Budapest Business Journal 2523

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BUSINESS JOURNAL BUDAPEST

VOL. 25. NUMBER 23

DECEMBER 15, 2017 – JANUARY 11, 2018

SPECIAL REPORT

Deals of the Year SPECIAL REPORT

State Still Plays Active Role on Hungary’s M&A Market Hungary’s transactions market saw a relatively strong 2017; however, the role of the state has continued to dominate, causing some distortion in the structure of the market.  16

SPECIAL REPORT

Upturn in Market Activity Continues in 2017

Investors are showing an increasingly favorable attitude to the development, investment and redevelopment of buildings in Hungary’s office, industrial, retail and hotel market sectors.  18

SOCIALITE

‘Tis the Season to Savor Festive Wines While the holiday season brings the perfect opportunity to get down to some serious guilt-free wine imbibing, it is a good idea to dabble in wines of different styles to avoid palate fatigue.  23

Playing the Numbers Game NEWS

Third Quarter GDP Given Large Upward Revision The improved figures surprised analysts, but some still doubt that this year’s growth rate will reach the governments target of 4.1%.  3

BUSINESS

N ES BUSI

S

Women have to be patient with their careers, and learn where to compromise and where not, in order to strike the right life-work balance, says Katalin Reidl.7

Combating the Hack Threat for Connected Cars The Budapest Business Journal discusses connected cars and cyber hack threats with David Wiernik, co-founder and president of Hungarian-based navigation company NNG.  10

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Budapest Business Journal | December 15, 2017 – January 11, 2018

THE EDITOR SAYS

BBJ EDITOR-IN-CHIEF: Robin Marshall EDITORIAL STAFF: Sonja Bencze, Zsófia Czifra,

David Holzer, Levente Hörömpöli-Tóth, Christian Keszthelyi, Gary J. Morrell, Claudia Patricolo, Rob Smyth, Ágnes Vinkovits. LISTS: BBJ Research (research@bbj.hu) NEWS AND PRESS RELEASES:

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MULLING OVER RECURRING THEMES There is much to chew over in this, our last issue of 2017. And much of it will be just as relevant in 2018. For example, there is the question of whether EU funding actually helps or harms Hungary’s development. On the face of it, this might seem an absurd idea. When Hungary was still deep in the teeth of the recession, when investors had their hands buried deep in their pockets and banks had all but barricaded their front doors, without EU money there would have been no development at all. It still accounts for the lion’s share. But the counter argument runs that, particularly in centralized societies like Hungary, where the government channels the funding through to the projects, dangers arise. By its own admission, the state is effectively looking to draw down as much of the funding as possible early in the cycle. It says the reason for doing this is so that Hungary can feel the benefits sooner. Of course, having money to invest just ahead of a general election is purely coincidental. The fear for the naysayers is two-fold. The first, most obvious threat is that having large amounts of money around makes corruption more likely. The danger is greater that the money goes to supporters of the government, or is siphoned off along the way. The government, as you would expect, strongly denies this, and says it investigates all charges thoroughly. BBJ-PARTNERS

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The other threat is perhaps less obvious, and it certainly has no criminal implications, but its impact is long-term; too much easy money creates a mentality of dependency, rather than entrepreneurship. Businesses do not become more efficient, the workforce more productive, the country more competitive because, as long as the money is there, there is no need. But that is short-termism of the most dangerous kind; no one knows how much money will be available after the current EU funding cycle ends in just two years’ time. Early in 2017 (in our fourth issue of the year, to be precise), I predicted that the labor shortage would be a recurring theme; and so it proved. It will almost certainly continue to be for much of 2018. With unemployment figures at record lows, and third-country workers not coming through in the numbers expected, more is going to have to be done on social inclusion. That means getting those retirees who want to work back into the workforce, finding a way of migrating more so-called fostered workers from state work schemes into the general working population, and doing much, much more with integrating the Roma population. Above all, it means doing more to help women find a balance between work and home, and helping them to build their careers. There is a telling comment from Katalin Reidl, the VP of finance and controlling at IT Services Hungary in our interview with her, where she makes the point that multinational companies can have a positive effect in promoting women’s careers, but it is limited while society itself is so patriarchal. Male managers, she says, are never asked how they maintain a work-life balance, although “raising a child is a shared responsibility”. Two of my three children are daughters. They should live in a world where they have just the same chance of success as my son. Hopefully that’s a New Year prayer we can all agree on. Happy Christmas, everyone.

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Budapest Business Journal | December 15, 2017 – January 11, 2018

News

///macroscope

Third Quarter GDP Given Large Upward Revision

The marked upward revision of the third quarter GDP data surprised analysts, but some still doubt that this year’s growth rate will reach 4%, a number the government has consistently targeted in its communications. ZSÓFIA CZIFRA

There was a 0.3 percentage point upward revision in the third quarter gross domestic product data, lifting the growth to an annual 3.9%, according to a second reading of unadjusted data issued by the Central Statistical Office (KSH) at the beginning of December. Seasonally and calendar-yearadjusted data showed growth

of

4.1%

in Q3. Both figures were revised up 0.3 percentage points from the first reading, mainly due to market-based services which performed better than expected, KSH said. Compared to the previous quarter, the Hungarian economy expanded by 0.9%, and showed a 3.8% increase in the first three quarters compared to the same period of 2016. The growth was mainly driven by domestic consumption and demand, the main contributors being industry and construction, home building and investments. It is worth noting that while Hungary’s 3.9% growth is outstanding compared to the 2.5% EU average, when it comes to regional comparison, only Slovakia produced slower growth at 3.4%. Eurostat data reveals that regional peers all registered more dynamic expansion, the economies of Poland and Czech Republic

both grew 5% on a yearly basis, Romania is again at the top with its 8.6% growth. Bulgaria’s GDP growth rate was also 3.9% in the third quarter. The Hungarian Government’s official target for GDP growth this year is still 4.1%. Those outside government circles are a bit less optimistic: the European Commission, for example, recently projected this year’s GDP growth for Hungary at 3.7%, and the IMF growth projection is only 3.2% for the full year 2017, as published in its November regional economic outlook for Europe.

A Struggle for 4%?

While the degree of upward revision of Q3’s GDP surprised analysts, most of them still think that this year’s figure will not reach the 4%. ING Bank analyst Péter Virovácz projects GDP growth of 4.2% in the final quarter of the year, but still thinks that the full-year data will remain slightly below 4%. Dávid Németh, head analyst at K&H Bank mainly contributed the Q3 growth to market services, and also to industrial production, while he noted that agriculture had again held back growth somewhat due to the unpredictable nature of the sector. According to Németh, the Hungarian

economy could expand by 3.9% this year, due to domestic consumption and industrial output, along with EU funding. He estimates GDP growth

of

3.5%

for next year. Erste Bank has raised its 2017 growth forecast to 3.9% for the full year, up from its previous 3.7%, in a reaction to the statistically large KSH revision, Gergely Ürmössy, the bank’s analyst said. He expects 3.5% growth for 2018. He also attributed the Q3 increase to domestic consumption and investments on the demand side, while on the production side, services, constructions and industrial output were the driving forces.

Industrial Output Strengthens The livening industrial output could indeed yet lift this year’s GDP growth rate further. According to the KSH data, the industry performed above expectation in October, producing a 7.6% increase from the same period of the last year. It also picked up from a 5.4% increase in the previous month, according to a second reading of KSH data (which on this occasion remained the same as the first reading).

The index adjusted for working days was equal to the non-adjusted one. Output grew by 5.4% in the first ten months of 2017 compared to the same period of the previous year. Industrial output – according to the seasonally and workingday adjusted index – was above the level of the previous month by 1.2%. The volume of industrial export sales increased by 9.3% compared to the same period of the previous year. Industrial domestic sales grew by 6%; within this, the domestic sales of manufacturing were 10.2% higher year-on-year. Of the various sections of industry, production rose by 8.2% in manufacturing, representing a decisive weight (96%), and by 48% in mining and quarrying, which have little weight. The output of the energy industry (electricity, gas, steam and air-conditioning supply) decreased by 0.8%. According to Takarékbank analyst Gergely Suppan, industrial output is likely to remain dynamic in the coming months, which will greatly contribute to the GDP of 2017, which could therefore reach the 4% growth rate for the full year. As for industrial production, Suppan expects expansion of more than 5% for 2017, which could accelerate significantly next year. Analyst Péter Virovácz of ING Bank said industrial output could rise by 6% this year. Németh, of K&H Bank, thinks that industrial growth could be around 5.5% both in 2017 and 2018. Automotive production capacity is set to rise between

2018 and 2020,

pushing growth higher, although he warned that the pace of expansion could be capped by labor shortages.

Numbers in the News In the remaining few weeks of the year, only a few pieces of important macro data will be published. One of these is the October performance of the construction sector, due out today (December 15). The second estimate for October retail trade will be released a few days later, and earnings data for the January-October period will follow on December 20. We start the New Year with the balance of the general government sector in the third quarter of 2017, to be published on January 3. Data on the labor market between September and November will be released on January 4, and the first estimate of November’s industrial output will come out on January 8.

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Budapest Business Journal | December 15, 2017 – January 11, 2018

Bidding on a Better Designed Future

Design Studio

While there is still a way to go before auctions become an integral part of the Hungarian business community, some forms of social responsibility are getting an ever more emphasized role. SONJA BENCZE

“Talent for Good”, the yearend auction by Design Terminal, which took place at Művészetek Palotája on December 4, is just the occasion for anyone new to auctions. The auctioneer (Nóra Winkler) is a professional, but the atmosphere is more laid-back and the pace is slower than, say, at an art auction. Bidders and those who offered items were seated together, young designers alongside the heads of venture capital firms. The bids are also lower, and some of the bidders were not very practiced, but the auction still managed to exceed the previous year’s results; the amount raised

was

HUF 2,858,000,

roughly half a million more than in 2016. The proceedings of the auction were offered to support the work of the Magyar Ökomenikus Segélyszervezet (the Hungarian Ecumenical Aid Organization). Auctions are still a fairly unique genre in Hungary, Gergő Böszörményi Nagy, executive director of Design Terminal told the Budapest Business Journal. “We have been building this tradition for a few years now, with success as ever more people are getting to fancy it.” Among the bidders were CEOs, startup owners, artists and journalists. “Many people are of the opinion that such events are a good way of getting Christmas gifts, as well as helping charity,” Böszörményi Nagy added. “The selection of bidding reflects the versatility of Hungarian creativity, and also what we at Design Terminal stand for.” For the first time, not only designer products were put up for auction. Design Terminal also partnered with some established companies and startups that offered services or experiences rather than tangible products.

Exclusive Event

Co-working space provider Loffice office offered space to hold an exclusive event for a starting price of HUF 40,000. Dóra Debreceni, Adidas Runner Club coach, offered to prepare a four-month workout plan tailored to the needs of the winning bidder. Plenuum, a benefactor of Design Terminal’s current mentor program, offered its employee feedback service for 30-150 staff workplaces. Another of the mentored teams, Zyntern, offered to prepare a

Auctioneer Nóra Winkler at work drumming up bids. short creative video for employers with an internal marketing purpose, such as a yearend review. Zyntern is a rapidly growing platform that helps match companies’ internship and graduate job opportunities with generation Y and Z job seekers. Hello Wood, an independent, international educational platform in design and architecture, comprising a group of designers/carpenters, offered a workshop for a team to work with wood. Hello Wood aims to teach people to think with their hands, and learn through experience. Neticle, an online media

“Many people are of the opinion that such events are a good way of getting Christmas gifts, as well as helping charity. The selection of bidding reflects the versatility of Hungarian creativity, and also what we at Design Terminal stand for.” monitoring and business intelligence services company, offered a one-year online media observation, while Brewie offered handcrafted beer tasting and brewing for a team of ten. Of course, the usual designer products were also up for auction: Baby onesies by Pici and the City, earrings by Karman Jewelry and Sarolt Jewelry, a dress by Dóra Tomcsányi and a backpack by Rita Ruzsinszky. Some of the designers are related to charity in other ways as well. “Social responsibility, in some shape or form, links to what I do and represent with my

brand. It comes from inside: if I care for the environment, it is logical that I care for people as well,” László Bergovecz, owner and designer of Fészekrészek, told the BBJ. Bergovecz designs furniture using materials that are often considered waste. Due to the special methods he applies, he has been able to reduce waste at the end of his manufacturing process to

around

5%,

as opposed to the industry average of 60%. “For a long time, I haven’t ‘advertised’ the fact that I am an environmentallyconscious brand. If you visit my webpage, it is there, but is not highlighted because it doesn’t matter most.” It does matter for him, however, otherwise he would add the extra cost of environmentally friendly glues, etc. to the final price of the product. “I may end up having less profit, but I still am in the red.”

