A general consensus emerged at the annual Baltic M&A and Private Equity Forum that the transaction market is recovering and investors are becoming increasingly confident about investing in the Baltics.
The Baltic M&A and Private Equity Forum 2024 was organised by Sorainen on 16 April in Vilnius, in cooperation with leading Lithuanian business media Verslo žinios. As every year, the event gathered 250 participants representing private equity, venture capital funds and investment banking, consultants, lawyers, as well as business executives and owners from the Baltics and beyond. Join us next year on 23 April 2025 in Tallinn.
Morgan Stanley analyst: M&A winter is coming to an end
The M&A winter of the past couple of years is thawing and dealmaking is picking up, Elžbieta Lukenskaitė, CFA and Executive Director at Morgan Stanley, told the M&A and Private Equity Forum participants. „The M&A winter is coming to an end.“
Corporate activity, akin to economic cycles, follows a similar pattern. 2021 deal volumes reached unprecedented heights, marking the highest since 2007. However, the subsequent boom reversed due to the perfect storm, and recent dealmaking has not been for amateurs, with longer timelines and fewer buyers. The IPO market effectively shut down during this period. However, volumes are now projected to surge by 50% compared to 2003 levels.
Relevantly to the Baltics, geopolitical concerns have decreased. “The mention of geopolitical risk has waned significantly since the peak in 2022,“ Lukenskaitė noted.
According to Morgan Stanley, the macroeconomic indicators show signs of a rebound, pent-up demand drives transactional activity, regulatory clarity has improved, and some structural drivers – including AI and clean energy transition – propel the market forward. Corporate confidence is another key ingredient. While board rooms have been occupied by concerned debates about rising financing costs, inflation fears and recession, we now see increased pressure for boards to act and carry out transactions, Lukenskaitė said.
Private equity funds are returning to deal making. The pressure to generate profits intensifies as the typical time for holding assets is 2-5 years. Lukenskaitė maintained that while valuation gaps will persist for a while, the most interesting deals usually take place at times like these. „The next generation of industry leaders will be born,“ she noted.
Prediction: Most active sectors in M&A in 2024
- Energy
- TMT
- Healthcare
Source: Poll by 100+ market participants at the forum
Financiers take ESG as an opportunity
The European Bank for Reconstruction and Development (EBRD) has taken significant steps toward environmental impact. Tomas Kairys, Head of Baltic States at EBRD, revealed that every investment the bank makes is meticulously evaluated from an environmental perspective. „All our business has to be almost 50% green, and the Baltics are doing very well in this regard.“ He further highlighted that EBRD views sustainability as an opportunity rather than a burden. In their private equity division, they maintain an exclusion list and have implemented an environmental management system to ensure responsible practices.
Meanwhile, Swedbank is also undergoing changes. Tadas Gudaitis, CEO at Swedbank Asset Management Lithuania, emphasised the need for concrete data to validate their sustainability journey. „We now need more data to prove that we are on the right way,“ he noted. Kaido Veske, Founding Partner of Livonia Partners, emphasised the importance of consistent measurement. To obtain comparable data, organisations must track the same metrics year after year, he said.
When asked about ESG requirements, Deimantė Korsakaitė, Managing Partner at INVL Baltic Sea Growth Fund, quipped: „Not following ESG became as unacceptable as drunk driving a few years ago.“
Merger filing in Baltic countries: Top 5 mistakes that are too costly to be made
Monika Mališauskaitė-Vaupšienė, Partner at Sorainen, highlighted the must-do’s of merger filings that will allow transactions to get the clearance they seek in the smoothest way possible.
Here are her 5 top tips:
- Assess the transaction. If the transaction is a concentration and turnover thresholds are exceeded, notify the competition authority. If notifiable transactions are not notified, fines may follow.
- Do realistic time planning. While the common expectation is that a merger clearance takes a month, it typically takes 4-5 months instead and can take much longer than that. Indeed, merger clearance may take considerably longer than the statutory terms in practice.
- Allocate the needed resources. You may find your internal people working full time answering to competition authority’s requests. Authorities typically ask companies to cover a wide ground with their questions, seeking to receive every piece of information regarding the merger, and they can penalise companies for not providing full, truthful information.
- Consider the unlikely „if’s“. A merger clearance is not merely a formal procedure.
