After an unexpected surge in deal activity in the second quarter of 2024 in the Central and Eastern Europe (CEE) region, third-quarter momentum declined, as investors continued to face economic headwinds
- M&A transactions slowed in Q3 of 2024, as both the value and number of deals decreased from the previous quarter, yet there was an increase in the volume of deals compared with the same period last year.
- Poland led M&A activity in terms of deal volume, and Greece led in terms of deal value.
- Technology maintained its dominance in deal volume in 3Q24, closely followed by power and utilities and consumer products and retail.
CEE’s initial 2024 performance was tepid, but Q2 saw a sharp rise with deals increasing by 256% to US$20.6b over 338 transactions. However, a downturn followed in Q3, with a 55% reduction in deal value to US$9.3b and a 17% fall in transactions to 279. Yet, there was a 12% yearly growth in deal volume, with only one major deal surpassing US$1b, in contrast to the five from 3Q23.
Equally on the macroeconomic front, domestic demand, particularly consumer spending, tight labor markets and moderating inflation are driving the region’s uneven economic growth. However, investment growth is inconsistent, constrained by restrictive financial conditions and weak external demand, particularly impacting the manufacturing sector. Moreover, inflation has re-emerged in most CEE economies due to strong demand.
Nevertheless, the region’s strong fundamentals and potential ECB (European Central Bank) rate cuts suggest a positive outlook for capital goods manufacturers and the economy. Stable interest rates could bridge valuation gaps between sellers and acquirers, thereby reviving delayed projects and introducing new business to the market.
For example, the Czech government has been relaxing its fiscal tightening, with a forthcoming election in mind, by increasing public investment in a similar fashion to Poland’s gradual fiscal strategy. We project that the changes in monetary policy, together with an expected influx of EU funds, will bolster both public and private sector investments during 2024–25, which should in turn spur economic expansion and create a more attractive climate for investors.
While the overall CEE M&A activity remained subdued in 3Q24, Poland led in terms of deal volume and Greece in terms of deal value
In the third quarter of 2024, Poland’s deal volume was the highest in the CEE region, recording an annual rise of 17% with 81 deals worth US$1.8b, even though this represented a 15% decrease from the previous quarter. Key sectors included technology, power and utilities, and consumer product and retail, comprising 46% of the nation’s deal volume. The technology sector accounted for 26% of the total deal volume in Poland in 3Q24.
In the same quarter, Greece dominated CEE deal value, with the real estate and power and utilities sectors contributing to 97% of transaction value. Notably, a US$3.6b acquisition of a toll motorway system provider based in Greece marked one of the region's largest deals.
Greece’s economy is outpacing the eurozone average, driven by solid domestic demand, rising investment and EU-funded government spending. Despite low housing investment, the future growth looks promising due to strong private spending and a healthy job market. With a surplus of 1.3% of GDP, Greece’s fiscal health outshines a number of eurozone countries, making it an attractive destination for investment and acquisitions.
Technology remained at the forefront in the 3Q24 deal landscape
The technology sector remained the leader in deal activity in the CEE region, with 74 deals totaling US$1.5b in 3Q24, reflecting a 40% drop in deal value but a 35% rise in deal volume compared with 3Q23.
Domestic deals dominated the technology sector, with Poland and Türkiye leading in terms of both deal value and volume. Additionally, strategic buyers led the sector in 3Q24, dominating with 69% of the sector’s transaction volume, while private equity accounted for the remaining 31%.
The following goals are driving deals in the sector:
- Expansion of geographic reach
- Acceleration of digital transformation
- Innovation in industry-specific technologies
- Strengthening market positioning
- Venturing into new segments
- Broadening product offerings
- Increasing market share
We expect the technology sector to continue to experience elevated levels of deal activity as businesses look to capitalize on further digital adoption.
The power and utilities sector ranked second in regional deal activity, thriving during the shift to enhanced renewable energy generation capacity
The power and utilities sector saw 36 deals totaling US$1.6b in 3Q24, a decrease in value both annually and quarterly. Nonetheless, it secured the quarter’s second-highest sector ranking with a 9% annual increase in deal volume, of which corporate transactions represented 86%. Domestic deals led M&A activity in the power and utilities sector, with Romania, Poland and Greece the top countries in both deal value and volume.
A concentrated effort to expand renewable energy projects such as wind, solar and hydro, extend international presence and embrace advanced energy technologies to align with global clean energy transitions and EU objectives is driving the sector’s deal activity. High energy costs in CEE are prompting businesses, particularly in Poland and the Czech Republic, to adopt eco-friendly solutions for affordable and sustainable energy sources.
Despite a decline in activity, the consumer sector remains third in regional deal volume, buoyed by strategic buyers pursuing acquisitions to expand capacity and market presence
The consumer products and retail sector also emerged as a key performer in terms of deal volume in 3Q24, although deal activity declined both in YoY and QoQ terms.
