Dropped from €1.07 bln to €215 mln in 2009
The value of mergers and acquisitions involving Cyprus-based companies plunged by 80% in 2009 to EUR 215 mln, a far cry from the EUR 1.07 bln in deal concluded in 2008 and the record EUR 2.65 bln reached in 2007, according to the Annual M&A Survey conducted exclusively by the Financial Mirror.
The rate of decline in Cyprus exceeds by far the decline witnessed in global M&As in 2009, which fell by 15% YoY to $3.6 trln from $4.2 trln in 2008 and $5.6 trln in 2007, according to Zephyr.
It was one of the worst years for those involved in M&As amid the uncertainty in global and local financial markets following the credit crunch and the collapse in economic activity around the globe.
In Cyprus, while the value of the deals plunged to EUR 214.76 mln in 2009, the number of deals was down 10% to 45 from 50 in 2008, which is very close to the long term average seen in recent years.
An interesting development is the steady increase in the number of deals financed by equity as opposed to the preference in 2008 and 2007 to finance deals mostly in cash.
The Financial Mirror survey shows that for 2009, a total of 45 deals were announced of which EUR 168.8 mln was in cash and EUR 45.9 mln in equity.
SMALLER DEALS
The acquisition of a 9.7% stake in Banca Transilvania of Romania by Bank of Cyprus worth EUR 58 mln is the largest M&A deal of last year, but which is just 15% of the size of the largest deal of 2008 when Bank of Cyprus acquired a controlling interest in Uniastrum Bank of Russia for EUR 371 mln in cash.
Empire Capital’s takeover of Plaza Exclusive Projects through the issue of 41.8 mln shares at EUR 0.62 each worth EUR 25.7 mln is the second largest M&A deal of 2009, according to the Financial Mirror data.
The third largest deal is the sale of IMCL Holdings by SFS Group subsidiary Lemissoler Shipping to Unifeeder A/S for EUR 18 mln, followed by the takeover of Aqua Sol Hotels by its majority owner Yiannis Panagi for EUR 15.55 mln. The fifth largest deal is the acquisition of a 5.5% stake by Sir Stelios Hadjioannou, the founder of the easyGroup empire with considerable interests in shipping, who took a stake in Cyprus’ Sea Star Capital in a deal worth EUR 9 mln in cash.
TEPID RECOVERY IN 2010
With interest rates remaining stubbornly high in Cyprus for corporate borrowers at around 6% compared to 3.5% in the rest of the eurozone and a dismal outlook of weak economic growth, it will be difficult for Cypriot businesses to use bank borrowing to proceed with acquisitions.
The activity of foreign investors securing a foothold in Cyprus through a buyout of an existing company and more Cyprus based companies looking to expand abroad through acquisitions will most likely dominate M&A deals in 2010.
On the global level, the energy, finance, technology and healthcare industries are expected to be the hottest areas in a dealmaking market that in 2010 is likely to expand gradually from last year's depressed levels.
With many countries around the world moving back to economic growth and governments continuing to extend cheap financing and liquidity to their economies, Financial Mirror analysts expect the M&A market to flourish globally as companies use their high valuations to secure deals, whereas in Cyprus, deal activity will be muted until the first signs of economic recovery emerge.
Past experience shows that the best deals often are done at the beginning of a recovery. Post-bubbles create opportunities to get great values but are not always the best times for sustained M&A activity.
MORE HOSTILE DEALS
Extra cash on balance sheets, buoyed stock prices and rising corporate boardroom confidence points to an increase in hostile deal activity over the next year, bankers said.
Kraft Foods Inc's $16 bln hostile offer for British confectioner Cadbury is typical of the move toward hostile deals, according to data from Thomson Reuters.
Hostile bids represented only 0.9% of the M&A market in 2009, but that was still the highest rate of the past five years, the data showed.