- Do not underestimate the market. In Lithuania and Latvia, competition authorities have the call-in powers to review transactions that are below turnover thresholds.
Private equity funds call on local investors
Private equity fund directors emphasised the need of educating international investors about Baltics being a safe place to invest, and called for locals to fill the gaps left by foreigners.
Deimantė Korsakaitė, Managing Partner at INVL Baltic Sea Growth Fund, noted that capital is much needed, and called for increased commitments from the local investor community. „We really have to market our region,“ she told the audience.
Sigvards Dzelzkalejs, Director at Superia, echoed her words: „We need to build that investor base back home,“ he told the audiences, adding that many high-net-worth individuals in the Baltics do not let their money flow into direct equity investments. “They could be the next Family Offices or the next LPs,“ Dzelzkalejs added.
Dzelzkalejs admitted that geopolitical risk remains the number one problem advisory professionals are currently facing. „We have had to provide education that Baltics are not Russia, but a part of NATO. A lot of times, the valuation discussion stops at the perception that Baltics are a frontier market. We should work towards educating international investors, and here each and every one of us can contribute.“
On the positive side, however, he said that the climate was less opportunistic now and the value of deals has increased, even though the volume has gone down.
The private equity panellists were strongly supporting increased investments in defence, which are still seen as harmful by regular standards, as was also discussed at last year’s forum. At the same time, Silicon Valley, the most notable venture capital centre of the world, tracks its origins to being the innovation site for the US Navy and serving the military, BaltCap’s partner Kristjan Kalda reminded the audience. „We shouldn’t be ashamed of making defence investments from our funds,“ Kalda said.
Colleagues agreed. „It is sad that more local investment does not go into our local defence industry, that would allow the Baltics to be a part of the global supply chain,“ Dzelzkalejs noted.
„When discussing which sectors we will focus on, defence is one,“ Korsakaitė added. “This should be happening all over Europe.“ Private equity panellists highlighted that the funds’ typical short investment cycle does not support the needs of defence, and should, therefore, be reconsidered.
Making marriages work: Learnings from recent mergers
Two mergers were covered at the forum in Vilnius: the Šiaulių-Invalda merger and Sunly’s acquisition of the Polish Alseva Group.
When Šiaulių bankas, the largest bank based on Lithuanian capital, and Invalda INVL, a Baltic investment management and life insurance giant, merged their retail businesses, they pulled off what was the largest Baltic merger of 2023.
On part of INVL, the driver was the need to improve customer service and cut costs for an otherwise healthy business, while Šiaulių needed a missing part in the franchise.
It took five months to move to the signing of the agreement and 13 months between signing and closing the deal. The parties shared that the deal, which required various permits from different countries, kept moving according to the planned schedule.
Vytautas Sinius, Chairman of the Management Board at Šiaulių bankas, highlighted that during the year between signing and closing, they prepared the organisational structure, separated corporate banking from retail, reconsidered their banking operating model with universal services for the client, and thought of the technological platform. He highlighted the close cooperation between colleagues from the two units. Moreover, as the negotiations were run with a related party, there were legal aspects to carefully follow. „I remember meetings when we were sitting with lawyers, checking what we can discuss and what is not allowed.“
While running many passages in parallel to the transaction made the process complex, Sinius noted it turned out to be a good choice not to wait until the merger was completed.
Welcoming new team
The importance of making people feel welcome is a vital pat of making a merger successful. Sinius said that of the 160 people who were supposed to join their organisation, 96% decided to do so. „Soft part is very important,“ he shared. He added that it was not their first merger, and they had seen employees joining from other banks, so the welcoming culture was already in place. „We are like America, welcoming people and making them amalgamated in the organisation,“ Sinius marked.
Sinius shared that the business is now moving according to the strategy and preparing for a future leap. „It is in our DNA to do some organic growth while adding new businesses. This is a very good growth model when you do the right stuff organically but add some extra fuel with mergers.“ He added that the bank may open a “larger geography” in Latvia and Estonia, also seeing the potential to expand beyond commercial banking. Much like LHV in Estonia, the publicly listed Šiaulių bankas sees itself as a local player adding value in a market traditionally dominated by foreign banks.
