M&A sector stays strong GLOBAL M&A ACTIVITY IS SEEN POISED TO ACCELERATE IN 2021 AND BEYOND

While the global economy is likely to be back to its pre-crisis levels, the rebound will be uneven across different countries, sectors and income levels. Growth will be contingent on a successful and speedy deployment of vaccines and continued accommodative fiscal, monetary and financial conditions in each country. ”The global optimistic forecasts give confidence that the recovery of the past year losses will be faster than previously thought at the start of the pandemic. Romania is following the global trend, given that the National Commission for Strategy and Prognosis forecasts an increase of 4.5% this year, after the decline of 4.2% in 2020. This is good news for the business environment that will need, however, further government support. Once the pandemic is under control by vaccination, it would be good if the government takes measures for sustainable growth with particular focus on investments and creating jobs. As well, companies need to plan now both in terms of growth and investment, including in their existing workforce, to deal with both the problems caused by the pandemic and the lasting changes it has already imposed on the economy and society,” said Ionu Simion, Country Managing Partner PwC Romania. GROWTH WILL RETURN BUT BE UNEVEN

According to Global Economic Watch 2021, the Chinese economy is already bigger than its pre-pandemic size, but other advanced economies, particularly heavily service based economies like the UK, France and Spain or those focused on exporting capital goods, such as Germany and Japan, are unlikely to recover to their pre-crisis levels by the end of 2021.

The predictions caution that the next three-to-six months will continue to be challenging, particularly for the Northern Hemisphere countries going through the winter months as they could be forced to further localised or full economy-wide lockdowns, as recently displayed in the UK and Germany. So, these economies could contract in Q1 and growth overall is more likely to pick up in the second half of the year, when it is expected that at least two thirds of their population will be vaccinated. In economies such as the UK, France, Spain and Germany, growing but lower levels of output are projected to push up unemployment rates, with most of the jobs affected likely to be those at the bottom end of the earnings distribution, thus exacerbating income inequalities. MORE INVESTMENTS IN GREEN INFRASTRUCTURE

The environment will be an important focus for 2021, significant investment and policy shifts related to the Paris Climate Agreement being expected in the major trading blocks including the US, China and the EU.

In this context, global green bond issuance is expected to top USD 500 billion for the first time with investor appetite expected to continue to increase in Environmental, Social and Governance (ESG) funds.

ESG funds will continue to increase and could account for up to 57% of total European mutual funds by 2025. Green bonds, which are used to directly finance environmental projects, currently make up less than 5% of the global fixed income market. OTHER FORECASTS FOR 2021

In the previous edition of the Global Economic Watch, the Netherlands was credited with the best chance of winning the Euro 2020 championship, which due to the pandemic was postponed to 2021. Meanwhile, the form of the Dutch team has decreased and France now has the best chance to win. The annual average oil price is expected to remain below 60 USD per barrel but likely to pick in the second half of the year. Italy is expected to re-join the two trillion USD GDP club, while the public debt levels in G7 is projected to exceed 57 trillion USD.

Following a rollercoaster year for mergers and acquisitions (M&A), the increase in year-over-year (YoY) value of deals recorded since the beginning of Q3 2020 is likely to continue into 2021, as companies position themselves for improved economic activity and reframe their future for the post-COVID-19 pandemic era.

According to EY research looking at global M&A trends in 2020 and the outlook for transactions in 2021, with an overall value of US$ 2.9 trillion, global M&A in 2020 is tracking below 2019’s value of US$ 3.3 trillion, but still ranks fifth for value of deals in the post-global financial crisis period. M&A activity has varied across regions, with values in Asia-Pacific slowing dramatically in the first two months of 2020 before finishing the year with an increase of 19% to US$ 805 billion. In the Americas, M&A values declined by 29% to US$ 1.27 billion, with the US market seeing a fall of 80% at the height of the lockdown compared with 2019. In EMEIA, the decline in deal value is more limited (3%) to US$ 815 billion, with the region having regained most of the lost ground from earlier in the year.

