CEE M&A Monitor August 2024

Introduction

Thank you for your interest in the first M&A Monitor for Central and Eastern Europe by Dealsuite. This report consolidates research performed by Dealsuite, the leading tool for European M&A professionals. It contains statistics and trends for the CEE M&A mid-market (enterprises with a revenue between € 1 million and € 50 million) over the first half of 2024.

The aim of this study is to create periodic insights that improve the CEE market’s transparency and to serve as a benchmark for M&A professionals. We are convinced that sharing information within our network leads to an improved quality and volume of deals.

Floyd Plettenberg MSc. EMFC
CEO Dealsuite

I Transactions

The number of buy-side and sell-side transactions is high

The advisors that took part in this research were involved in the following number of transactions in the first half of 2024:

Some of the businesses sold involved a respondent on both the sell- and buy- side. Therefore, we cannot sum up the sell- and buy-side transactions to get to a total number of transactions.

The number of buy-side transactions performed by the survey respondents was 142, the number of sell-side transactions was higher, at 183.

Considering that this data was captured early in the development of Dealsuite in the CEE markets, the extrapolated number of SME transactions in CEE in H1-2024 is high.

The number of buy-side transactions is in line with a trend we are observing across all regions. In the M&A mid-market trends report 2024, it is described that additionally to the proactive buyers, “open for opportunities” (opportunistic) buyers are increasingly active in the market again.

The median transaction size in H1-2024 is € 7.5 million

50% of the transactions had a deal size above € 7.5 million, and 50% below it. The median transaction size in H1-2024 is € 7.5 million.

Transaction deal sizes in CEE slightly increased in H1-2024. The number of transactions in the segment below € 2.5 million decreased from 29% in H2-2023 to 23% in H1-2024.

In H1-2024, the percentage of transactions with a deal size above € 10 million accounted for one third of the total (32%).

II Assignments

52% of CEE-advisors report an increase in the number of assignments in H1-2024

The majority of advisors (52%) reported an increased number of assignments compared to H2-2023. Compared to the beginning of 2024 (survey Dealmaker Insights), the group reporting a strong increase (+25% or more assignments) had increased from 9% in February 2024 to 22% in August 2024.

17% of the respondents witnessed a decrease in assignments in H1-2024.

III EBITDA-multiples in CEE

The average EBITDA-multiple in CEE was 5.2 in H1-2024

Sell-side advisors defined the average EBITDA-multiple by industry for the first time in this edition.

The average EBITDA-multiple in CEE is 5.2 and varies by sector. It ranges from 7.1 (Healthcare & Pharmaceutics) to 3.9 (Hospitality & Tourism), which means that the purchase price differs by up to 80% depending on the sector of the company.

The results of this study provide a starting point for the applicable sector-multiples. They therefore offer a good benchmark for cross-checking company valuations in the near future.

Biggest spread reported in the IT Services sector

A sector can contain various types of companies with different characteristics. As a consequence, businesses in a specific sector may also vary in EBITDA multiple. Figure 5 shows the spread of EBITDA multiples per sector. For some sectors, a wider spread in EBITDA multiples is reported, compared to sectors that contain a higher proportion of similar companies. Based on the research data, it can be stated with 95% certainty that the true value of the parameter lies between the two boundaries of the confidence interval.

IV EBITDA-multiples in the neighbouring regions

A comparison of EBITDA-multiples between different countries highlights the advantages of cross-border deals. For example, it can be beneficial to buy a particular company abroad, or to sell a company to an international buyer. Figure 6 shows the differences in EBITDA-multiples between European markets.

In CEE, companies in Healthcare & Pharmaceutics are recognised with the highest sector multiple. In the Western European market the highest sector multiple is found in Software Development.

While we collected the multiples for CEE for the first time, Dealsuite M&A Monitors for the Western European markets show that the development of the local average EBITDA-multiple is positive compared to H2-2023. It increased in all 4 regions.

V Buyers intent by sector

The SME M&A market in CEE is a seller’s market, the average number of interested parties per company for sale is 5.7

There is more demand than supply. The current M&A market is a seller’s market. Selling parties are in a steering position. The ratio between supply and demand is different for each sector. M&A advisory firms were asked to indicate the demand-to-supply ratio for each sector. In other words, on average per sector, how many serious interested parties contact the seller for each business.

The sector Software Development ranks top of the table with 9 seriously interested buy-side parties per company for sale. It is followed by the sectors Industrial & Manufacturing and Healthcare & Pharma- ceuticals, each with an average of 8 seriously interested parties. Compared to other European markets, the average demand for companies in the CEE region is low. On average, 5.7 interested parties line up per company for sale, whereas in the DACH region, this number is 9.6.

VI Age of company at sale

We want to assess the age of a company when it is offered for sale and whether M&A advisors believe it changed over the past 10 years. The majority of advisors (73%) report the average age of a company for sale to be 10 years or older.

Over half of the respondents (58%) believe that the average age of a company offered for sale has remained the same over the past 10 years. A third of the respondents (34%) perceives a trend toward earlier sales. These results are consistent with those of other European markets, indicating an overall shift towards earlier sales.

VII Outlook

An overwhelming majority of the advisors (86%) are positive about H1-2024 and optimistic about H2-2024

Assessing the performance of the CEE M&A mid-market is based on many factors, including the willing- ness of entrepreneurs to sell their businesses, funding availability, macroeconomic developments, etc. An interpretation of these factors is needed to determine how the market will develop. The survey included both assessments of the M&A mid-market in H1-2024 (retrospective) and H2-2024 (projection).

The opinions about the past six months are predominantly positive: 86% of the advisors look back at H1-2024 with a mostly or very satisfied feeling. The expectations for the second half of 2024 are positive as well, 87% of the advisors are optimistic about H2-2024.

VIII About Dealsuite in Central and Eastern Europe

Through Dealsuite, M&A advisory firms present sales mandates to potential buyers. Figure 12 shows the annual revenue of companies offered for sale on Dealsuite in H1-2024. Depending on the transaction timeline, some of these deals will either be completed or fall through in H2-2024 or H1-2025. We can consider this data a tentative forecast of the size of companies likely to be sold in the coming quarters.

Platform data for H1-2024 shows that 23% of the deals listed on Dealsuite in the CEE region have a revenue of less than €2.5 million. 16% of deals have a revenue between €2.5 million and €5 million. 34% of the deals have a revenue exceeding €10 million.

IX Method

The majority of M&A transactions take place in the mid-market. This report uses the definition of a mid- market company as having a revenue between €1 and €50 million. The survey was sent to 442 M&A advisory firms. Considering their combined input, they represent an essential part of the M&A mid-market in Central and Eastern Europe. Out of the total of 442 advisory firms, we received 102 respondents (23% response rate).

Sources used:
• Dealsuite M&A mid-market trends report 2024
• 599 survey responses from key Western- and Eastern-European M&A advisory firms
• Dealsuite M&A Monitors 2015 - 2024
• Dealsuite transaction data 2015-2024
• Field, A. (2011) Discovering Statistics SPSS. Third edition, SAGE publications, London. 1 -822
• Damodaran (2011). Equity Risk Premiums (ERP).
• Graham, J., Harvey, C., Puri, M., 2010. Managerial Attitudes and Corporate Actions. Working Paper, Duke.

This research was conducted by Tim Lammar and Alexandre Narayanin.