Among the items up for grabs was a set of trays by PDSGN. A full-fledged studio, which designs everything from jewelry to lamps to furniture, it chose another form of social responsibility. The studio recently won HUF 60 million in state funds to create a social trade union. It will use the money to help people get back to the job market by employing them, mainly in the preparatory phases of furniture making. As Hungary lacks proper manufacturing facilities, at least for low series, tailor-made pieces, the designers have had to devote a great amount of their time to dealling with that part of the production as well. “Standing next to the machines takes up a lot of our time,” David Pataki, co-founder of the studio, told the BBJ. Now the designers will teach the necessary skills to eight people whom they will employ for three years, according to the contract terms. “First of all, the causes are very important”, Nikolett Blaskó, owner and CEO of ACG communications agency told the BBJ. Blaskó, owner of several winning bids at the auction, had arrived from another charity auction for UNICEF, which took place earlier in the day, and also participated at Mosoly Alapítvány’s charity auction a week earlier. All three support children, and talented young Hungarian jewelry and fashion designers. “As head of one the leading communications agencies in Hungary working in the field of applied creative industry, it is our responsibility to raise awareness for important causes as well as supporting young and talented designers and tie them with their potential target markets,” she explained. The businesswoman is also part of UNICEF’s board and supports the Magyar Ökomenikus Segélyszervezet with probono work; for example, by devising and making campaigns against domestic violence. Attending and bidding at an auction has no established culture in Hungary, Blaskó said. The aim is to go higher yet many would step back at a more competitive bid or don’t dare to enter, she added. Some still consider whether they like the product or not, or if it is worth buying something at an auction [when they can get it at a lower price in a shop]. “This is not the point. The benefit here is twofold; a good cause gets supported and the artist receives attention,” she added.

Gergő Böszörményi Nagy, executive director of Design Terminal, talks with guests.

1 News | 5

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Budapest Business Journal | December 15, 2017 – January 11, 2018

Magyar Telekom Headquarters Topped-out to open tender by Hungary’s legacy telecommunications company. The development agreement included around

Wing says it has structurally completed the 100,000 sqm Magyar Telekom Group headquarters, located in District IX, adjacent to the Groupama Ferencváros Stadium.

GARY J. MORRELL

The circa HUF 50 billion project is due to be finalized in the second half of 2018 and is being financed by Wing’s own equity and a consortium of UniCredit Bank Hungary and K&H Bank. The built-tosuit project will be the largest single office building in Budapest, according to the developer. “Structural work has been completed on the new Magyar Telekom Headquarters building which, thanks to its easily accessible location, energy efficient equipment and solutions serving to provide a healthy working environment, will be one of the country’s most innovative office buildings, and is being built with sustainability in mind,” Wing said in a press statement announcing the key milestone. “The interior spaces will be conducive to efficient operation, but at the same time

300 pages

make for a stylish, flexible and creative working environment,” it added. The BREEAM “Very Good/Excellent” accredited building, designed by TIBA Architects Studio and constructed by Market Építő, will include a

300-person capacity

conference center, two restaurants, fitness and wellness center on the top floor with a running track, 2,000 sqm of gardens in three internal courtyards, 1,350 parking spaces, 350 bicycle places with changing facilities and 50 electric vehicle chargers. The building is located at the intersection of Könyves Kálmán körút and Üllői út providing direct metro, road and public transport access and direct access to the airport. Wing acquired the development site from the state after a public auction. “The complex will provide a working environment for around 4,000 Telekom

and T-Systems employees in a lettable area of 58,000 sqm; we needed to establish a single headquarters that provides for the needs of our workforce, as we are currently working in six different locations,” commented Christopher Mattheisen, CEO of Magyar Telekom at a press tour of the building.

Inspiring Environment

“We are going to create an inspiring environment, one in which creative ideas, innovative solutions and precision exist side-by-side with each other,” Mattheisen added. Wing has been following a conservative office development strategy by going ahead with a project only once a built-to-suit agreement or a significant pre-lease has been agreed. A longterm 15-year lease agreement has been concluded between Wing and Magyar Telekom after the project was put out

of specifications, after which TIBA Architectural Studio was chosen as the architects on the project. “The world-class Telekom Headquarters building is a good example of how Wing envisages the office buildings of the future,” said Noah Steinberg, chairman & CEO of Wing at the recent building tour. “The combination of innovative work spaces, as well as high tech solutions in an environmentally sound and architecturally striking building is in the vanguard of current Budapest developments.” Steinberg continued: “In those instances where we are able to agree a long-term lease with a major tenant on a built-to-suit basis, we are in a position to tailor the building to the specific needs of the tenant. Wing has developed major headquarters facilities for international and local corporations, and our track record of success speaks for itself. Those buildings which we do not develop on a built-to-suit basis are designed to a more flexible specification to meet the needs of multi-tenants.” A decision on the development of a further phase of the project on an adjacent site will be made next year in what is a developing business district with excellent road and public transport connections. Wing was also responsible for the Ericsson research and design headquarters at the Nobel Prize Winners Research & Development Park located on the Buda side of Rákóczi híd (Rákóczi Bridge, formerly Lágymányosi Bridge). The built-tosuit 24,000 sqm LEED “Gold” accredited complex was designed by Wing’s in-house architects, Aspectus. The developer is due to commence construction of a second 20,000 sqm phase of this project next year.

Corvin 5 First WELL Platinum Building in Hungary recently completed Nokia Skypark The initial 14,000 sqm phase of the Corvin 5 office building. The first phase has also been awarded BREEAM “Very Good” office complex by Futureal is set to become the certification. A second first building in Hungary, and only the second in sqm Europe, to receive International WELL Building phase12,800 is due to be handed over six-months the first. With the new complex, the Institute (IWBI) “Platinum” pre-certification, the after total GLA of the Corvin offices will reach 100,000 sqm. highest accreditation possible, according to Further Ideas the developers. The EUR 90 million project is “Futureal Group has committed to expected to be handed over by the end of 2018. developing all of its future office buildings

GARY J. MORRELL

The accreditation reflects the increasing concern with the health and well-being of staff from the perspective of developers in response to changing demands from tenants and employees; Futureal, Skanska and HB Reavis are all committed to developing WELL accredited office projects in Budapest.

The WELL system has been developed by LEED as a counterpart to its third-party sustainability accreditation system. WELL looks at issues such as thermal comfort, natural lighting, biophilia and indoor air quality as the system provides the guidelines and a benchmark for the creation of healthy conditions in office interiors. The 27,000 sqm Corvin 5 is located in the Corvin Promenade urban regeneration project, adjacent to the

according to WELL Building standards. We attended the Greenbuild 2017 conference in the United States and met with the founders of the WELL standard system to talk about further ideas and the introduction of the WELL system to the Hungarian market,” said Gábor Radványi, chief architect at Futureal. The company is also developing the 27,000 sqm first phase of the Budapest One business park, adjacent to the terminus of the Metro 4 line, which is part of the redevelopment of a road, metro and rail

transport hub. The complex will also be WELL and BREEAM certified. In the Váci út corridor, the company is constructing the speculative Advance Tower that is scheduled to deliver another 12,000 sqm of BREEAM and WELL accredited space in the second half of 2018. Reflecting the high level of market demand and lettings concluded at the development, a second 7,500 sqm phase is scheduled to deliver by the end of 2019.

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Budapest Business Journal | December 15, 2017 – January 11, 2018

Business Hungarian ExportImport Bank Plc. and Hungarian Export Credit Insurance Plc. (together Exim) perform the tasks of Hungary’s export credit agency, and together they boosted exports by HUF 211 billion in loans and insurance in 2017. The top priority now is to equip even more local SMEs with the financial means to stand their ground on global markets, Exim CEO Zoltán Urbán tells the Budapest Business Journal. LEVENTE HÖRÖMPÖLI-TÓTH

To what extent did you manage to accomplish your plans for 2017, given the fact that it was the first year of your current strategic planning period that takes us through to 2021? This new strategy marks a milestone, but I must add that we always adapt these periodic programs to the state of the economy. The previous one was just for three years as it was tailored to tackle challenges at a time characterized by low corporate lending activity on the part of commercial banks. Exim’s two-digit volume growth started in 2013, which was a result of targeted government intervention in the lending market. With the recovery of market-based lending, the landscape has changed. Now our current strategy aims to offset three major market failures by financing the investments of micro enterprises and SMEs, supporting entry into risky export markets via export credits, loan guarantees and insurance products, and providing capital-related products for the small- and middle-sized corporate segment. By virtue of law, we are

Photo: Eximbank

Half of Exim’s Loans to go to SMEs by 2021

authorized to grant domestic loans to boost competitiveness, but since competition exists inside and across the borders alike, this kind of capital prepares companies to do well both in Hungary and abroad. So, originally Exim was meant to finance only enterprises with an existing export operation, but now you also support partners who are considering going global? Indeed, this a new element of our lending policy. Even though in Hungary just about one-fifth of local SMEs export products and services and their share of the total export volume amounts to 17%, we firmly believe that these rates are bound to go up. How did the market receive this new initiative? Our primary focus remains export loans, guarantees and insurance. By September 2017, our loan stock had reached HUF 861 billion, we have granted HUF 257 bln of new loans this year, whereas loan insurance totaled HUF 77 bln. Some 83% of all those products are still export-bound. So, we are not overtaking any of the duties of commercial banks; we only complement them. In our portfolio, large corporations carve out more than 60% of the total loan volume, but if you look at the number of our clients, we are happy to report that 83% of them are SMEs. Another pleasant phenomenon is that we have managed to double the number of our SME clients since the end of 2015. What about the amount of loans granted? Has it been growing in sync with what you mentioned? Yes, even if that two-digit growth rate shrank to a one-digit one. But in the meantime, our loan stock increased substantially, so the twodigit dynamics became hard to maintain. Actually, our loan stock has tripled between 2014 and 2017.

