the country (65%).

    According to the respondents, Romania should focus on its efforts on funding key issues such as development of education and skills (84%), supporting high technology and innovation

    Industries (81%), investing in major infrastructure and urban projects (80%). In terms of sectors that could accelerate Romania’s development, the majority of foreign investors mentioned agriculture (35%), the IT sector (29%) transport and motor vehicle (21%).

    For companies already present on the local market, the safety and security measures put in place to prevent a major crisis in the future (74%) and the level of success in addressing the crisis caused by COVID-19 (61%) are essential.

  • Romania is well positioned to attract industrial capacities from Asia

    Romania is well positioned to attract industrial capacities from Asia

    The Central and Eastern European Region (CEE) may attract new production capacity as the global economy undergoes major changes in the pandemic context, according to a Colliers International report on the regional industrial market.

    Romania is very competitive in terms of costs, and industrial production has increased significantly in recent years, qualities that can turn the country into a magnet for investments in the production area.

    The global economy is undergoing a period of intense changes in the context of the pandemic, and the relationship between Europe and China is expected to shift significantly in the future. More and more specialists are talking about a relocation of important production capacities operated in Asia by European companies, eager to better control the supply chain.

    A major impediment, however, would have been, until recently, the significantly higher production costs in Central and Eastern Europe compared to China. As wages in China have advanced enormously in the last 10 years, this change is becoming more and more possible, especially in the context of a pandemic that has put huge pressure on the supply chain.

    The Central and Eastern European area has seen one of the highest rates of economic growth in the last decade, and industrial production has kept the pace. Probably the biggest advantage that countries in this region have is the labor market, with wages several times lower than in Western Europe and, in recent years, surprisingly similar to those in China, according to Colliers International’s report.

    Labour cost in CEE saw an increase

    Specifically, the Czech Republic, Hungary, Poland, Slovakia saw an increase in labor costs of 1.6 to 2.6 times from 2004 to 2018, while Bulgaria and Romania recorded increases of just over 3 times in the same period.

    For comparison, labor costs in the German production sector are about 3 times higher than in the Czech Republic and Slovakia, about 4 times higher than in Hungary and Poland, almost 6 times higher than in Romania and almost 8 times higher than in Bulgaria.

    The pace of productivity growth has remained above the pace of cost advances, and, in all Central and Eastern European countries, the gap between value added per employee and labor costs has widened significantly between 2004 and 2018.

    It is worth noting that in Romania, the gap between value added per employee and labor costs is slightly below that of China, with neighboring countries also following, with small differences.

  • Businesses remain optimistic on foreign direct investment plans

    Businesses remain optimistic on foreign direct investment plans

    Analysis reveals that the COVID-19 pandemic disrupted many business plans leading to the delay or cancellation of 35% of 2019 foreign direct investment (FDI) projects into Europe, according to the 20th edition of EY Europe Attractiveness survey.

    This comes as analysis of 2019 projects highlights stronger YoY performance compared to the 2018 (0.9%, up from -4%)

    Based on research conducted in April 2020, 49% of respondents believe Europe is at risk of becoming a less attractive investment destination amid concerns over future economic instability as a result of the pandemic. However, in the near-term, investors remain bullish, with 51% of business leaders expecting a minor decrease in the number of new projects initiated, while 11% of respondents expect no deviation from their plans in 2020.

    Alongside this, 80% of leaders surveyed in April 2020 stated that government stimulus packages influence their investment decisions and will favor nations with stronger COVID-19 pandemic stimulus support measures in place.

    Mapping FDI

    Data reveals that 52% of FDI projects between 2015-2019 originated from countries within Europe, demonstrating FDI from Europe can be an incredible economic and transformational force for Europe. Analysis of projects in 2019 found that seven of the top ten investor countries were within Europe. Almost a quarter (23%) of projects originated from the United States.

    The analysis of FDI destinations found that in 2019 France saw the largest increase in new projects up 17% YoY, with 1,197 new projects – resulting in France overtaking the UK as the most attractive destination in Europe for the first time. Despite a drop-in the number of investment projects into Germany in 2018, analysis reveals that projects into the country remain level in 2019 (2019: 971 projects, 2018: 973 projects). 

    However, the United Kingdom remains attractive as investment increased by 5%, closely behind France with 1,109 projects in 2019. The UK growth aligns with a reduction of investors’ Brexit concerns, as just under a quarter (24%) of respondents (vs 38% in 2018) cite Brexit uncertainties as one of their top three risks to attractiveness across Europe.

