EY Romanian M&A Market Review 2023

Overview

Following a difficult year for global M&A in 2022, last year saw the continuation of multiple economic headwinds but also signs of relative stabilization and improving market certainty. 2023 global deal values reached a 10-year low, decreasing by 13%, driven by a higher-for-longer interest rate regime, renewed geopolitical tensions and a general economic slowdown. European M&A was particularly affected by this new paradigm, with deal values falling by 19%. In this context, Romania bucked the global and regional trends for a second consecutive year, displaying a 6% increase in the estimated value of M&A deals.

The Romanian M&A market recorded 241 deals during 2023, with a total estimated value of USD 7.1bn. This indicates a 6.1% increase by value year-on-year (2022: USD 6.6bn) and a 6.2% reduction in deal volume compared to prior year (2022: 257).

The total value of Romanian M&A fell by 9.8% between H1 and H2 2023, while deal volume dropped by 17.4%. However, the value of deals increased by 33.3% in H2 2023 compared to the same period in 2022, demonstrating the robustness of Romanian M&A in the global context.

The value of disclosed deals amounted to USD 4.8bn in 2023, representing a 23% increase compared to 2022 (USD 3.9bn). This is mainly attributed to the two mega-deals over USD 1bn announced in 2023. Underlying disclosed deal value, excluding such deals, was up by 2.7%.

Moreover, Romanian M&A saw a remarkable pick up in the value of deal-making during Q4 2023, with USD 2.3bn of disclosed deals. Excluding mega-deals such as Profi Rom in October, Q4 was still the strongest quarter of 2023 with USD 909m of disclosed deals.

Investor dynamics

Strategic investors retained their dominant hold on Romanian M&A during 2023, accounting for 87.6% of deal volume, albeit they announced 5.4% fewer deals during the year. Strategic players have had to weather the economic storm of higher interest rates and shifting customer dynamics, whilst addressing the need for investments in technology and supply chain solutions to continue operational performance.

Private equity-driven M&A decreased by 18.8% by number of deals during 2023, while disclosed-value deals totaled USD 247m, halving from 2022’s USD 503m. The private equity industry was affected particularly negatively by the tight interest rate regime of the last couple of years and the accompanying increase in the cost of capital. With private equity funds entering investments at valuation levels from pre-pandemic years, as well as under a different economic outlook, a lot of players have struggled to exit those businesses now and return cash to investors or re-deploy it.

Top-10 deals

2023 saw the announcement of two mega-deals (over USD 1bn), compared to only one during the previous year – the acquisition of ExxonMobil Exploration and Production Romania Limited by state-owned Romgaz for USD 1.1bn. Most notably, nine out of the ten largest deals had inbound direction, compared to 2022, where seven of the top-10 deals were inbound. This demonstrates the confidence of foreign inventors in the Romanian market, despite the decrease in number of inbound deals. Furthermore, the top-10 transactions represented 84% of the year’s total deal value.

Sector activity 

Romanian M&A continued to be dominated by the real estate, hospitality & construction (REH&C), and technology, media & telecommunications (TMT) sectors in 2023. These two sectors have retained a stranglehold on first and second place based on deal volume over the last five years.

REH&C secured the #1 ranking in terms of deal volume in 2023, a position which was previously held by TMT, with both sectors being heavily impacted by the higher cost of capital environment of last year and valuation levels coming down.

M&A in the advanced manufacturing & mobility (AMM) sector was boosted by the continued trend to localize supply chains and to some extent, relocation of production facilities from less stable countries (nearshoring). Investment activity was also underpinned by both state aid and EU non-reimbursable funding to support growth and regeneration in Romania.

The unexpected strength of the economy boosted deal-making in the consumer products & retail (CPR) sector, with consumption remaining high as wage growth continued amid a tight labor market.

While the green energy transition continues to fuel deal-making in the energy & utilities sector, several utility players are rumored to be analyzing their strategic options for Romania. M&A activity in the healthcare & life sciences sector, declined slightly following a stronger 2022 although we expect activity will pick-up in 2024.

Lastly, the financial services sector had one of the strongest years on record for M&A during 2023, triggered by the consolidation phase of the sector's life cycle in Romania.

Cross-border M&A dynamics

Romanian M&A has been weighted towards inbound investment in recent years both in terms of disclosed-deal value but also the number of transactions.

In 2023, 89% of disclosed deal value was attributable to foreign investors, who also accounted for 44% of activity (105 deals). Although the number of deals declined compared to 2022, the level of inbound M&A remained robust in the context of the fall in European deal-making, which accounts for five of the top-six countries investing into Romania.

Local investors continue to show their appetite for deals, with the post-pandemic recovery in domestic M&A continuing with 119 transactions announced in 2023, equal to 49% of total volume.

Outbound investment continues to be fairly muted, but has seen a pick-up in deal-making since 2022.

As the Romanian M&A market continues to mature, we expect domestic investors to become more competitive in larger deals. At the same time, the increased pool of potential targets is likely to continue attracting inbound investment.

2024 Outlook

While the global economic outlook remains hazy, dealmakers have more clarity on what the future holds, with inflation receding in many countries, monetary policy normalizing and expectations of interest rate cuts in the near-term. Predictability and stability are crucial for M&A activity and following a recent challenging environment, deal-making will benefit in 2024 from pent-up demand of eager acquirors with solid balance sheets as well as private equity funds sitting on record amounts of dry powder. The valuation gap will continue to narrow during 2024, as sellers recalibrate expectations in a new interest rate environment and buyers can more reliably factor in future market developments into valuation models.

Following a particularly strong fourth quarter of 2023 in both developed markets and Romanian M&A, there is indication of a healthy pipeline of transactions for the year ahead, alongside increased levels of activity in the first weeks of January 2024. Encouraging signs can already be seen via landmark deals such as OMV Petrom’s acquisition of the largest wind power portfolio in Romania from Renovatio, at the start of 2024. Furthermore, mega-trends such as the digital transformation for the new economy and the green energy transition will continue to drive M&A activity for the foreseeable future. 

The last few years have brought vast disruptions to traditional business models and challenged our understanding of global supply chains, consumer behavior and the ubiquitousness of technology. Given this new paradigm, M&A represents the most potent tool that companies can use to adapt and reposition strategically for the future. As such, we believe 2024 will mark the start of renewed and buoyant transactions market in which Romania will continue to outperform and represent an attractive investment destination with significant value creation opportunities.