By Matteo Lana, Francesco Biondo and Antonio Gagliardi
As economy insiders know: Q1 2020 will be remembered as one of the darkest periods in the history of capitalism. As Covid-19 spreads worldwide, countries established lockdowns which result in real economic slumps. Despite this, it is clear that as things stand we are not experiencing a financial crisis the likes of 2008, hence capital markets are still active, although they did suffer a slowdown; this article will address and break-down the deal flow in EMEA.
Global M&A deal value slipped 26% as volume was down 21%
Worldwide, during 2020 Q1, there was a total number of 21,154 deals, decreasing by 5,493 Q-o-Q from a previous 26,647. Clearly the loss in deal activity also creates a decrease of combined deal value to USD 877.4bn from a previous USD 1,191.7bn. This set of data constitutes a 26% decline QoQ and a 27% decrease YoY. The average value per deal experienced a decline of approx. USD 3m.
PE and VC activity suffering a worse percent decline in value. Value down 23% whilst number of deals decreased by 11%
Activity declined globally in the first quarter of 2020 as 6,331 deals worth a combined USD 173.4bn were announced over the three months. This compared to the USD 220.4bn invested across 7,136 transactions in Q4 2019. The main reason we consider this trend in comparison to broader M&A market is the increased risk-aversion of PE investors relative to other agents. The data figures a 9% decrease in value and a 4% decline in deal number YoY.
Breaking up the biggest PE deals in 2020 Q1
The biggest deal of the quarter was completed in Central Europe. The target company was the renowned lift manufacturer Thyssenkrup Elevator for a total deal value of USD 18.7bn sold by the German holding Thyssenkrupp AG, the joint acquirers were Advent International (US), Cinven Ltd and Rag-Stifung, the German mining foundation business.
Across the channel, American PE giant Blackstone LTD invested more than USD 6.1bn in an IBO involving IQSA service LTD, putting its interests in the students accommodation business.
Searchlight Capital Partners and Forelight Creative IBOed 64% of US-based Spanish language cable television group Univision Communications for USD 10.0bn as part of a secondary buy-out marking the exit of a pool of US based PE firms.
The biggest deal in Italy during the quarter was the 100% stake acquisition of Engineering Ingegneria Informatica SpA by Bain Capital Investors LLC for a total value of USD 1.8bn.
More details about the deals shown below.
The aggregated value of announced PE and VC-backed M&A deals in Europe amounted to USD 64.0bn in Q1 2020, marking a 32% increase relative to the previous quarter and 15% growth YoY. Deal counts, on the contrary, has dropped by 12% relative to Q4 2019 and by 7% YoY.
The quarter observed the surge of several massive deals (including eleven valued above USD 1bn and four in excess of USD 5bn), which may explain why the deal volume has fallen relative to the previous quarter while the value has flourished. Given the COVID pandemic outbreak, however, it is possible that the trend will be inverted in the following quarters due to leverage constraints and/or discounted distressed target acquisitions.
UK still dominates in volume
The UK fielded 340 deals, outperforming the entirety of the continent. Germany and France followed with 84 and 69, respectively. It is worth noting that deal volume fell for all the three countries relative to Q4 2019.
Deal value boomed in Germany. Cyprus crowned the Quarter Unicorn.
Germany dominated the market in terms of deal value, with an astonishing USD 27.1bn, a figure that counts the Thyssenkrupp transaction. On top of that, five of the twenty largest deals took place in Germany, which has significantly outperformed its last spike in Q3 2019. The UK followed with USD 19.6bn, almost replicating the performance of the previous quarter. However, Cyprus was the big surprise of the period, ranking third with one single deal valued at USD 5bn (see below).
Notable transactions announced in Q1 2020 – EMEA
Some notable deals were announced in the first three months of 2020, many of them involving the big names of PE, including KKR, Bain and Blackstone.
- Thyssenkrupp Elevator AG – Lift and lifting equipment manufacturer.
Announced 27/02/2020, Germany
Value: USD 18.7bn
Deal type: Institutional buy-out – 100%
Acquirer: Advent International Corporation, Cinven LTD, Rag-Stiftung
Overview: a consortium led by Advent International is acquiring the lift division of Thyssenkrupp. The elevator business accounted for 18% of the group’s revenue last year. The deal is pending regulatory approval, and if successful it will be the second largest PE deal in Europe to date.
- IQSA Services – Student accommodation leasing and management
Vendor: Goldman Sachs Group, The Wellcome Trust Ltd, Greystar Real Estate Partners
Value: USD 6.1bn
Deal type: Institutional buy-out – 100%
Acquirer: The Blackstone Group Inc.