    The report highlights that sectors that require a specialized workforce, such as construction, saw projects rise by 158% in 2019 (209: 124 projects, 2018: 48 projects), while the Information, Communications and Media (ICM) sector also saw a significant increase in FDI projects by 117% (2019: 241 projects, 2018: 111 projects).

    Despite strong performance in the textiles and clothing sector from Western Europe, FDI projects into central and eastern European countries fell, resulting in an overall sector decline of 22%. However, the survey found that almost four in ten (37%) businesses are considering an increase in their manufacturing presence in Europe.

    While data suggests that projects within the digital sector have fallen slightly (-1% YoY), 55% of organizations surveyed plan to enhance their digital customer experiences and business-to-customer interactions, while 82% expect technology adoption to accelerate in the next three years – a direct result of the COVID-19 pandemic creating new challenges and opportunities for businesses.

    FDI projects and job creation in Europe – a critical crossroad

    Between 2003 and 2017, FDI projects accounted for over 11m new jobs within the European Union. However, due to the COVID-19 pandemic, the report reveals a potential decline of up to 50% in the number of new jobs created following the completion of FDI projects. To safeguard against such potential downturns, governments must adapt their education and training and development systems to help make sure it can offer a workforce with the right skills in the post-COVID-19 landscape.

    Data suggests that the digital and business services sectors (including professional and legal services) generated almost a quarter of new jobs (24%) in 2019. Nations such as Ireland, Poland and Portugal, which attract FDI projects focused on service-orientated, software development and R&D, are likely to see new job creation rates remain high.

    While the outbreak of COVID-19 is having an impact on numerous sectors and industries, the transportation sector (including automotive and aeronautic manufactures and suppliers) is facing the biggest risk.

    The sector accounted for 23% of new jobs in 2019 (down from 25% in 2018). Research shows this sector has experienced the greatest supply chain disruption and revenue losses, leading to a greater proportion of projects being delayed, downsized or cancelled than in other sectors.

  • Private equity fundraising for CEE reaches decade high of €1.8 billion

    Private equity fundraising for Central and Eastern Europe (CEE) hit the highest annual level in a decade in 2018 with €1.8 billion, according to new data from Invest Europe.

    Buyout funds in CEE raised €1.1 billion, while the region’s venture capital funds attracted over €500 million for the second year in a row, reveals Invest Europe’s 2018 Central and Eastern Europe Private Equity Statistics report, released today.

    Private equity investment into companies across CEE reached €2.7 billion in 2018, the second-highest amount ever achieved, following 2017’s record €3.5 billion. The number of companies backed increased by 50% year-on-year to almost 400, also the second-highest level on record. This was driven by a sharp increase in CEE companies supported by venture capital.

    The number of private equity and venture capital-backed exits in CEE reached an all-time high of 128 companies divested in 2018. This represented a total value of over €1 billion for the fifth year running, measured at historical investment cost. Poland accounted for over half of this total exit value with €575 million. 

    “The strong levels of private equity fundraising, investment and exit activity in Central and Eastern Europe in 2018 demonstrate that the region continues to develop as an attractive investment destination,” said Robert Manz, Chair of Invest Europe’s Central and Eastern Europe Task Force. “Global investors see that private equity and venture capital investment is one of the best ways to access the region’s robust markets and high-growth companies.”

    All countries in the CEE region covered by Invest Europe’s report surpassed the European Union’s 2.1% GDP growth rate in 2018, according to data from the International Monetary Fund (IMF). Eight of the countries achieved annual growth above 4%, with Poland, Hungary and Latvia experiencing particularly high growth rates, reaching 5.1%, 4.9% and 4.8% respectively.

    Poland saw CEE’s highest amount of private equity investment with its companies receiving €850 million in total last year. The Czech Republic was close behind with €767 million invested into its companies via private equity and venture capital funds. Hungary had the highest number of companies receiving investment with over 190 backed last year, almost half of the regional total.

    The biotech and healthcare sector took the highest share of CEE’s private equity investment with 32% of the total value in 2018, while consumer goods and services companies received 27% of funding. The region also has strong technology start-up credentials, including Czech cyber-security group Avast which was 2018’s largest tech initial public offering (IPO) on the London Stock Exchange at a valuation of £2.4 billion.

    Meanwhile, Romania’s robotic process automation firm UiPath achieved a $7 billion valuation during a funding round earlier this year, making it one of the world’s most valuable artificial intelligence companies.

    Invest Europe is the non-profit association representing European private equity, venture capital and their global investors. Its research database is the most robust and authoritative in the industry.