The M&A opportunity in Central and Eastern Europe: A conversation with Absolvo

Central and Eastern Europe is an increasingly attractive region for investors due to its thriving technology scene and opportunities for near-shoring. 

And while local economies have faced challenges, notably from the war in Ukraine and high inflation, countries such as Poland, Czechia and Hungary are expected to have higher GDP growth than their Western counterparts in 2025.

Absolvo, a Budapest-based M&A advisory firm, sits at the heart of this activity, working on deals across CEE. In a conversation with founding partner Lénárd Horgos, we delve into the trends driving this growth, the unique opportunities the region offers, and the strategies that lead to successful cross-border deals. 

Q. Can you please tell me about your company and what you do?

We are based in Budapest, so obviously a lot of our transactions are related to Hungary. But we also focus on Slovakia, Croatia, Slovenia or Romania and other parts of Central and Southeastern Europe. Just some examples: we are working with companies from Croatia, Slovakia and we are discussing further deals in Turkey at the moment.

Our main expertise is in tech, so two-thirds of our deals are in IT or tech-enabled services – healthtech, edtech, data, AI, cybersecurity, e-commerce, etc. From a transaction perspective, in many of these cases it doesn’t matter where the teams are based, as they provide services on a global scale, or at least across Europe. 

We also cater to other businesses such as industry automation, business services, defense industry or entertainment, due to our private equity-focused advisory. Absolvo is among those advisory firms that closed the most PE deals in Central Eastern Europe over the past five years, so during these years we gained a lot of expertise on various industries that are attracting the attention of PEs.

Q. And what services do you offer clients in different regions?

We mostly act on the sell side, that’s about 70% of our business, and we have a range of different advisory services related to a full process. We aren’t your typical firm just doing due diligence, financial, tax, audit, and so on, we rather manage the whole M&A process. Our contribution starts already at the point when the key focus is to decide on the M&A strategy, create a compelling equity story, find the right investor, then get offers and close the deal.

On the other hand, we have two types of buy-side deal: one is typically a West European, UK or US investor looking for targets in the region and wanting to use our local knowledge and local connections, and the other is what I’d call regional champions, companies that started in one country of the CEE/SEE region and are now expanding abroad with a buy-and-build strategy. 

They are acquiring markets, technologies, and talents in other countries, and we help by finding the right targets, putting together the deal structure, and also organizing the due diligence and signing-closing.

Q. How are the local markets performing currently and what do you think will happen in Hungary over the next 12 months?

We are optimistic about the outlook for the whole region, not just Hungary.

There are always ups and downs in global M&A but when we look at CEE deals involving tech and PE in the last, say, eight years, there has been steady growth. Startup and VC investments first appeared 10-15 years ago and these companies were successful in raising new rounds, and then we started to see more and more unicorns in the region.

Just to give you an example, UiPath really put Romania on the map for investors after it listed on the NASDAQ. Then strategic investors and other VC and PE firms began to realize that this region could offer them globally competitive products and services, also exceptional returns. The Czech Republic, Hungary, and Croatia have all had success stories that are bolstering investor confidence in the area. 

We recently launched a deep-dive insight into the CEE  tech market, highlighting these success stories and the key factors fueling the region’s momentum.

Another strong indicator we have observed over the last 10 years is that many global firms have opened engineering, R&D, or shared service centers from the Baltics to Romania and Bulgaria. So, these countries are starting to look more and more attractive to investors. The data shows more VC, more PE investment, and more M&A is happening. 

Regardless of the global M&A picture, there is a steady increase in the number and value of M&A deals in Central and Eastern Europe, especially in the tech sector, and that’s why we are optimistic.

Unfortunately, the Ukrainian war has had an impact. Investors who are not already active in the region are being cautious. However, the disappearance of Russian, Belarusian, and Ukrainian engineers from the tech market has given a new impetus for companies to look for product and software developers in our region. That was a new experience for us: Western European and global strategics are looking for whole teams because they needed to fill the gap left by losing almost a million software developers in the last three years.

And look at the countries that are now part of the EU, having joined 8-10 or even 21 years ago: they used to be viewed as Eastern and different. Now they are closer to the rest of Europe and the UK or US, with much more similar economies and legislation than earlier. I think the gap is really closing and there are far fewer differences for a foreign investor to cope with. 