The Estonian renewable energy provider Sunly shared the story of acquiring a Polish solar developer. They, too, paid a lot of attention to the soft side of the story. „We acquired a Polish company, but we always talked about merging, because no one wants to be acquired,“ Sunly General Counsel Kerstin Kütt told the listeners. Having been warned about bad examples of the acquired company’s employees losing their benefits, Sunly increased salaries and upgraded the company cars of the Poles.
In a broader perspective, Sunly also dished out optimism, advising to „raise capital, raise capital again and again and again.“ Kerstin Kütt noted that the government should give investors clear signals about what to expect, but otherwise we should not be too concerned about our geography. „The country risk is overrated, and this is the message we should carry to everyone around,“ Kütt maintained.
AI: First go broad, then go deep
Justinas Šukys, Partner at Claria Strategy Partners and GenAI research team leader at London Business School, shared three GenAI imperatives for PE investors:
- Seek out companies with high GenAI ambition, but make sure you understand their barriers to adoption and the capabilities to overcome them.
- Start with GenAI for cost savings and then progress to revenue-centric initiatives, including new revenue streams and higher customer engagement.
- Go broad before you go deep – and consider whether doing things in-house instead of external partnerships is the right way.
Energy companies: We are on the buyers’ side
Baltic energy market participants all positioned themselves as buyers in the current market and noted that once they integrate new business, they will keep it until decommissioning.
Ilkka Niiranen, CEO at Gren, a green energy company active in the Baltics, Finland and UK noted that they are „clearly buying“, and have been doing so quite actively. Gren is looking to employ additional capabilities to develop the business and continues to see many opportunities in the Baltics. „We know that the macroeconomic environment has changed and recognise the geopolitical risk, but we are in the NATO area. We like the predictability and stability of the regulatory environment of the area and hope that it will continue.“
Thierry Michel W Aelens, CEO at Ignitis Renewables, said Ignitis sees itself as the key enabler for the energy transformation of the three Baltic States. „We will continue to invest in the Baltics, and we have just scratched the surface in Europe,“ he said.
Aelens went on to say that as current fossil fuel producers are replaced by other players, it will change the world’s geopolitical power. „If you look at Brussels regulations, the real fun is coming after 2030. Now we are just warming up. The energy transformation will make digitalisation look like a walk in the park.“
Aelens also suggested that for the first time, our region has the potential to become a major commodity exporter, as days of oversupply will become increasingly common. „Baltics have an overabundance of resources. The journey has just started: the market is stabilising, opportunistic speculators are gone, and more locals are coming in.“
Financing available for profitable projects
Marco Wiedemeier, Senior Director at NORD/LB – a German bank that has recently provided financing for large Baltic solar and wind energy projects – assured that they continue to evaluate Baltic investments like any other. „We look at Baltics as anyone else from the cash flow perspective,“ he said. The Baltic energy giants indeed maintained that lending is available and they pay no higher risk premiums.
Predicting future M&A activity for the energy sector – currently the hottest sector in the transaction market – the activity level is expected to remain high, yet some scepticism has crept in. According to Vaiko Tammeväli, CFO of Eesti Gaas, the market has switched to more of a buyer’s market where simple one-project companies cannot compete with aggregators. “Not all projects will materialise, some investments will be written off,” he predicted. „The winner is the one who will manage the price volatility,“ he noted. Tammeväli placed Eesti Gaas, which last year acquired the Latvian gas distribution network owned by Gaso, a subsidiary of Latvijas Gaze, also clearly on the buying side.
“The value of flexible assets, the ability to store energy, will increase over time. This will be a super booster in the future,” Ilkka Niiranen of Gren cracked open the future winning formula.
Outbound transactions: how Lithuanians go global
Oxylabs, PVcase, and Vinted, three Lithuania-headquartered global players of the new generation, shared stories of making acquisitions in the USA and Europe. What seemed as scary leaps of faith have turned out to be great synergies.
Know when to say “no”
Milda Jasaitė, Head of Corporate Development at Vinted explained that they had no specific plans to acquire businesses before they saw a couple of companies that were “right up their alley”. Today, they have nine acquisitions under their belt, but more often, they have turned the offers down. “Saying “no” is a big part of the M&A journey,” Jasaitė said, adding that the reason for turning down offers may be the price but also the fact that transactions tend to keep teams busy.
