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CEE M&A: Mind the valuation gap

A flurry of strategic sales by western investors and private equity firms kept corporate financiers busy last year. But these deals mask a problem: while financing is plentiful, sellers can’t bring themselves to be realistic on pricing.

Even by Petr Kellner’s own high standards, 2013 was a busy year. The acquisitive Czech billionaire – whose business empire has in the past decade grown from humble beginnings in banking to span sectors as diverse as mining, retail and biotechnology – began 2013 by raising €2.5 billion from the sale of his stake in a joint venture with Generali to the Italian insurer.

That was promptly followed in late January by the purchase of a €2.6 billion stake in Slovak gas distributor SPP by EPH, the Czech utility controlled by Kellner’s investment company, PPF Group. Then, in November, central Europe’s richest man finally achieved his ambition of entering the Czech telecoms market when PPF secured a controlling stake in the country’s largest operator, a deal that carried a price tag in the region of €2.5 billion.

Taken together, the three deals amount to more than 10% of expected total announced M&A activity – estimated to reach around €60 billion by end-December – in central and eastern Europe (ex-Russia) in 2013.

What is most notable about the transactions, though, is less their scale than the fact that they illustrate what M&A bankers are calling the dominant theme in CEE last year: the withdrawal from the region by western European strategic investors and their replacement by local buyers.

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