That period also marks the gradual return of the commercial banks to the corporate lending scene. How is your relationship with them now? We have refinancing agreements with 28 financial institutions in Hungary to distribute our loans to the final beneficiary companies. Our products are available at all leading leasing companies, which, together with commercial banks, help us market our products via their national networks. And in certain cases we can serve clients directly as well in cases, for instance, where they need loan insurance is needed for high-risk export transactions. Export credit insurance is Exim’s other major service apart from loan guarantees; how has its volume changed lately? In the past three years our export credit insurance operation has been hampered by three factors: the embargo against Russia, the conflict between Ukraine and Russia, and the economic crisis in Greece. The funded companies are typically from the pharmaceutical, agricultural machinery, chemical and machine industries. Most of our funds are received by pharmaceutical companies that are exporting to Russia. Apart from that, agricultural machinery, manufacturing and chemical products are covered. Our loan insurance stock amounts to some HUF 260 bln, this year alone coverage worth HUF 77 bln has been allocated. If you add our export loans to that, Exim can pride itself on contributing to a total HUF 211 bln of additional export volume, which would not have been possible without our engagement. Thanks to this intensive activity, we are going to over-perform our 2017 business plan. So, it seems that your strategy is working. Are SMEs getting more focus? We decided to shift our financing resources from large corporations to the SME segment. More SME clients mean

more work, but simultaneously SME exports have witnessed an upswing in Asia, North Africa, the West Balkans and the Middle East. We are confident that by 2021 half of our total loan volume should be SME-bound. And let’s not forget about our development aid activity either, which gives us the opportunity to finance projects in Third World countries that are carried out by Hungarian companies. We are talking mostly about SMEs that are involved in different kinds of sectors, from software engineering to manufacturing to installment. One of your funds recently invested HUF 1.5 bln in pharma startup RotaChrom. Is this an indication of the direction in which your financing focus will turn? Our Export Boosting Private Equity Fund is specifically designed to support such innovative businesses. We also funded STEMP, a startup selling smart thermometers, and EPS, which teamed up with Chinese giant ZTE to set up an intelligent parking system in China. On the other hand, another fund in which we are co-investors, the EastWest European Venture Capital Fund, launched in November with the aim to invest primarily in innovative early phase companies in Portugal and Hungary. As far as our Chinese funds are concerned, our first one, the CHINA CEE Fund

“Our primary focus remains export loans, guarantees and insurance. By September 2017, our loan stock had reached HUF 861 billion, we have granted HUF 257 bln of new loans this year, whereas loan insurance totaled HUF 77 bln.” I has invested most of its capital by now, including investments worth USD 91 million in Hungary. In the case of CHINA CEE FUND II and SINO CEE FUND, for which we signed respective subscription agreements at the recent 16+1 Summit in Budapest, these funds have committed to make investments in Hungary at a multiple of the amount of EXIM’s investment into the funds. Our relationship with China is further strengthened by a framework agreement with the Export-Import Bank of China, which is to provide funds of up to EUR 500 mln, that we can use to grant loans to Hungarian SMEs. All these steps greatly contribute to economic growth.

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Budapest Business Journal | December 15, 2017 – January 11, 2018

Business

|7

Balancing the Career, Making the Numbers Count On the face of it, Katalin Riedl is a straightforward numbers woman: identified as having a talent for math as a child, got a degree from the College of Finance and Accountancy at Budapest Business School, and is now a vice president of finance and controlling. She is a typical accountant, right? The truth, as general happens, is a little more nuanced and interesting than that. Business Profile: Katalin Riedl, MD, VP of finance and controlling, IT Services Hungary ROBIN MARSHALL

“Actually, I have never worked in accounting; it has always been business planning, controlling and the like,” she tells the Budapest Business Journal in an exclusive interview. “I was always very good with math. When I

was

12,

this talent was noticed by my class tutor, and she helped get me into a specialized math and physics class.” It was also an early indicator that the genders are not always balanced in life. “There were nine girls and 24 boys,” Riedl recalls. From being the top of her class in math, she suddenly found herself surrounded by children at least as good as she. “I realized then I was not going to be Hungary’s next Nobel prize winning scientist, but I still wanted to do something with this math talent.” At university, it was noted that her analytical skills are very high, and so she began to be drawn away from straight numbers and more towards human elements and strategic planning.

Experienced Manager

Her career started with Philip Morris, where she spent ten years, before moving to Greenergy Hungary Holding, a U.S. alternative energy investment. She joined ITSH in 2012, and took her current position (one of the top three roles in the company) in

October

2016. “I was 26 when I had my first manager’s position, and I was 41 when I was selected for this role; I don’t want to count them, but I had a couple of years behind me as a manager by then.” She had also given birth twice in that period, meaning she had to learn how to balance building a career with being a mom. “If you are a mother, you have to accept there will be periods where your career does not always lead upwards. For ten years my career was about horizontal

“If you are a mother, you have to accept there will be periods where your career does not always lead upwards. For ten years my career was about horizontal shifts to keep the balance at home.” shifts to keep the balance at home. When your kids are young, it does not allow you to devote more time to developing your

career, but as they get older, that changes. My children are now 14 and 11.” And, of course, it requires a helpful home environment. “I have a very supportive partner. When I met my husband, 18 years ago, we were both in the career building stage of our lives. He knew me, knew I had targets, goals for my career, and he did not just accept that, he supported it. As I am supporting him,” she says. Grandparents, too, form an essential part of the network. “They are often there, which means I can devote more time to my work.”

Lines in the Sand

But she adds that it is essential to draw lines in the sand. “You cannot

be

150%

the best mom in the world and 150% the best manager. You have to work out where the priorities are. I am absolutely not going to miss my daughter’s school Christmas performance. That is more important than work, there can be no compromise. But, by the same token, when we are preparing the business forecasts, there is a lot of planning work to be done, and home cannot interfere with that. You have to fix those times when there will be no compromises. For all others, you must just be as flexible as possible.” By her own admission, Riedl is no feminist. She believes there are some roles better suited to women, and some better suited to men. But she says the best teams are always made up of a mix. “I think we do see things differently, think differently. Not better or worse, but different.” One thing does irk her though. “You see a lot of interviews where female managers are asked about work life balance, but why are men never asked that? After all, raising a child is a shared responsibility. OK, for

the first couple of years the baby needs the mother more, but after that, there is nothing a mother does that a father cannot also do.” I tentatively suggest that has as much to do with socially accepted norms as anything else – Hungary is a deeply patriarchal society –, and wonder when that might change. “It is a very long and slow process,” Riedl sighs. “The business environment can support change, but the impact is limited. A few multinationals are not going to change the world overnight. And the key word here is multinational companies, not Hungarian.” For its part, ITSH is a pretty balanced workplace. Zsuzsanna Sümegi, the company’s head of communications, says approximately 40% of the workforce is female. The company also works hard to be inclusive, keeping mothers on maternity leave in touch with what is going on at the company, and is open to part time and atypical options such as home office work. “But IT in any case is not a male dominated world,” Riedl points out. “The ICT industry has a wide range of services; it is not just geek programmers. It has a lot of nice opportunities for women.” What of Riedl’s future? Does she want to step further up the ladder? “I have been in this position for a year only, and I worked hard for this. It was a target ten years ago; I was not impatient with it. Now I am here I would like to exploit the opportunity as much as I can. I’d like to be good here – perfect here – first. I guess you could say the mid-term target is to become an overall leader. Partly I am doing that now: I am one of three MDs, with the CEO and the VP of HR. I am involved in very strategic decisions as part of this trio. My whole career has been around finance, but it would be interesting to take on a whole business, perhaps a startup.”

8| 2

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Budapest Business Journal | December 15, 2017 – January 11, 2018

INNOVATION

sponsored by

Insight

Test, Fail, and Repeat

Péter Kovács, ISEEQ and XLabs

Telenorʼs corporate acceleration program is progressing rapidly, so it was high time for the Budapest Business Journal to gain first-hand experience of what the participating startups are exactly exposed to. We took a deep-dive into a workshop with the compelling theme of growth hacking. You could hardly find a better spot for running a startup program than Telenorʼs state-of-the-art HQ in the leafy area of Törökbálint, some 13 miles from downtown Budapest. The whole environment is meant to inspire. Spacious, bright rooms, cuttingedge tech and ergonomic furniture are all there to lift your spirit. How could chemistry not work under such circumstances? This is where select Telenor Accelerate startups gather time and again to absorb invaluable knowledge in a series of workshops that are crucial in terms of speeding up the life cycle of their product. Today’s topic is growth hacking, a concept

that might sound vague, yet has worked miracles in the startup arena where it is crucial to generate traction not only in the wake of capital rich funding rounds, but also at cash-strapped times. As Péter Kovács, founder of ISEEQ and XLabs explains, what matters most is to use common sense. “Our CEE heritage provides great ammo in this regard, since we’ve grown to learn how to get a business going without substantial financial means,” he says. His own example with the companies he started bears witness to this truth. His first, ISEEQ, deals with recruitment, and the trick to nailing customers was perception.

“A strong logo, fancy business cards all projected strength. Trading services can also help, this way the amount of cash needed can be reduced a great deal,” Kovács says of his experience. Becoming network ambassadors is another cost-efficient tool to boost visibility, and thus business growth. “Once you start doing something differently, it will make you stick out of the crowd,” is his advice. Other brainchildren of Kovács include Xlabs, the Central European Startup Awards (CESA) and the Global Startup Awards, all of them brands built from the ground up, relying on creative growth hack methods.

Ups and Downs

Statzup founder Kristóf Simán has also had to confront the ups and down of startup foundation. His company offers diverse multi-platform fantasy football solutions which recruited one million active users with a limited budget within less than a year. “Find opinion multipliers like bloggers if you can who spread the word for you for free,” he says,

but adds that their crowds were ultimately won over by social media ads placed with laser-guided precision. “You need to know who you want sell to, and find out where they hang out. Then communicate with them, and squeeze them to the max,” he explains the recipe. That was the tactic used to build a million-strong following in the United States, despite the country still being known for a predominantly anti-soccer sentiment. Conventional marketing operates under the principal that measurability is not an issue and budgets need to be spent at any price. However, this way of thinking is now outdated, explains 7 Digits CEO, Zsolt Farkas. “Testing is what it all comes down to,” he says. “Ninety-nine solutions may not work at the desired efficiency rate, but the hundredth one may.” He cites the three layers of the so-called T-type knowledge model where base knowledge such as storytelling or behavior psychology must be beefed up by a market foundation layer like coding and copywriting and channel expertise including business development and SEO. And it’s always great to remember best practice from the biggest tech hit stories. Take LinkedIn, which boosted SEO dramatically by simply including your name in the URL. The ultimate lesson, though, still remains testing, as was highlighted at the Growth Hackers Conference 2017 in San Francisco. “The founder of the growth hacking concept himself is no exception to this rule,” Farkas says. “He just runs tests over and over again till he gets it right. There is no such thing as a silver bullet.” That is definitely something to take to heart from this immersive workshop, and not just for the startups trained under Telenor Accelerate.

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Prior to Hungary’s accession to the EU, domestic economists argued that the promised European Union funding offered an unparalleled opportunity for the country to catch up with its western neighbors. That funding has been arriving for 14 years, but many now doubt it is achieving its aims. KESTER EDDY

Perhaps it was official fixation with the so-called “Soros Plan”, but the government missed an opportunity to boast on December 4, when revised data revealed the economy had expanded by 3.9% in the third quarter. When adjusted for calendar and seasonal effects, the result

was

4.1%

– meaning the government’s (some say optimistic) growth target for 2017 – which coincidentally is 4.1% – might just be met. It’s unusual for the government to let such news pass without fanfare, but when the preliminary results appeared in November (indicating growth at 3.6%), Mihály Várga, Minister for National Economy, put the “dynamic” performance down to “the industrial sector, the housing boom-fueled construction sector, as well as market services”, arguing that growth is “firm and sustainable”. What was not unusual is the lack of recognition – and appreciation – of the role of EU funding in Hungary’s economic performance, which has been crucial, say independent analysts. “The average yearly EU subsidy inflow is roughly EUR 3.5 billion. Certainly, there are yearly fluctuations.… [but] it is very, very clear that the EU funding is very important in the Hungarian economy,” says András Vertes, chairman of GKI, a Budapest economic think tank. Without it, he underlines: “GDP growth would be 2%, perhaps 2.5%, no more. “[The fact] it is now close to 4% is because of EU funding.” Despite the absence of official gratitude to west European taxpayers, one classical argument in favor of Brussels’ largesse

Photos: TI Hungary/Képszerkesztőség/Zoltán Adrián

EU Funding: Blessing Turns to Curse?

Former central bank governor György Surányi. towards the recipient countries of Central and Eastern Europe is that ordinary folk benefit, furthering general European prosperity and stability. But in the case of Hungary, even that theory is now suspect.