The most active sectors were technology, media and entertainment and telecommunications (TMT) with 5,755 deals valued at US$ 973 billion (up 6% YoY), financial services with 901 deals valued at US$ 352 billion (up 8% YoY), and power and utilities with 525 deals valued at US$ 142 billion (up 34% YoY).

The EY research also reveals that the sectors that have been most exposed to the COVID-19 pandemic have seen a more marked slowdown in 2020, as a result of lockdown restrictions and economic slowdown. The industrials sector (down 18% at US$ 262 billion compared with 2019) and consumer sector (down 16% at US$156 billion during the same period) were particularly exposed.

“In Romania, as expected, the M&A market was affected as well by the Covid-19 pandemic, which generated delays or transaction freezes. Despite witnessing a significant slowdown in the first part of the year, an unexpected come-back took place in the second half of the year. There is still an appetite for transactions, especially on the acquisition side, with investors seeing opportunities within this area and during these times. The energy sector remained the most attractive to investors, supported by the interest in renewable energy, where the largest transactions were recorded, as well as by the IT sector, a leader in terms of adaptability to the new business environment. Traditional sectors such as real estate, agribusiness and services continued to be active. 2021 will bring interesting opportunities in terms of political change, consumer behaviour and entrepreneurs’ ability to adapt to the challenges of post-pandemic uncertainty. The key factor for the success of future transactions will be the efficiency of the actions taken by companies during this period and their positioning towards the future,” said Florin Vasilic\, Strategy and Transactions Leader, EY Romania.

BOLD SECTOR MOVES TO DEFINE THE MARKET IN 2021 AND BEYOND

Looking ahead to 2021 and beyond, the sectors that showed deal-making restraint during the COVID-19 pandemic will drive the next wave of activity, according to the research.

For example, the consumer sector has seen an increase in M&A involving assets that struggled through the COVID-19 pandemic, led by more financially resilient competitors, while acquisitions driven by innovative companies with a strong link to their customer base have also emerged. Private equity (PE) firms have also been active in 2020, and they will likely be even more so as businesses and sectors reposition themselves during the anticipated recovery stage in 2021 and beyond. With US$ 2.8 trillion in drypowder available, including nearly US$ 1 trillion dedicated to buyouts, private capital is well-positioned to take advantage of the value creation during anticipated 2021. The growing presence of special purpose acquisition companies (SPACS) in the market could bring other forms of capital to the deal table this year.

In addition, the increasing trend for alternative deal models, such as joint ventures and alliances, as companies take an ecosystem view, as well as divestments to enable strategic business shifts and reinvestment, are also expected to fuel deal making intentions.

Andrea Guerzoni, EY Global Vice Chair –Strategy and Transactions, says: “Companies in the consumer and industrials sectors will look to combine to take advantage of the anticipated recovery. These businesses will also be looking to adapt to a new environment, in which customer behaviours and preferences have changed dramatically, as a result of the COVID-19 pandemic. There are already signs of such developments through the strong shift to e-commerce amid moves to downsize bricks-and-mortar retail, and the reassessment and de-risking of supply chains for manufacturers.”

IMPACT OF TECHNOLOGY AND GEOPOLITICS TO INFORM CORPORATE STRATEGIES

The expected increase in M&A activity comes as nearly two-thirds (62%) of executives believe that their organizations must radically transform their operations over the next two years, accord-

“2020 saw a decrease in the number of transactions compared to the previous year, which represented a record for the period after the financial crisis, but, considering the unprecedented general context created by the COVID-19 pandemic, we can say these are good results. A quarterly analysis indicates that the second quarter was the most affected, and the following ones saw a notable revival. ing to the EY Digital Investment Index. To achieve that, they are starting to turn to emerging technologies, with the internet of things (IoT), artificial intelligence (AI) and cloud computing among the most likely investments in the next two years (67%, 64% and 61%, respectively). With 52% of executives who pursued digital technologies via M&A saying that the approach exceeded expectations and 45% reporting similarly for digital partnerships, 2021 is set to see an increase in deals, corporate venture capital and partnership investments. Geopolitical changes will also inform strategic capital decisions, such as M&A and entering or exiting certain markets. According to the EY 2021 Geostrategic Outlook, analysing these risks is becoming more important in the current environment, with the COVID19 pandemic acting as a great accelerator for geopolitical change overall.

