The M&A market in Bulgaria Reached 1.24 Billion Euro

Article by Kaloian Kirilov in “B2B” magazine about the M&A market in Bulgaria

M&A Market in Bulgaria Reached 1.24 Billion Euro – B2B Magazine – M&A

The market for mergers and acquisitions in Bulgaria during the last 2-3 years is a result of the consequences of the global financial crisis. However, the market grew in 2012 and according to DealWatch reached 1.24 billion euros against 1.2 billion in 2011. There are many opportunities to acquire interesting companies at an attractive price as long as the investors are willing to invest a little more effort in restructuring and repositioning of the companies.

We can say with big certainty that there are several new trends:

1. Some of the multinational companies have decided to concentrate on their core markets and to exit their investments in countries such as Bulgaria. So far despite its small market, our country attracted foreign investors because of its high growth of 6% per year and many investors said to themselves: “Why not enter the Bulgarian market?” But now companies such as Enel, Vaz, Kloeckner, E.ON, Pro7, AIG PE fund, Mechia, and others recently left Bulgaria and their assets were purchased mainly by Bulgarian investors
2. A second trend is the consolidation of capital in Bulgaria in several large economic groups/holdings. This is a normal process and everyone was talking about the future consolidation in the sectors. However, it happens rather around economic groups than around industries.
3. There is a big supply of companies and assets for sale. This is due on one hand to the economic difficulties of the firms and on the other
hand to the philosophy of the Bulgarian entrepreneurs that a company needs to look for a partner only when it has difficulties and lacks cash.
4. Banks are becoming more and more active player on the M&A market after being cautious for 2-3 years and only restructuring corporate loans. Now they are stuck to the wall but since they are still conservative institutions they are waiting too much and as a result offer to the market mainly assets not running businesses. The majority of these assets will be acquired by local investors
5. There is growing investment interest from investors from the East: Russia, Turkey, China, and others.
They are expected to replace the European investors. So far, except for rare cases, we are talking mostly for intentions rather than actual transactions or they prefer Greenfield investment rather than buying an existing business.
6. The number of financial investors (private Equity funds) which are looking for investments in Bulgaria decreased substantially for two reasons: the majority of the firms which are on the market currently are in financial difficulty and the funds do not want to invest so much resources (especially time and effort) in the restructuring of such companies. The second reason is that they became much more conservative in their valuations, which do not meet the expectations of the owners of the good companies

Here are the main steps through which a company led by its M&A advisor (nevertheless on buy or sell side) has to go through:

1. Preparing a list of the potential investors or companies;
2. Making contact with them;
3. Sending an anonymous short profile of the company;
4. Signing a confidentiality agreement ;
5. Sending / Receiving an Information Memorandum;
6. Receiving non-binding indicative bids;
7. Meetings and discussions with the owners / investors;
8. Receiving a binding offer;
9. Preparation of due diligence;
10. Preparation and signing of contracts;
11. Dealing with the integration of the purchased company and extraction of synergies.
Of course, the process is flexible and these steps not always are in this order. Another trend is that during last 2-3 years it takes more time for the completion of a transaction, so periods of 6-12 months is normal.

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