Hotbed of Corruption György Surányi, a former central bank governor (and one-time economic adviser to Fidesz) said EU funding had created “a hotbed of corruption” in Hungary. Speaking at a Transparency International conference in Budapest on December 8 – International AntiCorruption Day – Surányi said he was under no illusion that malfeasance had been prevalent before 2010 in Hungary, when Fidesz returned to power for the first time since 2002, it had become “industrialized”. In centralized countries like Hungary, EU support to private business was particularly prone to graft, and should cease, he stressed. Surányi is not the first to criticize the whole ethos of EU subsidies: János Samu, head of research at Concorde Securities in Budapest, argues that handouts distort the market place, frequently diverting management focus to securing the funding, rather than perfecting the product, which should be the primary objective of any business. “European Union transfers that have recently been very helpful in assisting the cyclical upswing of the Hungarian economy, [but] ... they do a bad contribution to Hungary’s longer-term outlook,” he says, “It’s akin to Dutch disease. […] These incentives are not aligned with long-term activities, with innovation and so on. They [rather] incentivize people to be in a good relationship with those who are allocating the funds, not on being competitive.” László Urbán, an economist and leading member of Fidesz – he was at one time in line to be finance minister in the first Orbán government

political elite, and some of their strawmen, their designated property holders,” he told foreign journalists earlier this year.

Vicious Circle In turn, this creates a vicious circle comprising a powerful client base with a

“European Union transfers have recently been very helpful in assisting the cyclical upswing of the Hungarian economy, [but] ... These incentives are not aligned with long-term activities, with innovation and so on. They [rather] incentivize people to be in a good relationship with those who are allocating the funds, not on being competitive.”

Business | 9

strong vested interest in supporting its benefactor. “EU transfers to Hungary is [like] aiding African countries in the 1960s.… the argument is fewer people starved to death [even if] the aid ultimately benefited their dictators,” he said in a biting analogy. The government vigorously denies corruption and says the authorities actively and thoroughly investigate any such allegations. Addressing the media on December 6, Nándor Csepreghy, state secretary at the Prime Minister’s Office, promised details of “perhaps the biggest corruption scandal in Hungary’s modernday history” during a parliamentary debate scheduled for December 11 on the disbursement of EU funds made available between 2014-2020. (However, that scandal appeared to involve the HUF 452 billion [EUR 1.5 bln] construction of Budapest’s M4 metro line between 2002 and 2010, i.e. under the previous Socialist-Free Democrat administrations.)

Improving Competitiveness Csepreghy defended current government policy, saying the primary aim was to access the available funds “within the shortest possible time in the interest of improving competitiveness”, and denounced the use of what he termed the threats of “blackmail” by Brussels over the future transfer EU funds, “Under the threat of blocking EU funds, they are trying to induce governments to accept the mandatory [refugee] quota system which their own citizens are opposed to,” he said. But it’s not just Brussels making proposals of conditionality to access EU funds. Speaking on a panel at the Transparency International conference, Urbán suggested linking the payment of EU subsidies to joining the eurozone. This would be the simplest way to encourage both EU integration and enhance supervision of how support from Brussels is spent, he argued. “Membership of the eurozone implies a lot more rules, monitoring, and more disciplinary sanctions,” Urbán said, thus creating a simple, yet efficient way of “reducing the possibility for national governments to use the money for building their clientele”.

of

1994

– is even more scathing of EU funding. “In my view, the EU fund transfers have an overall negative effect on Hungary. It obviously keeps feeding the pockets of the

Economist László Urbán (second right).

Business

10 | 2

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Budapest Business Journal | December 15, 2017 – January 11, 2018

Combating the Hack Threat for Connected Cars Intercepting Fake Messages

While the cars that we use are becoming ever more computerized for our own comfort and safety as time passes, those who often worry about the future talk about the loopholes that hackers could use to take over control of our vehicles. The Budapest Business Journal discusses the latest trends with David Wiernik, co-founder and president of the Hungarian-based navigation company NNG.

CHRISTIAN KESZTHELYI

The more cars become computerized, the more they rely on their Electronical Control Units (ECU). These can control most of the functionalities of cars, such as braking, engines, entertainment units, and so on. Add in the various connection types cars

come with today — Bluetooth, Wi-Fi, cellular, TMPS — and you can see why some might worry about how easily vehicles could be hacked. “Their engines can be shut down, they can be forced to brake hardly, and this vulnerability could lead to fatal accidents,” Wiernik paints a stark picture in answering the BBJ’s question. He adds that, as more and more cars equipped

“The technology analyzes every message sent on the vehicle’s internal CAN-Bus network, in real time, using its biometriclike source detection capabilities with Deep Packet Inspection. PIPS intercepts fake messages originated by a hijacked ECU, and can even prevent sending authorized messages from an unauthorized ECU. Thus, the system is able to prevent automotive hacks,” Wiernik explains. There is clearly a need for such a system, with increasing numbers of connected cars lined up to hit the markets and hacking being a cheap crime, though it requires a certain set of skills and research. “It does not take much to become a hacker: you need some basic skills, some research on the internet and some tools costing less than USD 50 in online stores,” Wiernik warns. He notes that beyond the many connection possibilities a car can have, the mere fact that they can be connected to each other mean threats are rising. “The scale also grows due to connectivity, enabling hackers to take over control of not only one single car but a whole fleet. Therefore, we’ll surely see the importance of vehicle cybersecurity becoming crucial,” he adds. “Cybersecurity at the moment is more about preventing hackers taking

with computerized solutions hit the market, quite soon billions of motorists could be affected by the problem. “So, we need an effective solution. This is where NNG comes into the picture. Earlier this year, we introduced our revolutionary Parallel Intrusion Prevention System (PIPS), the first solution that protects the entire vehicle from a single point,” the president says.

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Budapest Business Journal | December 15, 2017 – January 11, 2018

control of the vehicle than preventing them from stealing someone’s car. One of the most frequently used methods of hackers, intending to take over

“The technology analyzes every message sent on the vehicle’s internal CAN-Bus network, in real time, using its biometric-like source detection capabilities with Deep Packet Inspection. PIPS intercepts fake messages originated by a hijacked ECU, and can even prevent sending authorized messages from an unauthorized ECU. Thus, the system is able to prevent automotive hacks.” the control of a vehicle, is sending unauthorized commands that the car’s system mistakenly takes as coming from an authorized ECU,” Wiernik says in describing the current situation.

Business | 11

Lagging Behind Yet, while international markets expect to see large numbers of connected cars hitting their streets soon, Hungary appears to be lagging somewhat behind. “According to the statistics, the penetration of connected cars is expected to

hit

12.7%

by 2021. The current rate is 0.9% in Hungary,” Wiernik says of the local arena. Last year, BI Intelligence, Business Insider’s premium research service, indicated 94 million connected cars will be shipped in 2021 to global markets. “This means that 82% of cars shipped in that year will be connected. This number will be around 50% in 2018, and around 60-70% in 2019. So, the change will pick up pace rapidly in coming years,” Wiernik foresees. He adds, citing data from internet statistics company Statista, that revenue in the “Connected Car” market currently amounts to USD 12 million, but is expected to show an annual growth rate of 72.8 %, resulting in a market volume of USD 105 million in 2021. “According to analysts, the automotive cyber security market is facing huge growth, forecasted to reach at least USD 800 million market value in just five years,” Wiernik says. Seeing the potential in the market, NNG, which made its name and fortune supplying navigation and later infotainment systems to automakers, has just

NNG Continues to Navigate Changing Markets expanded beyond its Budapest NNG first came to prominence HQ to open a development center as a developer of navigation in the picturesque southern software for handheld devices. Hungarian university city of Market saturation and the Szeged. financial crisis almost brought “We work with the best map and it to its knees, but it switched content providers to improve focus to automotive navigation systems in 2008. According to the the lives of people in as many countries as possible. We’ve company’s website, its solutions mapped over 190 countries, our are currently used “in more technologies are offered in 50 than 30 car brands, and we have languages, we have 12 offices partnerships with seven out of and four auxiliary offices on six the top ten car manufacturers continents, and we have nearly around the world”. 1,000 employees who come In August 2014, NNG bought from all over the world,” the Georgia-based American peer nFuzion, an HMI (Human-Machine website says. “Our award-winning strategy helped us become the Interface) prototyping company, fastest growing company in with the aim of expanding its Europe in 2014.” profile. That same month, NNG

established its cyber security division by acquiring Arilou. “They [Arilou] have been the first to come up with a solution covering the entire network of the car. Our decision was followed by similar transactions on the market; both OEMs and suppliers are increasingly looking for partnerships in this area. The Arilou solution to protect and

defend the car is by far the most advanced in the market today, easiest to install and use, very cost effective and give drivers and the car manufacturers the peace of mind they need,” Wiernik says. He predicts that this newly-formed cooperation will put Hungary at the forefront of global automotive cyber security at “the same level NNG did to the global navigation market”.

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Cuisine With an IT Background Cruising in the downtown area of Budapest, there is a restaurant where you really should stop by and find out more about. It looks like a normal restaurant from outside but from the moment you enter, you can see there is something else to discover here as well. KAJAHU is located in Petőfi Sándor utca, parallel to Váci utca, in a central location. While it surely will not be in the focus of “nouvelle cuisine” lovers, KAJAHU has definitely started something different in the gastronomic sector with its concept. What marks the difference between KAJAHU and the others is definitely its IT background. There are monitor screens built in to all of the tables, so you can order your food directly from it, makes the process faster and easier. Beside saving time for the waiters, all the foods appear with a photo, thus making your choice visual. A lot

of other services are also available through the built-in platform. There are cartoons and books for kids to watch, you can e-chat with anyone in the restaurant, and it even has an own marketplace with a wide variety of fresh vegetables, fruits, milk, bakery and other items that can easily be selected via the screens, and your order is made ready while you eat. The menu offer, beside the daily offering, includes Asian, Mexican and Hungarian dishes, along with pasta and pizza as well, but the specialties are the burgers made from the famous Hungarian organic Grey Cattle meat.

Lactose or gluten free meals are prepared, as well as vegetarian plates. What also makes a difference is the open plan kitchen, called You Can Cook. You can show your own culinary skills and cook for up to 12-15 people right in the middle of the restaurant. Beside the fun of cooking, the interaction with the guests is guaranteed, while you prepare something special, for your friends, family members or colleagues. KAJAHU’s slogan is Food Together, which is simple enough to communicate, and it makes sense when you realize that they want to create an atmosphere full of varieties while you are eating at KAJAHU.

So why not stop by if you are open minded and ready for something special in terms of a restaurant experience. This year, Mastercard organized the Retailer of the Year competition for the second time. There were 30 entries in 3+1 categories, which were evaluated by a jury of six independent experts. One of the most popular categories was “Best Customer Experience”, with 21 competitors. The winner was Cybergastro Zrt., with its KAJAHU social restaurant and marketplace. The jury decided that the competition’s overall winner was also Cybergastro Zrt. KAJAHU has made an excellent job with its integrated dining concept focusing on customers’ different daily needs and preferences. Check out their promotions at mastercard-kedvezmenyek.hu

Business

12 | 2

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Budapest Business Journal | December 15, 2017 – January 11, 2018

With the applicability date of the General Data Protection Regulation (GDPR) of the European Union due in about half a year, the business community needs to speed up measures for timely compliance. A recent conference hosted by AmCham provided a platform to address the most important aspects related to the preparatory phase. LEVENTE HÖRÖMPÖLI-TÓTH

A recent survey by the American Chamber of Commerce in Hungary found that

78.7% of its

members believe that the core business of their company will be affected by GDPR. This is yet another indication that preparation for the new data protection legislation is gaining in importance, with the date of implementation approaching quickly. Dr. Gábor Orosz, chairman of AmCham’s Regulatory Committee highlighted in his opening remarks that B2B challenges are ADVERTISEMENT

Photo: AmCham/Lázár Todoroff

GDPR: Time to Speed up Preparations

Dr. Attila Péterfalvi, President of the National Authority for Data Protection and Freedom of Information (NAIH), speaks at the AmCham conference. To the right is Dr. László Péter Salgó, Deputy State Secretary of the Ministry of Justice. often ignored, because the focus tends to be on consumers in terms of data issues. “However, a large number of the members of our organization act in the B2B sphere, so this aspect must be borne in mind as well,” he said. Additionally, data flow between U.S. and Hungarian companies is key, so it is a matter of competitiveness whether data can be transmitted freely across borders. “The adjustment of relevant laws is therefore absolutely imperative so that local companies won’t lag behind in the global competition,” concluded Orosz. Data protection reform reaches well beyond the scope of the GDPR, though, warned Dr. Attila Péterfalvi, President of the National Authority for Data Protection and Freedom of Information (NAIH) in his keynote speech. As a matter of fact, even if GDPR is the main pillar of the newly established regime, there are also changes in the sphere of criminal law to consider. “The ultimate goal here is to respond to digital development and set up a uniform regime of legal protection across the European Union,” said Péterfalvi.