The sector had 35 deals worth US$253m in 3Q24, down 95% in deal value and 3% in deal volume compared with 3Q23, also 57% and 27% down, respectively, compared with the previous quarter. The sector remains a top performer despite fewer deals, with corporate transactions leading the momentum. Consolidation efforts aimed at increasing market presence, improving operations, expanding capacity and achieving cost efficiencies are driving deals.
Domestic deals dominated the deal activity in 3Q24 despite a YoY and QoQ decline
In 3Q24, domestic deals led the CEE market with 145 transactions valued at US$6.5b, marking a decline from previous periods. 3Q24 saw only one big-ticket (US$1b+) deal in real estate sector as opposed to two such deals in 3Q23 in the real estate and oil and gas sectors.
Inbound deals slowed after a surge in 2Q24, with 100 deals worth US$1.7b, a 68% drop in value but a 30% increase in volume from 3Q23. The US, Germany, France and the UK were the most active acquirers of CEE-based targets. Targets within the technology, power and utilities, chemicals and advanced materials, and consumer products and retail industries represented 50% of the inbound transaction volume.
Similarly, outbound deals from the CEE region in 3Q24 decreased in value to US$1.1b, a 78% drop, despite a 21% increase in deal count to 34 compared with 3Q23. Germany, the UK and Italy were top targets for CEE acquirers. Half of the outbound deal flow targeted entities in the technology and real estate sectors.
Corporate deals dominated the deal activity, with Poland maintaining its position as the leader in the region in both corporate and private equity (PE) deals
Corporate deals in the CEE region in 3Q24 were worth US$4.8b and PE deals were worth US$4.5b, representing declines of 64% and 39%, respectively, from the previous quarter, and 55% and 57%, respectively, from the same period last year. However, the volume of both corporate and PE deals also increased by 19% and 9%, respectively.
A stable interest rate fostering good global financing is driving the YoY increase in PE transaction volume, making PE fundraising in Europe, particularly in the Baltic region, more attractive and creating opportunities for local sponsors to exit their investments.
Furthermore, bankers in the CEE region and the Baltics are increasingly looking to out-of-region PE investors for mandates. The rise in out-of-region PE acquirer deals reflects this shift, with growth from 19.4% in 3Q23 to 28.4% in 3Q24, highlighting the growing interest in cross-border PE transactions.
Strategic buyers made up 73% of total deals in 3Q24, , while PE accounted for the remaining 27%. The most targeted sectors for corporate deals were technology, power and utilities, and consumer products and retail, while PE was most active in technology, consumer products and retail, and life sciences. Additionally, among transactions with disclosed values, PE participation was concentrated in the smaller deal bracket (US$0–US$50m), with just a single deal exceeding US$1b.
Robust macroeconomic strategies, coupled with momentum in digitalization and renewable energy, are expected to stimulate M&A activity despite a rocky and inconsistent economic rebound in CEE.
Economic growth in the CEE region was uneven in Q3 2024, with slight GDP growth in the Czech Republic and a substantial decline in Hungary. Poland and Slovakia are anticipated to experience considerable growth soon, distinguishing them within the region. However, data highlights a subdued growth dynamic overall, with tight financial conditions continuing to weigh on CEE exports of goods.
Macroeconomic policy, particularly the easing of monetary policy in Europe, is likely to strongly influence the M&A outlook. Central banks, including the ECB and those of the Czech Republic, Switzerland, and Sweden, reduced interest rates in Q2, contributing to a 17% increase in M&A deal value from the previous quarter, according to PitchBook data. These lower interest rates are expected to encourage more dealmaking and PE activity by reducing borrowing costs and making leveraged buyouts more attractive.
Despite fluctuating macroeconomic indicators and investment growth, the CEE macroeconomic outlook for the remainder of 2024 is projected to remain stable, providing a boost to M&A activity. While investment momentum slowed in Q3 2024 after a surprising uptick in Q2, EU-funded projects and private investments are expected to drive stronger economic growth, particularly in countries such as Poland, in 2025–26.
Current interest rate cuts are anticipated to benefit the CEE region through 2024–25, though resurgent inflation may prompt stricter future monetary policies. Fiscal policies, including EU support, are expected to shape M&A trends, with countries such as Poland likely to receive a fiscal uplift.
Additionally, the global shift toward artificial intelligence (AI)-enhanced digital transformation is forecasted to boost M&A activity in CEE, with a projected increase in tech-related deals on the horizon. The region is also set to capitalize on nearshoring trends and ESG-driven acquisitions for decarbonization and energy transitions over the next three to five years.
Businesses are pursuing transformative deals to stay competitive and overcome capital limitations. M&A activity in the region is expected to benefit from both domestic and cross-border investments, helping to diversify market exposure and fuel growth. Continuing trends indicate that cross-border investments from the US, Germany, France, the UK, and Sweden will continue to support dealmaking in the region.