Last year was a record one in terms of activity for all leading deal advisors on the Baltic market – this is evidenced in the fact that, according to Mergermarket, by deal count three Baltic law firms were at the top of the league tables for CEE advisors. Considering how small the Baltic region is compared to Central and Eastern Europe as a whole, this is a really significant fact. The reason is that our region’s investment climate remains attractive while in other CEE countries, such as Hungary and Poland, there are bigger risks of government interference with the local business sectors. Overall, deal market activity was very high, and deal value also reached an all-time record if we count the supposed deal value of the Graanul Invest sale, where the price was not disclosed by the parties, noted Toomas Prangli, co-head of the Sorainen Corporate and M&A practice in Estonia.
Energy sector leads the way
In 2021, the two biggest deals were in the energy sector – the sale of Fortum and Graanul Invest. The investment and development cycle for businesses in this sector is 15–20 years, so the roots of these big deals stretch back over a longer period. Estonia adopted a renewable energy subsidy system, which has facilitated the development of the energy sector. The highly successful Enefit Green IPO is also connected with the renewable energy subsidy system. Businesses made bold investments years ago because the state gave its guarantee that the sector is important.
Startups continue on an active track
Secondly, startup companies have been active on the deal market for several years now. These deals fall into two categories – exit deals and fundraisings – and the amount of capital raised is becoming higher and higher over time. Here, Estonia has again managed to keep its investment climate and regulations favourable, including by lifting notarisation requirements demanding the physical presence of shareholders. Without these amendments to the law, sizeable funding rounds such as Bolt’s would not have happened in Estonia. As for exits, the biggest deal last year was the sale of Pipedrive to Vista Equity Partners, but there were also a number of smaller deals.
Healthcare sector increasingly active
The third very active sector was the healthcare sector, which has developed increasingly fast in recent years due both to the pandemic and to the fact that people have become more willing to buy medical services from private sector companies. An example of a significant deal in the sector is Mehiläinen’s entry into the Estonian healthcare market by acquiring 100% of Unimed and Qvalitas.
In 2022 the impressive performance of the tech and startup sectors will continue. Bolt has already announced a new financing round of EUR 628 million. The year is likely to see quite a few infrastructure deals, while the biggest assets in the energy sector have probably already been sold. On the other hand, there is still a lot of potential in the renewable energy sector. The healthcare sector will probably see a number of smaller deals. Money piling up in the finance sector is looking out for investment opportunities. E-shopping platforms have become crucial to businesses; their development continues and will also contribute to deal market activity this year.
International private equity funds discover the Baltics
We can see that leading international private equity funds have discovered the Baltics and are investing here. Their purpose is to continue growing fast, which involves buying smaller market players in the Baltics and abroad. In 5–7 years’ time or even sooner, these financial investors will start looking for exit opportunities. Startups like Bolt have attracted the global venture capital elite to Estonia (funds like Sequoia, Fidelity, D1, Darsana, Naya, G Squared and others). This makes it much easier for other investors to follow suit. The Baltics are now playing in the top league of the private and venture capital world. We will see continued investments needed in order to expand the companies acquired.
Estonia will also see a boost in family offices dealing with professional investment, aided by advisors and professional investment teams. Most of their money will remain in Estonia as the business environment here is more familiar to them.