Right to Selfdetermination He further emphasized that the period for preparation will end on May 25, 2018, which marks the date the new EU legislation becomes applicable. The result should be a more consistent and solid legal framework, smoother implementation, elevated legal certainty and a strengthened right to information self-determination. Most importantly, those involved in data processing at legal entities must be aware what type of data they deal with, and whether their data protection policies comply with the new regulations. Another novelty is the possibility to issue a code of conduct, which will serve as a substantial tool based on self-regulation to ensure enforcement of compliance. However, it remains to be seen to what extent it will be bent to the needs of different industries, the expert added. Simultaneously, the main guiding principles of the legislation are the protection of natural persons, free flow of personal data, and cooperation between authorities. Whilst the powers of those

authorities will change partially and be expanded, the European Data Protection Board and the European Court of Justice will assume a crucial role in dispute settlement, and their opinions will also contribute to establishing a uniform case law. Péterfalvi also stressed the importance of having standardized penalties across the EU. “The idea is not to impose maximum penalties of billions of forints, though,” he noted. “NAIH will continue to function as a service providing authority.” An extended obligation to report data breach incidents will be introduced under the new regime, where the self-reporting element might cause some concern. “In this respect, a climate of mutual confidence will be important,” noted Péterfalvi. It was also pointed out that all parts of an entity processing data should be made aware of the importance of incidents; such matters cannot be treated as issues that concern only the legal department.

Legal Obligations

The direct applicability of the GDPR is only one of many legal obligations the Hungarian legal system must fulfill, Deputy State Secretary of the Ministry of Justice Dr. László Péter Salgó highlighted. Apart from that, the relevant EU Directive 2016/680 on the criminal law implications of the regime must be transposed as well. In this regard, Act CXII of 2011 on the right to information self-determination and freedom of information, colloquially referred to as the “Info Act”, is significant; apart from the directly applicable GDPR, it is the Info Act that will need to be invoked, in particular with regard to criminal lawrelated data processing issues. Unfortunately, the long-awaited guidelines from NAIH that would certainly make the life of corporations easier are still being prepared. “Indeed, we are delayed in providing them, but the national rules have not been completed yet,” explained Péterfalvi. “NAIH will provide information on its website as soon as possible.” Drafting a legal commentary can also get started only after the relevant bill has been tabled for vote in Parliament, which hopefully won’t be torn apart by individual petitions. “The bill should be ready for adoption by February and plenary adoption by the Parliament is foreseen in the spring,” Salgó said in an overview of the legislative schedule.

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Budapest Business Journal | December 15, 2017 – January 11, 2018

Business | 13

Photos: AmCham/Lázár Todoroff

AmCham Board Gains New Blood at Annual Assembly

AmCham gained a new first vice president, a returning secretarytreasurer and two new board members-at-large at its annual assembly at the Budapest Marriott Hotel on December 7. ROBIN MARSHALL

While Péter Csucska (first vice president) and Csaba László (secretary-treasurer, re-elected to the position after his previous two-year term expired) won their posts uncontested, new board members Judit Zolnay and Edit Bencsik were in a threeway race for two seats with Christian Wulff Sondergaard, who had acknowledged it was a “strong field”. Csucska had joked during his election speech: “Having been born in the Soviet Union, I was used to seeing only one name for a position.” He thought he only had to turn up to win, but then broke his leg and realized nothing is ever that simple. He later blamed his three children for that injury. “Having children is a dangerous occupation; I broke my leg at a children’s playground,” he said to laughter. He did spend part of his speech urging others to compete for board and executive board positions at the next elections, saying there was nothing to be scared of and much to be gained. László, a former finance minister, tax partner at KPMG and banking

industry executive, promised members that, with him: “The budget will be under control.”

‘Perseverance Pays Off’

Earlier, in his report of the past year, AmCham President Farkas Bársony noted that “Perseverance pays off, and we are persevering.” He added that there had been “dozens of advocacy recommendations from the AmCham community”

Dr. Iván Völgyes Award Joerg Bauer, the President of GE Hungary, and the 2017 BBJ Expat CEO of the Year, became the latest winner of AmCham’s Dr. Iván Völgyes Award for the promotion of HungarianAmerican business relations at the chamber’s annual assembly. The award was a surprise to the winner (“Thanks for the heads up!” he joked) but particularly apt, given that Völgyes was instrumental in bringing so many GE businesses to Hungary, and had become something of a mentor in absentia for Bauer. “This is a really great honor. I remember I was at Audi, working towards my pilot’s license, when I heard the news of the crash,” Bauer recalled. When he became President of GE Hungary four years ago, the position had been vacant for a period and he had no predecessor to learn from. But he said he began “to get to know Iván” through talking to colleagues, and was impressed by his “win-win” mentality. “Sadly, I never got to meet him, but he became something of a guiding star for me, so thank you very much.” The award was presented for the first time in 2005. It was created after Völgyes and several other

executives from his computer company Synergon Rt. lost their lives in an aircraft crash in 2001. The man the award is named for is credited by many as being the father of modern lobbying in this country. Born in Hungary, he moved to the United States in 1956, where, after acquiring a BA, MA and PhD in International Politics, he worked on John F. Kennedy’s election campaign in 1959 and then followed him into the White House. After the fall of the Iron Curtain, he became instrumental in bringing numerous U.S.-based businesses to Hungary including the Gallup Organization and Reader’s Digest. As the chief advisor to General Electric in Hungary, Völgyes also assisted in bringing six of GE’s ten global core businesses, along with more than USD 1 billion in investments.

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1989

Fur Design

and vowed the chamber would continue to fight to make sure members’ views are expressed before government. CEO Írisz Lippai-Nagy echoed that, saying that even when the government told the chamber an issue members believed strongly in was not a priority for it, the chamber would continue making recommendations until it “gained critical mass”. 2017 had been “a very exciting year, full of success stories and others that I would not say were failures, but things we are still working on.” She also outlined a number of new initiatives for the coming year, including the relaunched language and career ambassador programs, and a new “Future Leaders’ Program”, based on best practice learned from AmCham Slovenia, but built on the successful AmCham Hungary Career and Communications Schools to create something new. Presenting the AmCham Foundation’s annual report, Edit Bencsik said it offered member companies a “small but well established and transparent organization” through which to channel their CSR activities. “Volunteers do not necessarily have time, but they do have heart,” she noted. The “Generosity Award” was presented to ExxonMobil BSC and NCR Hungary, two companies that between them had committed 90 people and 500 hours to volunteer work, along with both in-kind and financial donations.

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Special Report Deals of the Year

State Still Plays Active Role on Hungary’s M&A Market

16

BlackRock Budapest Center 17 Upturn in Market Activity Continues in 2017 M&A Transactions Schoenherr in the CEE

Our annual roundup of the year’s biggest deals, and the trends that underlie them

18 19 21

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ACADEMIC COLUMN

Deal Done?

Transactions, MBO/MBI/IBO/EBO, Trade deals, Innovations, Patents, Market expansion, Market capitalization, Projects, etc. Was the deals market OK – both in volume and structure –in Hungary in 2017? Looking at the list of the best deals we have good reasons to be positive: GDP is

growing by

Maria Findrik University Professor

While in December we are preparing for the most heart-warming days of the year, spent with our loved ones, we also take a step back to assess what we have achieved. The reference point of doing so is partly individual and partly common: we traditionally award the best deals of the year in terms of Acquisitions, Sales, Investment,

3.8%,

faster than expected, and by the highest rate in the last ten years. Wages are increasing by 15% on average, the guaranteed minimum wage by 25%; again, the highest growth of the decade. Consequently, Consumption is also growing by more than 4%. There is no need to say how important that is: after Greece Hungary suffered the deepest decline (approximately 12% down) in consumption during the crisis and it took the longest time in the European Union to recover. From a structural point of view, it is even more important that in 2017 the investment in Hungary is going up by 21%; it is enough not just to cover the replacement of the used-up capital but to inject net, new, modern technology for the future. The positive results have not led this time to a higher deficit – it is under control, meeting EU and domestic targets. The results have encouraged the big three international rating companies to upgrade Hungary’ s credibility.

Regional Context

Looking at the details, and putting Hungary into a regional context, the

picture is less attractive, however. While GDP is significantly up here, Romania’s is growing by 8.6%, Lithuania by 6.2%, Poland and Czech Republic by 5%, Bulgaria by 4% - meaning that we are at the end of the line in Central and Eastern Europe. While consumption is also increasing, the GINI index (the income or wealth distribution of a nation’s residents) is also up, the gap between the richest and the poor is widening and we are making decisive steps to turn into a dual economy and society, which does not help improve the stability of any country. The investment picture is also twofold: it is up, but it is one of the lowest in CEE, and most of the resources still come from the European Union. The EU Funds’ addition to GDP is

about

3%;

without this, there would be no sensible growth in Hungary. The ratio of the government investment against private is higher than in established economies and could easily feed higher corruption. The largest deals of the year are also dividing the public: Paks II is financed from Russian credit, The BelgradeBudapest railway construction by Chinese loans, both confirmed by State visits by Russia’s President Vladimir Putin and the Chinese PM Li Keqiang, are debated by many from both the economic and geopolitical points of view.

Unfortunately restructuring and elevating our production to a higher added value level, rethinking and changing both the growth and business models, digital transformation, empowering innovation, the SME sector, and significantly the level of education, have not been among the deals of the year in 2017. Let’s hope for next year!

This column is the last in a series of opinion pieces from academic experts in Hungary. The opinions stated here do not necessarily reflect those of the Budapest Business Journal.

CEE GDP GROWTH IN 2017 Romania Lithuania

8.6% 6.2%

Poland

5%

Czech Republic

5%

Bulgaria

3.9%

Hungary

3.8%

Source: Eurostat, EBRD and GKI

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State Still Plays Active Role on Hungary’s M&A Market Hungary’s transactions market saw a relatively strong 2017; however, the role of the state has continued to dominate, causing some distortion in the structure of the market. While analysts agree that foreign interest is growing in Hungarian companies, the market was still driven by domestic transactions. ZSÓFIA CZIFRA

The year 2017 has seen a further livening of the M&A market, with an increase in both the number and the value of transactions. According to an EY survey, there was a 3% increase in the number of deals in the first half of the year compared to the same period of 2016, and the estimated value of the market grew by 12%. The real estate sector has regained its foothold finally, having been the most active industry this year. “I expect the full year to be similar to what the first half of the year was, or even better, as M&A activity increased in

Ervin Apáthy.

Margaret Dezse.

H2, to the regular year end push to get deals done on the market,” Edward Keller, partner at Dentons tells the Budapest Business Journal. While the first six months of the year saw mainly domestic transactions, a number of cross-border deals have ramped up at the end of the year, Keller says. Some of these might be closed only next year. Keller mentions that his own deal activity in the last six months has focused on the FMCG, e-commerce and specialty manufacturing sectors. The second half of the year will basically be similar to the first half, based on the fact that several deals are yet to be closed by the end of December, so the number of transactions will also be high in H2, says Ervin Apáthy, director of Corporate Finance at PwC. “Without having the exact numbers at hand, we think that the number of transactions will be somewhat lower in the second half of the year than it was in the first half,” Margaret Dezse, partner at transaction advisory services of EY tells the BBJ. At the same time, we expect a slight increase in the number of the deals year on year. There are several ongoing deals on the market and it’s hard to

estimate whether they will be closed this year or postponed for 2018,” she adds. According to the EY M&A Barometer, the average value of deals with a disclosed deal value below USD 100 million increased to USD 11.7 mln in Hungary in H1 2017, which represents more than

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200% increase

from USD 3.7 mln in H1 2016. This growth was due to the increased activity in the real estate market, where the largest transactions were closed.