Overview: Blackstone is acquiring iQ Student Accommodation (IQSA), a specialized real estate group owning and managing over 28,000 student beds across the UK. The deal is pending regulatory approval and is expected to be the largest ever real estate transaction in the country.
- Viridor – Waste management services
Vendor: Pennon Group PLC
Value: USD 5.3bn
Deal type: Institutional buy-out – 100%
Acquirer: Planets UK Bidco Ltd
Overview: KKR is acquiring, through its subsidiary Planets UK Bidco, the British waste management and recycling company Viridor. The deal is pending shareholders’ approval.
- Veeam Software Holding Ltd – Software-as-a-service provider
Vendors: Canada Pension Plan Investment Board, Mr Ratmir Timashev, Mr Andrei Baronov
Value: USD 5bn
Deal type: Institutional buy-out – unknown remaining stake
Acquirer: Insight Holdings Group LLC
Overview: Insight Venture Management LLC, through its investment vehicle Insight Holdings Group, is acquiring the remaining stake in the Cyprus-based backup replication and virtualization management software developer holding company Veaam. Insight had already bought a stake in the company in the past and now it is completing the acquisition by obtaining the co-founders’ shares. The company will be domiciled in the US after completion of the deal.
During the first quarter of 2020, the value and volume of total M&A activity in CEE and Russia shows a strong decline compared to the previous quarter and Q1 2019. In all, there were 1,201 deals and the total deal value was USD 11.4bn compared to 1,309 deals totaling USD 26.3bn in Q4 2019. Therefore, in the first quarter of 2020, the number of deals decreased by 8.3% and the total value more than halved (a 57.5% decrease), hitting its lowest level for any quarter since Q1 2004.
Even though countries in eastern Europe were not particularly affected by the Covid-19 (total cases per 1m people in Russia were 232 and 230 in Poland as of April 7th), the strong reduction in activity can be attributed to the recent spread of the virus.
Having said this, during Q1, four deals worth over USD 1bn were announced, demonstrating that M&A activity did not halt.
Russia/CEE private equity deals by volume and value:
Focusing on private equity deals by volume and value, the number of deals slightly increased from Q4 2019 growing from 63 to 67, but decreased significantly from Q1 2019 performing a 41 % decrease YoY. Furthermore, the total value of deals shows a significant decrease, in fact, in Q1 2020 it amounted to USD 138m, compared to USD 1.25bn in Q4 2019 according to data from Zephyr.
Something important to notice is that the number of deals have constantly decreased from 2018.
Poland and Russia are the most important private equity markets by volume
During Q1 2020, 18 deals were completed in both Poland and Russia, representing the most active countries in terms of volume. Compare this to Q1 2019, Hungary had the second most deals with 40 behind Russia’s 41 deals.
Deal value experienced a strong decline in each country
Almost in every country, the total value of deals decreased significantly from the previous quarter and YoY. In Hungary, in Q1, total deals value was only USD 67m, compared to USD 1.0bn during the previous quarter. A similar trend can be seen in Poland where in Q1 2019 total deal value topped USD 1.8bn, while in Q1 2020 it only reached USD 25m.
Notable transaction announced in Q1 2020 – CEE/Russia:
- Netrisk – leading Hungarian online brokerage
Value: USD 61m
Deal type: IBO 76%
Acquirer: TA associates management LP
Overview: private equity firm TA Associates is acquiring Netrisk from MCI group for EUR 55m (75% of outstanding shares). The goal of TA associates is to increase the presence of the company in the region and reach approx. 100 million customers in CEE.
- Nomagic Sp zoo – AI-driven robotic manipulation
Value: USD 9m
Deal type: Minority stake
Acquirers: Khosla Ventures LLC; DN Capital Ltd; Capnamic Ventures Verwaltungs Gmbh;Hoxton Ventures LLP; Manta Ray VC; Bitspiration Booster sp zoo
M&A activity in the MENA area during Q1 2020 depicted a completely different trend compared to other markets. In fact, total deal value reached USD 25.0bn compared to USD 6.5bn in the previous quarter. However, the transaction count has decreased from the previous quarter from 240 in Q4 2019 to 158 in Q1 2020.
During Q1 four transactions exceeded USD 1bn. The most significant was the acquisition of Ahli United Bank for USD 11.3bn in Bahrain.
PE volume and value in South Africa:
South Africa is still one of the most active country for PE activities in MENA. The number of deals during Q1 was 20 which is an 82% improvement on Q4 2019 and a 5% improvement on Q1 2019.
The total deal value stood at 114m USD, marking a large increase from the previous quarter (total deal value in Q4 2019 was 18 mil USD). However, it must be noticed that YoY it is down more than 80% (Q1 2019 reached 581 mil USD).
Editor: Eric Peghini
Authors: Francesco Biondo, Antonio Gagliardi, Matteo Lana