Oxylabs, too, was not searching for investment opportunities, but companies have been reaching out. “Even if the price is good, if you are not able to find a good way with the people that you have to work with, consider again if you need that,” Julius Černiauskas, CEO at Oxylabs, shared. “It is really important to have smooth communication.”
Clear criteria make best buys
PVcase first reviews if the target consistently delivers on the budget. Says Paulius Miečius, Head of Strategic Initiatives at PVcase: “We want to buy a high-growth company showing good numbers that will lift us up, not drag us down. The second question is whether the technology is something that will accelerate us. And third, you have to have a good fit.”
In case of Anderson Optimization, their US purchase, PVcase is tracking how many customers are using both of the products post-acquisition, keeping them with the company. “We were wondering how to lock in our customer, the solar developer, all the way up until they are ready for the site development,” Paulius Miečius explained the logic behind the merger. “That’s why we saw a good connection. USA is the biggest market for PVcase right now, so it made a lot of sense. And since the acquisition, we have made them available in Spain, Germany and UK, the three biggest markets in Europe.”
When considering acquisitions, the Vinted team aims to figure out if the price makes sense, but the basis for doing so differs. For example, a business may be bought to migrate users, or to buy a special skill set that allows to launch a category faster.
“It can be capability, consolidation, expansion,” Milda Jasaitė noted. “When we made our first public to private transaction, buying a Nasdaq North firm, we asked: how can we become stronger in premium market segments, what are we missing in our value proposition to make us grow there? We were seeking out companies to help us do that, and eventually narrowed it down to two companies.”
In the case of Oxylabs, the competitor was really good at serving clients they wanted to serve. “We were trying to get to the market but weren’t very successful,” Julius Černiauskas noted. Now, the acquired firm can serve as a marketing channel for other Oxylabs products.
The Lithuanian software company is happy with the result. Webshare first reached out to Oxylabs two years ago, and then the Lithuanians thought they were too optimistic about their abilities in the future. “After one year, we saw that they had been pessimistic about their possibilities,” Černiauskas noted. Webshare’s revenues have gone up since and while making the purchase was admittedly a scary thing for the Oxylabs CEO, he now calls it a “really great synergy”.
Cutting the deal in person
Good relationships and trust matter in startup mergers. This has led to owner-to-owner talks and personal approach.
“It’s really important to have direct communication with the companies you are buying,” Julius Černiauskas emphasises, describing how they switched to direct negotiations after incorporating third parties. “It was the first time for me to buy a company and we were really creative.”
Eventually, Oxylabs had to get some “deep consultations” from tax advisors. “Don’t let advisors lead the process, but have them on your side,” Oxylabs CEO concluded, adding that they got the structure they wanted which also meant the lawyers and tax advisers could not use a boilerplate solution.
“It was very similar for us,” Paulius Miečius admitted. “We wanted to move quickly and prevent the auction situation, both sides wanted to get the deal done. Doing it in person still works!” The PVcase team flew to New York to sign the letter of intent.
Crazy evaluations meant no deals
The panellists shared that before the recent corrections, they had considered the prices to be unreasonably high. For Vinted, the peak year of 2021 meant that large gaps appeared between the expectations of sellers and their own calculations. “We did not do deals then,“ Jasaitė said, admitting it was a crazy and difficult period for her. Interestingly, public to private deals seemed more appealing, as public markets saw valuations and share prices coming down faster.
Černiauskas credited Webshare’s owner with “knowing what is the maximum that he can ask from the market.” He deemed the price rational, as some companies paid 3-4 times the money for similar deals, yet others were unable to sell and are now struggling.
Lessons: Beware of time differences
A major lesson learned for the buyers was that time differences matter, as they can wear you down when working around the clock to pull the deal through and then to make the merger work.
Černiauskas admitted he is not a fan of working remotely. “Webshare is on the US West Coast, which is not the best location for us. I cannot say, “Don’t do deals on the West Coast,” but it is important to find some middle ground about how you communicate. Otherwise, you spend all your evenings discussing while trying to buy and then while trying to integrate. The time difference means a lot.”
“After Corona, the consideration about the location of the team has decreased, but we still stick to Europe,” Milda Jasaitė added. “And there is always the cultural element – it’s an ongoing puzzle to solve.” Realising it is the integration that has the biggest chances of going wrong, Vinted has made conscious efforts to make the newly joint teams work together.