Local-to-local

As in previous years, the market was dominated by domestic transactions in the first half of the year: their share

was

59%. An M&A market driven by domestic transactions is not an exclusively Hungarian characteristic; it is a typical

Edward Keller.

“By now, Hungary is out of that ‘quarantine’ it was put in a few years ago. Today, the main problem is that there is a limited selection of targets in the adequate size and quality.” phenomenon in the region, Dezse pointed out. One reason for this may be that foreign investors show less interest in smaller companies and smaller deals, therefore these deals will mainly attract domestic buyers. If the number of medium-sized (EUR 20-100 mln) transactions increased, this would inevitably attract the activity of foreign investors, she adds. While there was a high number of domestic transactions this year, the largest deals are still made by foreign investors. Interest from them, Apáthy of PwC says, is significant and strong, both from strategic and financial investors.

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“An acquisition is always a complex issue in a company’s life, and targeting it abroad makes it even more difficult. At the moment, we see a small number of Hungarian companies that have the necessary human resources and willingness to acquire abroad.” That narrow circle of companies which could be interesting for the foreign investors are currently executing serious investments, and they are not up for sale at the moment. On the other hand, those who want to sell their firms often put their asking price too high, he adds.

International Players

Only four publicly disclosed outbound transactions were noted in H1 2017. “An acquisition is always a complex issue in a company’s life, and targeting it abroad makes it even more difficult. At the moment, we see a small number of Hungarian companies that have the necessary human resources and willingness to acquire abroad,” Dezse says. And it’s not only about buying a company but also integrating and operating it successfully after the acquisition, she emphasizes. However, the number of companies, in addition to the larger, already regional market players such as MOL, OTP and Richter Gedeon, is increasing; Dezse mentions Hungary’s Duna House buying Poland’s Metro group, and Waberer’s acquisition of its Polish peer Link. In order to acquire abroad, a company needs to have a regional or global mentality and strategy, so it is little wonder that cross-border transactions are carried out by large companies usually listed on the stock exchange, PwC’s Apáthy notes. OTP bought several banks in the region in 2017, but Richter, Egis and Waberer’s have also been active on the M&A market, Apáthy says. He believes that the driving force for the crossborder deals will still be this circle of companies. However, according to him, Hungarian enterprises are getting stronger and therefore will surely have a presence on the international market, as the Hungarian market is simply too small. The Hungarian state’s activity increased on the Hungarian M&A

market in H1 2017 compared with the previous year. Transactions included, amongst others, the

100% takeover

of DÉMÁSZ by the First National Public Utility company (ENKSZ) from France’s EDF; MVM, the state-owned Hungarian energy group, has become a 50% owner of ENKSZ via a capital raise. Also noteworthy is the fact that, while in 2016 the state tended to be on the seller side, in H1 2017 it acted mainly as a buyer. During H1 2017, none of the transaction deal values involving the state were made public. However, some say that the largest deals had already been closed. “The direct role of the state on the transactions market seems to have slightly decreased,” Apáthy reckons. Deals in certain strategic sectors had already been carried out in the past few years, so at the moment, massive state acquisitions are not in the foreground. However, the big question now is what will happen to those assets owned by the Hungarian state, for example, the recently acquired service providers in the energy sectors, Apáthy notes.

Future Prospects

As for the future of the M&A market in Hungary, Keller of Dentons is optimistic. “There is an increasing number of high quality local young entrepreneurs aged between 30 and 45 who focus on building long-term value in a traditional Western European business sense, rather than short-term gains (arbitrage),” he tells the BBJ. The focus of this newer generation of entrepreneurs in seeking out targets is not just cheap pricing, but innovation and value in the great tradition of Silicon Valley, he explains. Hungary has strong fundamentals, he says, and this, paired with the growing value- and innovationbased entrepreneurial spirit of a new generation coming of age, give him great hope for Hungary. Another interesting trend in the Hungarian M&A market is that Hungarian investors are increasingly interested in investing their money in Hungary (and not taking the money out of the country). This can be a great source of liquidity in the local market – and one that Czech Republic, Poland and Slovakia have benefited from for years. This has been a large part of the success story in the Czech market in particular, and Keller feels cautiously optimistic that this trend will continue to develop with respect to Hungary. Many of the topics discussed in the international media regarding Hungary create a lot of “macro noise”, which can sometimes unfairly lead to a discount in valuation with respect to Hungarian targets, according to Keller. He argues that this can create a special opportunity in Hungary for smart investors who can discern between topics actually impacting valuation negatively, and those which are merely distractions under the circumstances, making Hungary an interesting investment destination for smart discerning investors looking for value.

The Most Important Transactions by Sectors (For real estate, see pages 18-21)

which delivers laboratory services and product testing in the high voltage electricity industry.

Food and Beverages • The Belgium-based La Lorraine Bakery Group acquired a 24% stake Telecom and Media in the Hungary-based bakeries • Invitel Zrt. was sold to China CEE producer Első Magyar PékpontInvestment Cooperation Fund rendszer Kft. Financial terms of the for approximately USD 215 mln in deal have not been disclosed. January. • The owner of Cerbona Élelmiszeripari Kft. purchased Agrimill-Food in June. Manufacturing • KÉSZ Kft. has bought Ukrainian Services ferroconcrete producer company 3 • U.S.-based private equity firm Betony TzOV. Providence Equity Partners bought a • Industrial tubing manufacturer, majority stake in Hungarian festival Dynamic Technologies Kft. has been company Sziget Kulturális Menedzser sold to the Luxembourg-based Iroda Kft in January. International Auto OEM Supplier • German vehicle inspection company Luxco S.a.r.l. Source: EY Dekra SE bought Veiki-VNL Kft.,

INSIDE VIEW

Deals of the Year: BlackRock Budapest Center Emese Rencsár Commercial Manager HAYS HUNGARY

At the beginning of 2017 we knew: “We are building something great in Budapest.” Hungary was short-listed and then celebrated one of its greatest achievements. It welcomed one of the world’s preeminent asset management firms and a premier provider of global investment management, risk management and advisory services to set up its Global Innovation and Technology Hub in Budapest. BlackRock’s mission as an orangisation is to create a better financial future for its clients and BlackRock Budapest Center will enable this, through a relentless drive to make itself and its community better. BlackRock’s aim was to create 500 new jobs in Budapest to handle technological development of financial and business processes and to develop new methodology. Firstly, BlackRock Solutions arrived with its investment analytics, risk and quantitative analysis positioned together with some of its financial functions in business operations services. The firm is also building a big team of IT professionals to support its Aladdin Platform, an operating system for investment managers that seeks to

connect the information, people and technology needed to manage money in real time. Besides all this, there is also a focus on complex finance roles with other combined areas like financial modeling and financial market advisory. Hays Hungary was appointed executive supplier to outsource a dedicated team of recruitment experts to continuously develop and implement an appropriate recruitment strategy for BlackRock Budapest Center. Hays is providing an end-toend recruitment process outsourcing (RPO) solution with the establishment and selection of a qualified candidate pool through to market advisory services. The center is rapidly growing and already employs more than 200 employees. BlackRock believes diversity is a driver of success. The center’s aim is to gain the attention of candidates with different capabilities due to their open diversity program. BlackRock has been giving open forums to Women in IT, and been involved in public events such Brain Bar Budapest and Budapest Pride. The firm with its presence, excellent reputation and global functionality has also caught the attention of local and international candidates abroad and has even drawn in Hungarians working abroad back to Budapest. Since BlackRock established itself in Budapest, the financial and technology market has changed, not only creating a significant number of innovative jobs for the Hungarian market, but deepening the knowledge of asset management firms. This opportunity has shaped the Hungarian market further to enable it to become a home for other FinTech companies in the future.

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“By now, Hungary is out of that ‘quarantine’ it was put in a few years ago. Today, the main problem is that there is a limited selection of targets in the adequate size and quality,” Apáthy explains.

Special Report | 17

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Budapest Business Journal | December 15, 2017 – January 11, 2018

Upturn in Market Activity Continues in 2017 Investors and developers are showing an increasingly favorable attitude to the development, investment and redevelopment of buildings in Hungary’s office, industrial, retail and hotel market sectors. Prime yields are estimated at 6% for office and retail, and 7.5% for industrial. GARY J. MORRELL

of the Park Atrium office building. Both established international investors and local funds have become increasingly active in Hungary. OTP Bank managed funds have purchased the 27,000 sqm West End Business Center, the 25,000 sqm Nokia Skypark and the 25,000 sqm Váci Greens building B, all class “A” Budapest office centers. Atenor has also sold Váci Greens building D to a private Hungarian investor, and Erste Real Estate has bought the 25,000 sqm Krisztina Palace. “I would argue that the market is split 50/50 between core and opportunistic investors, so there is a healthy mix between the two types of buyers,” said Tim O’Sullivan, head of investment properties for Hungary & SEE at CBRE. Eiffel Palace interior. Vacancy is low in all market sectors as demand is continuing to rise and average room occupation nights are high in the hotel sector. The challenge is to develop quality, sustainable stock in all market sectors to meet tenant and investor demand.

OFFICE

A notable investment deal was the purchase by the German-based asset manager Corpus Sireo of the 14,500 sqm Eiffel Palace for around EUR 54 million

from the National Bank of Hungary (MNB) at a reported

yield of

5.25-5.4%. The classical turn-of-the-century building was redeveloped into a landmark office building by Horizon Development and subsequently sold onto the MNB. Corpus Sireo completed its first acquisition in Budapest in 2016 with the purchase

Biggest Shift

Mike Edwards, head of capital markets at Cushman & Wakefield Hungary, sees possibly the biggest shift in the investment market as indicated by the sale of Kalvin Square and Cityzen by Europa Capital to KGAL. “They [Europa Capital] purchased both assets two years earlier from the financing bank and undertook a highly successful leasing and refurbishment program enabling them to exit,” he said. In a deal advised by Colliers international, IT Services Hungary, the largest ICT employer in Hungary, has decided to locate its Budapest site to Mill Park and will occupy approximately 17,300 sqm at the complex.

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Mill Park by Skanska, located in District IX, will comprise two office buildings with a total leasable area of 36,000 sqm. The LEED “Gold” certified office complex is more than 70% leased and will be delivered in two phases during 2018. Skanska has sold the 26,000 sqm Nordic Light in Váci út to Erste Real Estate Fund for EUR 67 million, the transaction was recorded at the turn of the year.

Slovakia, Romania and Croatia. NEPI Rockcastle has also purchased a 22-hectare development plot adjacent to Aréna Plaza for a potential extension of the project. The company has the policy of redeveloping and extending its purchases as a long-term investor and building owner. “The purchase of Aréna Plaza is important not only because it represents a complex, landmark deal for the market, but also because another new international source of equity has entered the Hungarian real estate market. It is anticipated that close to EUR 1.7 billion may enter the commercial property investment market by year end,” said CBRE’s O’Sullivan. In one of the largest Hungarian retail portfolio transactions in 2017, TREI Real Estate, the property estate arm of the German Tengelmann Group, successfully sold a portfolio of 40 supermarkets to Erste RE Fund. Most of the portfolio is leased to Spar Hungary. The total size of the deal was in excess of 39,500

INSIDE VIEW

Recent Trends of M&A Transactions as Seen by International Legal Advisers in CEE and Hungary Anikó Kircsi

Eva Talmacsi

Partner, Head of Corporate/ M&A

Partner, Global Transactions

CMS BUDAPEST

CMS BUDAPEST & CEE

After a year of turbulence in 2016, 2017 has been a markedly more settled period for the global markets, including the European economy. Overseas buyers have continued eyeing CEE markets with interest; investors from APAC and North America will continue acquiring companies in CEE because of the relatively high annual GDP growth, a proximity to Western markets and the availability of a relatively low-cost labor force with high skill levels. Across CEE, the most active sectors were real estate and construction, followed by manufacturing, telecoms and IT. The banking sector has also had a fair share of deals. Low profits, the ongoing restructuring of Greek lenders, the billions in fees imposed on financial institutions, new sector regulations, and the Italian banking crisis have resulted in even more disposals of equity ownership and separate NPL portfolios across the region.

