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Cross-Border M&A in CEE

January 2006
Jose Garza Alex Manos
Managing Director Managing Director

Head of CEEMEA Head of CEE


Mergers & Acquisitions Investment Banking
Drivers of M&A in CEE
‹ EU > CEE
• Pool of assets for privatisation largely depleted –
remaining assets carry significant ‘crown jewel’ status
yesterday...
• Mid-size EU latecomers investing in new EU countries
to expand EU footprint
• Upswing of private equity investments – less contested
whilst offering attractive returns
‹ Intra CEE today...
• CEE industry is largely fragmented – consolidation by
national champions and global leaders
‹ CEE > Outward
• Despite significant GDP / capita and ample population
pool, the CEE region has yet to see local ‘dealmakers’ tomorrow?
on the international M&A scene

1
CEE: A Regional Segmentation Story
CEE GDP / GDP Per Capita CEE FDI / FDI per Capita

10.0 400 376


EU Second Wave Other EU Second Wave Other
9.2
9.0 350 327
8.0
8.0
300
7.0 6.7 260
241 247 247 242
250
6.0 5.7
216
5.1 199
4.7 4.7 4.6 200 183
5.0 4.4 4.4 4.5
4.0 157 156
3.8 144 145
4.0 135
150
3.1
3.0 2.4 2.4 98 104
2.2 91 91 93
2.0 2.0 2.1 100
1.9 1.8 1.9 1.7
2.0 1.4 61
1.2 1.1 50 51
1.1 1.0 0.9 1.0 1.0
0.7 50 26
1.0 24 23 18
17 15 17 14
4 8
0.0 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

GDP (US$ billion) FDI (US$ billion)

294 323 321 346 341 338 370 414 490 581 666 723 827 EU 11.6 9.9 11.5 14.6 17.7 18.1 15.8 19.0 10.5 23.8 27.3
69 68 70 80 72 72 77 88 110 135 159 176 202 Second Wave 0.6 0.9 2.3 3.6 3.3 3.3 3.7 3.3 6.6 8.8 8.7
52 82 89 80 69 73 71 83 102 128 156 181 164 Other 0.3 0.6 1.8 1.2 1.3 1.0 1.4 1.9 3.7 3.8 9.3

Note: EU includes CEE countries that entered the EU in the first CEE accession wave. Second Wave includes countries expected to enter the EU by 2010.

2
It’s all About Growth
GDP / Capita Growth in CEE vs. Western European EU Countries
10%

8%

6%

4%

2%

0%
2000 2001 2002 2003 2004 2005 2006 2007
CEE EU

Source: EIU.

‹ CEE’s GDP growth profile has far outpaced that of Western Europe...
‹ ...fuelling the region’s ability to attract FDI...
‹ ...whilst EU integration, and regulatory reform have further increased the
attractiveness of CEE

3
Shifting Profile of CEE M&A Activity
CEE M&A Activity Since 2000

120
M&A Valus (US$ billion) .

Cross-Border Privatisations
100

80
56
60
38
40 26 29
24 24
18 19 17 15 19
15 10 13
20 8 6 7
5
0
2000 2001 2002 2003 2004 2005
Source: SDC Platinum.

‹ Cross-border M&A activity in 2005 comprised the greatest proportion of total CEE
M&A than any year since 2000
‹ As the pool of assets to be privatised has been substantially depleted in the new
EU states, with remaining assets largely considered ‘crown jewels’...
‹ ...non-privatisation M&A has grown to play an increasingly important role

4
Shifting Profile of CEE M&A Activity
CEE M&A Activity by Industry in 2000 CEE M&A Activity by Industry in 2005
0% 1%
13%
16%
21%
27%
6%
FIG
Telecoms
11%
Industrials
Consumer
Energy
Healthcare 27%
14%

38% 26%

Source: SDC Platinum. Source: SDC Platinum.

‹ The tendency for deal activity to concentrate in a number of key segments in 2005
vs. 2000 highlights the growing scale of acquisitions in flagship industries…
‹ …highlighting that as the CEE region further integrates into global markets and the
need for scale and a broad footprint increases, increasingly large M&A transaction will
shape regional champions

5
Shifting Profile of CEE M&A Activity
Developments in Average Non-Privatization CEE M&A Deal Sizes Since 2000
150 200%

125 114.1% 150%


78.0%
US$ million

100 82 100%
73
75 13.6% 14.8% 3.1% 50%
64.1% 22.6%
50 (19.4%) 38 0%
16.4%
16 19 21
25 (10.8%) -50%

0 -100%
2000 2001 2002 2003 2004 2005
Ave Size (US$ million) Deal Size Grow th(%) Market Grow th (%)

Source: SDC Platinum, Economist intelligence Unit, DataStream.

‹ Average non-privatization CEE deal sizes have increased since 2000


‹ The rate of growth in deal sizes largely reflected overall market growth rates,
showing a slight outperformance trend in 2003 and 2004
‹ As the markets have matured, the development in regulatory frameworks and
market sophistication have:
• facilitated the successful execution of ever increasing transactions
• Increased the appetite of international buyers for more substantial CEE exposure

6
Drivers of M&A in CEE
‹ EU > CEE
• Pool of assets for privatisation largely depleted –
remaining assets carry significant ‘crown jewel’ status
yesterday...
• Mid-size EU latecomers investing in new EU countries
to expand EU footprint
• Upswing of private equity investments – less contested
whilst offering attractive returns
‹ Intra CEE today...
• CEE industry is largely fragmented – consolidation by
national champions and global leaders
‹ CEE > Outward
• Despite significant GDP / capita and ample population
pool, the CEE region has yet to see local ‘dealmakers’ tomorrow?
on the international M&A scene

7
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