I would definitely say that the CEE region is much more attractive than it was 5-10 years ago.

Q. What is it about Eastern Europe that helps to foster tech companies?

The data is interesting here. For instance, per capita engineering and tech skills are much higher here than in many other countries: education in Eastern Europe is very STEM-focused.

In terms of the number of unicorns or even GDP, we are obviously lagging, but that’s also an opportunity for financial and strategic investors who see unfulfilled potential.

Then, as I mentioned, many large strategics are opening R&D centers here. Later on, talents working at these companies start something on their own. VC investors are increasingly financing these stories as it becomes more likely that you can build something successful, whether that’s a product or a good solution for Western European companies. 

So yes, today you will probably still find more unicorns in Paris and Berlin and other Western big cities, but our region is improving. 

Q. What are the main challenges that people face when trying to do a cross-border deal in the region?

As I said, these days foreign investors are less likely to encounter anything that is different. When we do a buy-side deal cross-border, naturally we engage a local tax advisor, lawyer, and auditor to understand the specifics of the company and any local regulations or taxation. But we would have to do that for a cross-border deal in France or Italy as well.

After 20 years much of the legislation is now harmonized with the EU but you do need to be aware of some local variations. For instance, many of these countries have specific FDI approval procedures, differences depending on the buyer’s background or thresholds for when you need approval.

But otherwise, I would say the region is catching up, in certain things like business ethics, and there are fewer and fewer surprises.

Tech entrepreneurs are more adept at doing a deal with foreign investors if they have a regional, European or global business, and they usually speak English well. Whereas an entrepreneur from a traditional industry with a local background may not speak English well and will want to send you all the materials in their own language. So, the first issue is the language barrier. But for tech industries, I would say that’s no longer the case.

Q. In terms of creating value for investors, are there any particular tactics or strategies that you see people using when they come to you looking for a target in the region?

Sometimes they are looking for a cost benefit and manufacturing costs might be lower in Romania than in Belgium, for example. Sometimes there are EU subsidies and that can partly offset the Capex investment required.

Another point to mention, for instance, we had deals in the FMCG sector where the CEE region’s growth in that market segment was two digits or even over 20%, compared with 3-4% in the buyer’s home market in Western Europe which also has more competition and lower growth. Poland, Romania, and other CEE, SEE countries together represent a large market, with around 100-120 million people. Plus, salaries are increasing, there is constant GDP growth and consumer purchasing power gets greater every year, meaning faster growth for a company.

The disadvantage of trying to enter small markets, such as Slovenia, Slovakia, or Croatia, is that companies need to take numerous small steps to establish themselves. Therefore, we see larger strategic buyers prefer to acquire companies that operate in five to seven countries, where they can easily distribute their products and reach maybe 100 million customers.

What we frequently observe in the tech sector is that you can find hidden gems in small markets: great products that are quite modest in terms of revenue and EBITDA but otherwise have huge potential. If you are present in Europe and have access to other large markets too, you can acquire a great solution in CEE, roll it out in many countries, and immediately introduce it to thousands of clients generating easily additional revenue. 

Even if you bought it at what is considered inexpensive, it’s still a good exit for the founders, because the revenue they could achieve locally is far less than a large strategic acquirer would get by rolling it out to 5,000 customers. There’s a significant upside for both parties.

Many companies are starting a tech center or an R&D center and engineering hub in the region because they can find people with the right skills here. It’s easier to hire and easier to scale your team, plus you can have your sales and marketing teams in Berlin, London, or New York, while part of the tech team can be in Timișoara, Cluj, or Szeged where it’s cheaper.

We have seen some of the larger PE firms leave the region in the past 10-15 years, but there are newer firms raising funds, especially focused on CEE deals. These are local or regional PE firms doing smaller ticket deals from EUR 10-20 million. A large strategic wanting to enter the CEE region may be hesitant to deal with lots of small countries. 

In response, PE firms are coming into the region and consolidating, offering five-, seven- or eight-country players as a complete package. As a result, I think there is strong potential for all types of investors to find good opportunities.