A rare delivery in the south Buda submarket is the 18,500 sqm Office Garden 111 that is currently 95% let to such international and Hungarian tenants as Agco, SIA Pirelli, Manvit, Astra Zeneca and Pannontej. “The demand for new office areas is significant because no new office scheme had been delivered in this area since 2010. The occupancy has reached almost 100% in a record time,” said Robertson Hungary, who acted for the developers. Also in south Buda, MOL has acquired the office component of the BudaPart development and is developing its MOL Campus HQ that will include 33,000 sqm of office space providing work places for 2,500 staff. The LEED and BREEAM accredited complex, designed by Foster & Partners and Finta Studio, will include a landmark 120-meter office tower. JLL estimates that 477,000 sqm of office space is under construction in Budapest, 38% of this is pre-let and vacancy is at an all-time low of 7.7%. Most analysts do not fear oversupply despite the large pipeline.

RETAIL

One of the largest transactions in the year was the acquisition by the prolific South African investor, NEPI Rockcastle of the 66,000 sqm Aréna Plaza for a

reported

EUR 275 million.

Although this is the first entry by NEPI Rockcastle into the Hungarian market, the investor/developer has already built a strong CEE retail portfolio in Poland,

“The purchase of Aréna Plaza is important not only because it represents a complex, landmark deal for the market, but also because another new international source of equity has entered the Hungarian real estate market. It is anticipated that close to EUR 1.7 billion may enter the commercial property investment market by year end.” sqm, geographically spread around the entire country, including 13 locations in the capital, according to Colliers International who advised TREI Real Estate on the transaction.

Renovate and Reposition Against the background of lack of supply, some owners of earlier generation schemes are attempting to reposition themselves on the market through renovations or changes Continued on page 20.

M&A deals in CEE reached EUR 86.7 billion in value in 2016 and the strong trend has continued in 2017. The United States remained the largest foreign investor in CEE, with United Kingdom and China the second and third largest foreign investors by value in the region, followed by Germany, France and Austria. This year we experienced a strong Chinese interest in CEE as a relatively recent development. Chinese companies and banks have carried out detailed research in recent years, laying the foundations for a wave of investment into the future. Another significant trend was the increasing number of “domestic” regional cross-border deals of regional companies, financial institutions and private equity firms. Czech Republic, Poland, Hungary and SEE were among the most active fertile soil for such cross-border expansion. Rapid technological advancements over recent years have had a considerable impact across all sectors. This trend is set to continue with raising automation of tasks and digitization reducing the cost of many business and production processes: almost all well-established corporations are faced with the question of what digitalization means for them and their business model. According to a large percentage of private equity firms and corporates, technology and IP acquisitions is one of the two most important aspects for buyers when looking at targets. One very interesting deal driver has been the trend of “acqui-hiring”: rather than creating a start-up culture in their own corporate set up, they acquire teams of digital natives to help them to respond to the challenges of digitalization. Cash-rich corporations have also contributed to a healthier deal flow on the buy-side, followed by consolidations plans. Recent

economic volatility also appears to have convinced many buyers that diversification and increased efficiency through significant scale is an important strategic goal. Such transformational deals are boosting deal values and volumes across Europe. Investment holdings and family offices are rapidly gaining visibility and importance on the CEE transactional landscape as well. They are an increasingly important fixture of the present and future economic ecosystem. One of their major differentiating factors is their long (longer) term investment strategy that, coupled with a reasonable level of flexibility, makes them a very attractive proposition for sellers, especially smaller family businesses and growth stage smaller companies in particular in the technology sector. In recent years, the main obstacles to M&A activity in Europe were political instability and tighter regulation and although not unique to CEE and Hungary, they are key issues in the minds of investors looking at, or already operating in the region. The uncertainty surrounding the United Kingdom leaving the EU has created tension in European market and hindered existing business activities. Other key factors include increased regulation and possible shifts in U.S. policy as the Trump administration runs its course. It is unsurprising that antitrust has come out as one of the most challenging area of regulations, followed by financial services regulation, most likely a partial reflection of the increased reporting requirements under the Alternative Investment Managers Directive for PE firms, which has been implemented over the last few years. The Hungarian market closely followed the CEE trends over the last three years and recorded growth with a buoyant M&A market, with an increased level of foreign investments. In conclusion, market players tend to believe that the opportunity afforded by the CEE countries overweighs the risk, which is reflected in the increasing level of interest in – and investment into – the region.

Sources: CMS’ Emerging Europe M&A Report 2016/2017 in cooperation with EMIS, CMS’ European M&A Outlook 2017 in cooperation with Mergermarket and Central & Eastern Europe: Risk and Resilience in association with Legal Week Intelligence.

cms.law

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“I would argue that the market is split 50/50 between core and opportunistic investors, so there is a healthy mix between the two types of buyers.”

Special Report | 19

20 | 3

Special Report

Continued from page 19. in their tenant mix. The Hungarian investor Diófa Real Estate Fund has purchased the rebranded Shopmark shopping center and plans to undertake extensive refurbishment. CPI purchased the earlier generation

“With nearly two-thirds of assets within M7’s Central European portfolio in Hungary, this is a further show of confidence in our market and is a demonstration of the comparative value that Hungary delivers.”

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Budapest Business Journal | December 15, 2017 – January 11, 2018

and CEE developer Futureal. The complex is located adjacent to the 70,000 sqm Budapest One business park project, currently under development at a transport hub on the western edge of the city. The complex, designed by Chapman Taylor, is scheduled for delivery in the fourth quarter of 2019. The other pipeline development, the 50,000 sqm ECE Aquincum, located in Óbuda, from the German retail developer and shopping center operator ECE, is not expected to deliver before 2021.

INDUSTRIAL

The major deal of the year was the purchase of the cross-border Logicor logistics platform by CIC, including a Hungarian component. The U.K.-based investor M7 Real Estate increased its presence in the Hungarian market through the acquisition of seven light industrial assets across the country as part of a larger core-plus portfolio deal. The investor also

purchased

Pólus Center and the Campona mall from CBRE Global Investors and is undertaking redevelopment of the complexes. Although consumer demand has continued and there are waiting lists for the best performing Budapest shopping centers, there have been no new shopping center deliveries in Budapest in recent years. The only large retail format delivery is a new 35,000 sqm IKEA store in the southern outskirts of Budapest. This is the third IKEA store in the capital area, and one of the largest in the CEE region. The next planned delivery will be the 53,000 sqm Etele Plaza by the Hungarian

the 62,000 sqm

Aerozone logistics center in the vicinity of Liszt Ferenc airport earlier in the year. “With nearly two-thirds of assets within M7’s Central European portfolio in Hungary, this is a further show of confidence in our market and is a demonstration of the comparative value that Hungary delivers,” commented Mike Edwards, head of capital markets at Cushman & Wakefield Hungary, who represented M7 on the deal. Wing has expanded its industrial portfolio with the acquisition of the

Aerozone Logistics Center. 75,000 sqm Európa Center Business and Logistics Park, located adjacent to the M0 ring road. The leading Hungarian developer plans to further develop the complex, trading under the new name of Login Business Park. The Industrial division of Colliers International Hungary sold the Scanfil building in Rozália Park to the Reál food store chain. The building of total 14,500 sqm was used by Scanfil for the production of mechanical and integrated products, and will now be used by Reál as a distribution center for the greater Budapest area.

State-owned

The Hungarian state-owned NIPÜF (National Industrial Park Management and Development Company) is developing 23,000 sqm of built-to-suit space at Inpark, close to Páty (26 km west of Budapest). This reflects the perception by the state of the need for modern logistics and light industrial space. “Inpark was founded by the Hungarian state but operates as a classic property developer on a market basis,” said the company. The regional industrial developer and logistics park operator CTP is undertaking development of the 17,000 sqm extension

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HOTEL

The development of hotel stock in Hungary has been continuously rising since 2010 and total room supply has expanded to more than 61,000 during the year according to the hotel consultants, Horwath HTL. In Budapest, new developments are essentially refurbished historic buildings that are redeveloped into mainly boutique

in Europe in 2018, benefitting from a balanced mix of international leisure and corporate demand. “We are delighted to be acquiring this iconic European hotel in this high demand hospitality market, while partnering with Accor and Orbis on this transaction. With its irreplaceable location and strong cash flow, the hotel has attractive growth and significant repositioning potential. We look forward to investing in this property and leveraging the hospitality expertise of Starwood Capital Group to help drive future growth together with our partners Accor and Orbis,” commented Keith Evans, vice president of European hotels at Starwood Capital Group. In the major hotel delivery of the year, Wing has delivered the 145-room ibis Styles Budapest Airport Hotel, the first hotel at Ferenc Liszt International Airport. Budapest Airport, operators of the capital’s international airport, believe the project will create a landmark building that will raise the profile of the airport. The 5,200 sqm hotel is being developed through a partnership between Budapest Airport and Wing. The project is being

Budapest Airport Ibis Styles Hotel. hotels in the city center with an average of 80 rooms, according to CBRE. In the first half year, 5.14 million guest nights were registered in Hungary. With similar growth predicted for the remainder of the year, the total volume for 2017 could reach 12.2 million arrivals, the highest figure on record. In Budapest, the occupancy rate of 76% puts the city at the upper end of European capitals. In the major hotel investment deal of the year, the international private investor, Starwood Capital has acquired the Sofitel Budapest Chain Bridge Hotel from Orbis Hotel Group. Sofitel Budapest is one of the major five-star hotels in the city, with 357 rooms close to the bank of the Danube. The hotel is being purchased for EUR 75 million, subject to the approval of the European Union Merger Control Office, and an extensive restoration and renovation program is being planned. The complex will continue to operate under the Sofitel brand.

Fastest Growing

The transaction is described as a sale and management back transaction to acquire the hotel. This is regarded by Starwood Capital as an attractive partnership with Accor and Orbis. Budapest is projected to be the fastest growing urban hotel market

“With its irreplaceable location and strong cash flow, the hotel has attractive growth and significant repositioning potential. We look forward to investing in this property and leveraging the hospitality expertise of Starwood Capital Group to help drive future growth together with our partners Accor and Orbis.” constructed on a site in front of Terminal 2 with direct access to the airport terminal. The developers will hand over the hotel to the ibis Styles hotel chain, a member of the Accor group. The operating rights for the project have been awarded on a

15-year contract.