Maag, Skeleton and PVcase announced as Baltic deals of the year 2024
As has become the tradition, the Baltic deals of the year were announced at the forum.
The Baltic M&A Deal of the Year is Maag Grupp’s acquisition of HKScan‘s Baltic businesses for EUR 90 million. The Estonian food company bought the Estonian, Latvian and Lithuanian subsidiaries of Finnish HKScan.
The Baltic Private Equity/Venture Capital Deal of the Year is Skeleton Technologies raising EUR 108 million from top investors, including industrial giants Siemens and Marubeni. Skeleton Technologies is an Estonia-based developer of ultracapacitors and provider of energy storage solutions.
The Baltic Outbound Deal of the Year is Lithuanian PVcase’s acquisition of Anderson Optimization, the world’s most popular solar siting software platform.
The awards cover deals closed between 18 February 2023 and 31 December 2023. The winning deals were selected based on criteria such as their strategic importance for the Baltic market, their value, their complexity and/or innovative nature, their ESG impact, and their involvement of Baltic stakeholders.
In quotes: Baltic M&A and PE Forum 2024
- Elžbieta Lukenskaitė: The M&A winter is coming to an end. The urgency element will be a real drive in disposing assets from portfolios. The most interesting deals usually take place in times like these.
- Deimantė Korsakaitė: Not following ESG has become as unacceptable as drunk driving.
- Mališauskaitė-Vaupšienė: With merger clearances, consider the unlikely „if’s“. A merger clearance is not merely a formal procedure.
- Tomas Kairys: All our business has to be 50% green, and Baltics are doing very well in this regard.
- Sigvards Dzelzkalejs: We need to build an investor base back home, we see many high-net-worth individuals whose money does not flow into equity investments. They could be the next family offices, the next LPs.
- Kristjan Kalda: We shouldn’t be ashamed for making defence investments in our funds.
- Deimantė Korsakaitė: Talking about the sectors we will be focussing on, defence is one, and this should be happening all over Europe.
- Sigvards Dzelzkalejs: Geopolitical risk is the number one problem we are facing in the advisory business. For some investors, the discussion stops at the perception that the Baltics are a frontier market. The climate is less opportunistic now: the volume of the deals has decreased while the value has increased.
- Vytautas Sinius: During a merger, the soft part is very important. We are like America, welcoming people.
- Justinas Šukys: Seek out companies which have high GenAI ambition, but make sure you understand the barriers; start with GenAI for cost savings, then progress to revenue-centric initiatives; go broad before you go deep.
- Thierry Michel W Aelens: If you look at Brussels regulations, the real fun is coming after 2030. Now we are just warming up! The energy transformation will make digitalisation look like a walk in the park.
- Kerstin Kütt: We acquired a Polish company, but we always talked about a merger, because no one wants to be acquired.
- Milda Jasaitė: Today, we have made nine acquisitions or investments, but we have said „no“ a lot of times, which is a big part of M&A journey.
- Julius Černiauskas: It’s really important to have direct communication with the companies you are buying. At some point, you have to say: I am taking this risk!
- Milda Jasaitė: We thought: what could go wrong? And understood: OMG, it’s probably integration. We asked all those questions at the beginning of the deal, so the two teams started to work together. As a result, we could launch the user communication the next day after we signed the deal.
- Julius Černiauskas: Even if the price is good, if you are not able to find a way with the people that you have to work with, consider again if you really need that. It is really important to have smooth communication.
Join us next year in Tallinn!
Next year, the Baltic M&A and Private Equity Forum will be held on 23 April in Tallinn, in the former submarine factory Proto Invention Factory. Save the date in your calendar and grab a ticket.
M&A and Private Equity is a key practice for Sorainen
For Sorainen, M&A and Private Equity is one of our key practices. Our firm has the experience, people, and skills necessary to handle the largest and most complex transactions in the region. This is what makes us the first choice for international blue-chip companies and local market leaders.
We have also established ourselves as the first stop for the thriving Baltic startup sector as it looks to fuel growth. Our team has served as legal advisor for many current unicorns since their first fundraising transactions, as well as for local and international venture capital investors.
