Mergers and acquisitions involving Cypriot companies tumbled to EUR 1.08 bln in 2008, a drop of 60% from the EUR 2.6 bln deals recorded in 2007 and EUR 2.9 bln in 2006, ending four years of deal growth as a lack of available credit, plunging stock markets and a worldwide financial crisis undermined companies' ability to make acquisitions.
A total of 51 deals were announced last year compared to 92 deals in 2007 either directly related to Cyprus or involving a Cypriot company making a deal abroad or becoming the target of a foreign company. Of the total, just over EUR 1 bln involved cash and EUR 73 mln involved equity swaps, according to the Financial Mirror Annual M&A Survey.
To Russia with Love
The banking sector was once again in the spotlight, but in contrast to 2007 when Bank of Cyprus was the target of an acquisition bid by Marfin Popular Bank, this time around, the two largest financial institutions of Cyprus were busy snapping up stakes in Russian banks in order to gain a foothold in the promising market of Russia.
Bank of Cyprus concluded the largest M&A deal of 2008 by acquiring an 80% stake in Uniastrum Bank, Russia’s 9th largest bank, with an option to increase its stake in the future.
The acquisition was described by bank officials as “historic” and as important for future growth as that of the timely expansion into Greece in 1992.
During the year, Marfin Popular Bank concluded its acquisition of a 50.04% stake in the Russian Rosprombank for EUR 83 mln, thus increasing its geographical presence in eastern and central Europe in addition to the Balkans.
Insurance
The Insurance sector was particularly active in 2008, the highlight being the sale by Marfin Popular Bank to CNP Assurance France of controlling stakes in Laiki Cyprialife and Laiki Insurance – involved in life and general insurance activities respectively – for EUR 145 mln.
Meanwhile, an attempt by Aspis Holdings to hold on to its stake in Universal Life Insurance was blocked by the Superintendent of Insurance, forcing Aspis to off-load its stake in UL to Photos Photiades Group.
The Supreme Court recently ruled that the decision of the Superintendent of Insurance to block the sale of UL to Aspis was illegal and wrong, leading Aspis to sue the government of Cyprus for EUR 65 mln in damages sustained as a result of the action.
In the meantime, Aspis Holdings proceeded to inject EUR 90 mln to lift its stake in Commercial Value SA of Greece, becoming its largest shareholder and increasing its exposure to the insurance sector.
Shipping and cement
Sea Star Capital, which was successfully acquired by the Vardinoyiannis family of Greece, purchased 15.5% of ANEK from the Italian Grimaldi for EUR 47.5 mln, raising its stake to 32.5%.
By far, Cyprus’ biggest homemade deal of the year was the merger between Vassiliko Cement Works and Cyprus Cement, leading to the issue of 18.2 mln shares of VCW to the owners of CCC in a deal valued by the Financial Mirror at EUR 45 mln, fully financed through a share exchange.
Another local M&A deal that will have a significant impact in the financial sector, was the full merger between Laiki Investments and CLR Capital into the newly merged Marfin CLR Group, which among others will become the largest brokerage firm in Cyprus based on volume of trade on the CSE.
Health and telecom
The acquisition by Marfin-controlled Ygia Health Group of controlling stakes in privately run Achilleon Hospital in Limassol and Evangelismos Paphos Clinic for a total of EUR 20 mln are worth taking into account, considering that Ygia may proceed with further acquisitions in other towns as it tries to gain a firm foothold in the growing medical and health sector of the island.
The entry of the Shacolas Group in MTN, the second mobile operator as well the increasing of the Group’s stake in OTEnet, which provides Internet and other telecom services also heralds the opening of the telecom market, which until recently has been dominated by the state-owned CYTA.
More pressure on CYTA is coming from PrimeTel, the largest triple-play provider which secured a listing on the CSE and successfully absorbed Spidernet, one of the largest ISPs in Cyprus. PrimeTel is also positioning itself to bid for Cyprus’ third mobile telephony licence.
Global M&As fall in 2008
Global merger volume totaled $2.89 trln, marking the lowest annual volume since 2005, based on preliminary data from Thomson Reuters.
In perhaps the most dramatic sign of how troubled the M&A market was this year, a record number of previously agreed deals — over 1,100 — were cancelled.
A year that saw two U.S. investment banks collapse and two forced to convert into bank holding companies to survive, also saw upheaval in the M&A rankings.
Goldman Sachs Group Inc maintained the top spot among global advisers and in the U.S., but JP Morgan Chase & Co clinched a surprise No.1 spot in Europe.
U.S. volume for 2008 plunged 38% from a year ago. In Europe, 2008 volume dropped 29%, and Asia Pacific's annual volume fell 12%.
Chilly outlook for 2009
The outlook for the first half of 2009 is equally cold.
"Our estimation is for a weaker first two quarters, with some rebounding in the second half of the year. Overall, we estimate about $2 trln in announced transactions, or down about 30% from 2008," said Paul Parker, Chairman and Head of Global M&A at Barclays Capital.
Cuts in interest rates, billions of dollars in industry rescue packages and trillions more in stimulus packages show efforts by governments to stabilise markets.
Yet, more time must pass before companies feel comfortable to do deals, experts said.
"Deals can be done in high or low market conditions, but volatile markets make it difficult to price and execute deals," he said.
Those companies that may be acquisitive in 2009 will be the ones with enough cash and stable stock prices to fund their own deals, bankers said.
"Cash is king. What is really going to drive the market is corporations with strong balance sheets," said another expert.