In Europe and the US, variables such as Brexit, and the impact of any new policies as a result of the US election outcome, will play a key role in how executives are rethinking their corporate strategy and capital allocation. With M&A values in the UK already up 40% in 2020, and with 79% of US companies indicating that they are likely to accelerate M&A strategies, alliances and joint ventures if corporate tax rates increase following the presidential election, the foundations are there for 2021 to be a

ROMANIAN M&A ACTIVITY SAW SIGNIFICANT LEVELS IN A DIFFICULT YEAR

The Romanian mergers and acquisitions (M&A) market recorded 91 transactions in 2020, compared to 110, in 2019. According to Deloitte estimations, the total market value, including the transactions with undisclosed values, was of 3.7-4.3 billion euros in 2020 (compared to 4-4.4 billion euros in 2019), while transactions with disclosed value totalled 1.5 billion euros (compared to 1.7 billion euros in 2019). stronger year for M&A. 2020 also brought the largest transaction of the last decade: the acquisition of assets owned by CEZ in Romania,” said Radu Dumitrescu, Financial Advisory Partner-incharge, Deloitte Romania. Nine transactions with a disclosed or estimated value of minimum 100 million euros were announced last year. In 2019, their number was similar.

“The local M&A activity is fuelled by a real interest of both financial and especially strategic investors for sectors with growth potential. We have noticed important names of strategic investors targeting the Romanian market for the first time, a phenomenon that suggests an increasing interest for new expansion opportunities in the context of reassessing their strategic plans,” said Iulia Bratu, Corporate Finance Director, Deloitte Romania.

THE LARGEST DEALS OF 2020 WERE:

- Macquarie Infrastructure and Real Assets (MIRA) acquiring a portfolio of assets owned by CEZ in Romania (undisclosed value); - Czech developer CPI Property Group SA acquiring a minority stake in Globalworth, the largest office building owner in Romania and Poland, following a series of successive transactions, among which the largest amounted to around 280 million euros; - Orange Romania acquiring a majority stake of 54% in Telekom Romania Communications (transaction value: 268 million euros); - the 225 million dollars (200 million euros) financing round of UiPath, company active in robotic process automation (RPA), which raised its value to 10.2 billion dollars; - OMV Petrom selling 100% of its stake in Kom-Munai LLP (KOM) and Tasbulat Oil Corporation LLP (TOC) in Kazakhstan to Magnetic Oil Limited (undisclosed value).

According to Deloitte, the most active sectors considering the number of transactions were real estate (including construction), energy and the financial sector. Together, they generated 50 transactions. From the deal value point of view, the most active sector was real estate, followed by technology and energy.

“Our expectations for the M&A evolution during 2021 are optimistic, but reserved. There are signals that the market players will maintain their interest in transactions this year, both on the sell side and on the buy side, but, considering the uncertainty that governs the entire economic spectrum as the pandemic continues, we remain prudent,” added Radu Dumitrescu.

THE ROMANIAN M&A MARKET IN 2020 VERSUS 2019

- market value (disclosed transactions): 1.5 billion euros in 2020 versus 1.7 billion euros in 2019; - estimated market value (including undisclosed transactions): 3.7-4.3 billion euros in 2020 versus 4-4.4 billion euros in 2019; - number of transactions (including transactions with undisclosed values): 91 in 2020 versus 110 in 2019; - number of transactions with disclosed values: 36 in 2020 versus 24 in 2019; - average deal value (calculated for disclosed transactions, excluding mega deals): 42 million euros in 2020 versus 52 million euros in 2019.