August 22, 2023
Poland is the undisputed winner of the pre-war and pre-pandemic era, having tripled the size of its economy and achieved one of the fastest economic growth rates in the world. One of the key factors that has enabled this growth has been inward investment from large multinationals, both through M&A and greenfield investment, driven by a strategic location combined with the strength of the domestic market, the coverage of infrastructure and the availability of skills and labour.
In order to maintain this trend, Poland must not only face the current global changes, namely the emphasis on ESG, clean energy and sustainable development, but also its reputational challenges related to populist government decisions, including the stability of the tax environment, although this may soon change after the October 2023 elections.
Mikolaj Martynski, Partner of Holon-Translink answered some questions on Poland’s M&A activity, the influence of the Russia-Ukraine conflict, and the nation’s economic growth prospects:
- How has the war in Ukraine impacted Poland’s business sector, and what measures did the government take to address the disruption in trade?
Over the past 30 years, the Polish economy has been uniquely resilient to crises, and we are currently experiencing the same, mainly due to strong domestic demand based on a highly adaptable and creative society in difficult situations.
In 2022, following the outbreak of war in Ukraine, businesses in Poland experienced a very strong impact on key aspects of their operations, namely: operating costs and general business risks. This mainly affected large companies in the industrial sector, but also SMEs, and quickly led to sharp price increases for services and products, and cutbacks in investments.
The government’s main response, in view of the upcoming 2024 elections, has been focused on populist measures aimed at injecting additional money into the system, e.g., reducing VAT on the main inflationary drivers, such as fuel and food, or so-called “mortgage holidays” for mortgage holders, allowing them to suspend loan instalments.
The combination of these factors has led to unprecedented inflation growth since the early 90s, which quickly reached double digits in Q2 2022, peaking at around 17%, lasting until Q1 2023, and now declining since Q2, with a target of 6% by the end of 2023.
Despite the challenges related to inflation, the shock in the market was quickly mitigated by stable domestic consumer demand, mainly driven by constant salary increases combined with savings generated by consumers in good pre-inflation years. In 2022, we saw a peak in the financial performance of our clients’ SME companies in various sectors, especially those where the e-commerce sales channel became a key growth lever. This was boosted by the pandemic, with the popularity of home deliveries increasing tremendously, bolstering the logistics sector.
- In what ways have Ukrainian refugees impacted Polish businesses operations?
Ukrainians were already an important part of the Polish economy in the pre-war years, working mainly in the logistics, retail and leisure sectors. In the second quarter of 2022, a significant proportion of Ukrainian men working in Poland returned to defend their homeland, but this outflow was quickly offset by a massive influx of women and wealthy people who started to set up businesses in Poland.
In 2022, almost 5,000 new companies were established in Poland by Ukrainian entrepreneurs, mainly in the IT, logistics and construction sectors.
In recent months we have also seen an increasing M&A appetite from Ukrainian companies to invest in Polish companies, mainly looking for additional complementary production capacity outside Ukraine and access to the EU market with their products and services. The link between the Ukrainian and Polish economies has clearly strengthened over the past year, and the Polish economy and companies are very well prepared for accelerated investment once the war in Ukraine ends.
- How has M&A (cross-border and national) contributed to the current economic successes?
- Due to its strategic location at the crossroads of Europe and Asia and the favourable environment for foreign investors, Poland is currently a hot spot market for multinationals following the nearshoring trend, as evidenced by Intel’s recent USD 4.6 billion greenfield investment in a semiconductor R&D and manufacturing centre in southern Poland.
- The trends towards nearshoring and the redefinition of the strategies of large multinationals with a focus on the long term (20+ years) have recently boosted M&A activity in Poland, which reached its peak in 2022 with over 340 transactions, with almost 70% of the deals in 2022 being carried out by multinationals. One of the contributing factors is Poland’s close location to the Ukrainian market, where billions of dollars of investment will be needed to rebuild the country after the war ends; companies with a strong foothold in Poland will benefit from this in the future.
- In recent years, Polish companies have been attractive M&A targets for multinationals seeking a foothold in CEE, especially in traditional trade, mainly in the FMCG, construction, industrial, energy and healthcare sectors. Since 2020, this has changed and modern trade has become the most interesting market segment for investors, especially TMT, e-commerce logistics and recycling. Polish companies in these sectors have developed expertise and scale that make them attractive M&A targets. Translink has done deals in these three sectors in the last two years, and we see investors’ appetite for further consolidation of these markets in the near future.
- Over the past two years, we have also seen an increased appetite for cross-border M&A opportunities from Polish companies, mainly in Western Europe (Germany and the UK) and CEE (Czech Republic, Romania), looking to expand into new markets and add new skills.
- National M&A is mainly driven by large state-owned corporations or financial investors including Private Equity and family offices.
- In your opinion, what sectors of Poland’s economy are poised for growth in the coming years, and why?
Over the last 30 years, Poland has been a manufacturing hub for Western Europe and has developed a strong export market, especially in the automotive, white goods or door and window furniture industries, so a natural expectation would be that these industries are poised for growth in the coming years.
However, given that several exports in these industries are directed to our neighbouring German market, which is currently struggling with a recession combined with a decreasing labour cost gap between Poland and Western Europe, I anticipate slower growth dynamics in the Polish market’s traditional trade in the coming years. Polish companies, especially in the industrial sector, understand that the key advantages today are know-how, competencies and operational efficiencies, all of which require automation, digital transformation and data-driven technologies. This creates a demand for specialised services, particularly in the IT/TMT sector, which is currently one of the hottest markets in Poland from an M&A perspective.
Since 2019, Poland has also been undergoing a very rapid transformation in the ESG-driven sectors, in particular recycling and clean energy. We see high growth in these sectors and continued consolidation by both national and international players.
Having completed transactions in all of the above sectors, Translink Corporate Finance has extensive experience in facilitating the M&A route to market for multinationals in Poland.