INSIDE VIEW

Deals of the Year: Schoenherr in the CEE Dr. Zita Albert Partner (Corporate/M&A) SCHOENHERR HETÉNYI ATTORNEYS AT LAW

As a leading full-service law firm in Central and Eastern Europe, Schoenherr distinguished itself in the region by supporting numerous market-leading transactions in 2017. Schoenherr advised on various multi-jurisdictional transactions as well as on several local mandates across CEE. To show Schoenherr’s role in M&A transac-tions, we have highlighted below some of the more notable projects of 2017. Schoenherr recently advised Deutsche Private Equity Management III on its acquisition of leaflet printing business Euro-Druckservice from a consortium of three company shareholders. During this transaction, Schoenherr was able to demonstrate its transactional knowhow in core markets such as Czech Republic, Romania, Hungary and Poland, and support DPE regarding M&A and acquisition financing law. Of late, Schoenherr supported Quadrivio, an Italian private equity fund, in its acquisition of a 60% stake in TFM Automotive & Industry. Our teams in Budapest, Romania and Czech Republic assisted Quadrivio in the M&A and financing aspects of the transaction. Another excellent example of multijurisdictional work that involved multiple Schoenherr offices was the settlement of minority shareholders’ disputes and the management buy-out of AG FOODS Group. Teams from Czech Republic, Poland, Slovakia, and Hungary advised AG Foods and Coöperatief Avallon on both the settlement and the acquisition financing of the buy-out. In Hungary, Schoenherr was brought on board by Kirkland & Ellis (London) for the Bain Capital acquisition of the Sematic Group to assist in the acquisition negotiation, financing, and security documentation. Similarly, Schoenherr partnered with Hengeler

Mueller (Düsseldorf) to advise Bosch on the sale of its Hungarian subsidiaries to Chinese consortium ZMJ and CRCI. With more than 700 employees in Hungary, Bosch had the largest facility by headcount that was affected by the transaction. As lead counsel to Kansai Paint, Schoenherr provided comprehensive legal advice in Austria and 13 other jurisdictions, including Hungary, Czech Republic and Slovakia, managing the acquisition of coatings manufacturer Helios. Owing to Schoenherr’s strong regional footprint and vast experience with cross-border transactions, the acquisition was concluded successfully in March 2017. The merger of Raiffeisen Zentralbank into Raiffeisen Bank International represents one of the largest corporate reorganizations in the CEE banking sector to date, which was made possible by Schoenherr’s corporate, banking, and regulatory experts across six CEE jurisdictions, including Czech Republic, Hungary and Slovakia. A highlight mandate was Schoenherr’s support of Société Générale on the sale of Splitska Banka to OTP Bank, which thus became the fourth largest bank in Croatia. Schoenherr expertly managed the intricate negotiations and obtained the needed regulatory approvals. The Budapest office has closed four remarkable transactions in 2017 and represented foreign and Hungarian listed multinational companies in their acquisitions of various Hungarian targets. Equally remarkable is Schoenherr’s counseling of OTP Bank on the acquisition of Banca Romaneasca from listed National Bank of Greece, a move that makes OTP the eighth largest lender in Romania. Schoenherr’s leading corporate and financial regulatory legal experts are advising on this ongoing matter. Owing to Schoenherr’s approach to multi-jurisdictional transactions, our teams work seamlessly between different offices, and appear as a single unit towards our clients. Schoenherr teams are known for their practical and business-oriented solutions, which are deployed to ease the process of coordinating cross-border mandates. With the use of technological solutions, Schoenherr is automating internal processes and making them run more efficiently. For this purpose, Schoenherr is also collaborating with external tech-savvy innovators from across the region to implement ideas for the benefit of the firm and its clients.

www.schoenherr.eu

NOTE: ALL ARTICLES MARKED INSIDE VIEW ARE PAID PROMOTIONAL CONTENT FOR WHICH THE BUDAPEST BUSINESS JOURNAL DOES NOT TAKE RESPONSIBILITY

for Rudolph Logistics at CTPark Tatabánya. Construction is ongoing on a 13,000 sqm factory for Dana at CTPark Győr. The company has also purchased the 58,000 sqm Rozália Park to the west of Budapest. With falling vacancy rates, there is low supply of continuous logistics/ light industrial space to meet demand. Industrial developers prefer the more cautious built-to-suit (development option. Vacancy stands at 5.5% and there are no existing logistics/industrial parks that offer 10,000 sqm plus contiguous spaces. In contrast to other industrial markets in the region, a commercial logistics market has not developed outside Budapest.

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Budapest Business Journal | December 15, 2017 – January 11, 2018

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I Wish it Could be Christmas Everyday (and Next Year it Could Be!) David is reminded of his Glam band Christmas Past by his Hungarian partner’s refusal to take down the Christmas tree. DAVID HOLZER

There were few cultural joys growing up in the United Kingdom in the early 1970s. But at least we weren’t coming of age in a black and white movie, which is not something people can say about the pre-Elvis or Beatles era. This is why I’ll be forever grateful for the Glam bands that ruled our airwaves and playgrounds from 1971 to circa 1975. Were there any Hungarian Glam bands? I’d love to know. The songs of the U.K. Glam giants, of course, were great. They were vast, thumping slabs of noise driven by a beat that sounded like aircraft carriers colliding in the mist. But it was the artists and bands themselves that were the works of art. To make their mark on the retinas of their teenybopper fans, bands had to dress in clouds of glitter, forests of tinsel, feather boa scarves that were miles long and boots with a ladder up the side to help you climb into them. Any actual body flesh visible under all that was made-up and glitterized and hair was dyed colors you didn’t see in nature. Competition between these bands accelerated a most peculiarly English phenomenon to the speed of the cow burning up on re-entry as it returned to the Earth’s gravity from its jump over the moon. I’m talking about Christmas records. And I’m talking about 7-inch 45 RPM singles.

The Golden Age of the Christmas Record There were Christmas records before the Glam bands came along but, apart from honourable exceptions like those made by Phil Spector, Frank Sinatra and Elvis, they weren’t especially exciting. By the late 1960s, Christmas records had become more about pale-faced boys emoting in horrific sweaters. After the Glam years, the whole business became way more cynical and ironic. There is no place for irony in pop music. One single exception towers above all others and that’s The Pogues with Kirsty McColl singing “Fairytale of New York” from 1988, which is a glorious, battered masterpiece.

Hungarians love their Christmas Trees. Even the Mangalica, the famous woolly-coated Hungarian breed of pig, loves a good Christmas Tree! But, going back to Glam, my absolute favorite is “I Wish It Could Be Christmas Everyday” by the mighty Roy Wood and Wizzard from 1973. Apart from the fact that it’s just so joyous and crash-bang-wallopy – is that the kitchen sink I hear? – it introduces a concept that can’t fail but fascinate. Even as a child, I was mesmerized by trying to imagine what it would really be like if it were Christmas everyday. Would there be presents every morning until infinity? Would the halls be decked with bows of holly for the rest of my life? Would there be Christmas pudding for dinner until I shuffled off this mortal coil? To be honest, my fascination can’t have lasted all that long because I’d moved on to the far more sophisticated, though no less Glam, Bowie, Roxy Music, and Lou Reed by 1974. With their ultra-decadent darkness and flirtation with androgyny, these were clearly far more appropriate role-models for a 13-year-old boy. After this, it was Punk all the way.

Dressing the Tree

But I was reminded of the possibility of it being Christmas everyday while my Hungarian partner and I were dressing our tree. We are now officially living Christmas. My problem, I have to say, is wondering how long it will last. If you’ve spent time in the U.K., you’ll know that the tree is up and down within

about three weeks at most. I hadn’t really thought of this being indecent haste until I came to live in Hungary. In our first year together, I mentioned that it might be a good idea to take the tree down some time around mid-January. My partner pretended not to have heard me and carried on singing Silent Night to herself.

I think avoiding the subject of taking down the tree has something to do with a certain need to both revel in that delicious Hungarian gloom and to beat it back into the shadows. It also, of course, has plenty to do with centuries of tradition. Once the tree is in place, time is free to stand still. Our tree finally came down at the end of February when I broke into an uncontrollable fit of weeping and began waving a chainsaw around. The second year I vowed to be made of sterner stuff. I made it to April 1 without

cracking. Unfortunately, ‘cracking’ meant trying to throw the tree out the window and into glorious spring sunshine. Since last year, I think I have finally grasped why Hungarians love to leave the tree up for as long as they can. My partner told me about a friend of hers who still had her tree up by the time the Sziget Festival rolled around in August. She was surprised when a group of festivalgoers stopped and took selfies in front of the tree, looking very proud of itself in the open window It was only then that my partner’s friend thought that it might actually be time to take down the tree. But, then again, it would be Christmas in four months. Why not save herself the trouble and leave it up? I think avoiding the subject of taking down the tree has something to do with a certain need to both revel in that delicious Hungarian gloom and to beat it back into the shadows. It also, of course, has plenty to do with centuries of tradition. Once the tree is in place, time is free to stand still. This is, I think, what unnerved me about the idea that the tree would never come down. I started to wonder if spring and summer would ever happen, if life would ever move on. For my partner, it’s very simple, she just loves having the Christmas tree up and sparkling morning, noon and night until she tires of it. Merry Christmas Everybody!

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Budapest Business Journal | December 15, 2017 – January 11, 2018

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‘Tis the Season to Savor Festive Wines While the holiday season brings the perfect opportunity to get down to some serious guilt-free wine imbibing, it is a good idea to dabble in wines of different styles and weight to avoid being hit by unwanted palate fatigue. ROBERT SMYTH

Kadarka is coming along nicely now that the winemakers have learnt to stop trying to make it into something that it is not by beefing it up with over ripening and masking this fragile grape with too much oak. It is the ideal light red for Christmas with its notes of winter spices, rose hip and vibrant red fruit. János Márkvárt’s Kadarka 2016 is just the ticket and comes from 100-year-old bush vines from the steep slopes of Sauli-völgy and Hosszúvölgy (Long Valley) in Szekszárd, the epicenter of the Kadarka grape. Perhaps the best value red of all of the year comes from Márkvárt, who excels at sealing freshness and fruitiness into the bottle, and it also contains some Kadarka. His Ezerötös Cuvée 2016, a blend of Kékfrankos, Kadarka, Merlot and Zweigelt, only costs HUF 1,500 (from Bortársaság); the number also refers to the model of the Lada (known in Hungary as a Zsiguli) in which the

vintner drives around his vineyards. Christmas spices and black pepper notes complement the juicy and abundant red fruit that are typical of the grapes that make up the blend. It has vibrant acidity and is on the lighter side in terms of tannins. It makes for the ideal house wine for Christmas parties.

Conquers With Beauty

Heimann Céh Kereszt Kadarka 2016 is more intense and a real contemporary take on Kadarka, comprising different clones of the grape.

While

2016

was a challenging year for most reds, it was a good one for Kadarka, which enabled the Heimann family to ferment all seven clones separately and blend them together after fermentation, via blind tasting the best combination. Onethird was made in a new lightly toasted Burgundy Rousseau Video barrel and the oak influence is subtle, but builds spicy complexity. The alcohol is a pleasantly modest 11.6% and the wine is restrained in terms of body, yet still full of flavor. “It conquers with its beauty, not with its breast size,” quips Zoltán Heimann. This is a “must try” for Kadarka fans. Heimann Birtokbor (Estate Wine) 2015, a blend of Cabernet Franc, Merlot, Kékfrankos and Syrah, is quite Southern Rhône in character – with blood orange and anise notes, despite the fact that only the Syrah can be considered native to the Southern Rhône, although Central European Kékfrankos often reminds me of that region. The southern Hungarian region of Villány is closely associated with Cabernet Franc, and has built up the

Villányi Franc brand accordingly, buoyed by the comment from the legendary British wine critic Michael Broadbent, who proclaimed that: “Cabernet Franc has found its natural home in Villány.” However, that does not mean it cannot be very good, and even sometimes better, in other Hungarian regions. Konyári Cabernet Franc 2013 comes from Balatonboglár in South Balaton. The joint work of the father and son team of János and Dániel Konyári, it is sadly now part of János’ legacy; the widely respected winemaker passed away earlier this year. Dániel notes that he and his father tended to think more in terms of blends, but wanted to see what the grape could do by itself, inspired by the Ikon Evangelista Cab Franc from the nearby Ikon Winery, where Janós also made the wine. It boasts pronounced aromas of black and red fruit, black olive and black pepper, then a concentrated palate with smooth, silky tannins and lots of fruit, pepper and spice, with a cool and soothing touch of eucalyptus running through it that stops the wine feeling heavy. It was aged for 18 months in Trust barrels and János was always a master of oak. A real bargain for HUF 2,590 at Bortársaság. Note that back in Villány, Heumann’s Cab Franc is particularly worth seeking out.

Wonderful Time

An oft-heard festive tune tells us that this is the most wonderful time of the year, and it most certainly is prime time for drinking Tokaji Aszú. Given many people’s reluctance these days to crack open anything sweet, one of the world’s great wines is now sadly often consigned to “special

occasion” status. Made in virtually the same way for centuries, whereby botrytized grapes collected one by one in several sweeps of the vineyard are steeped in a base wine, with modern technology assisting to give it that fresh burst of energy, it is sublime stuff to round off a Christmas meal. The contemporary fruitforward style of the likes of Oremus and Disznókő represent particularly great value. Oremus’ five puttonyos 2009 for HUF 12,500 is as good as it gets. Stepping up in terms of residual sugar, István Szepsy’s six puttonyos Aszú 2009 costs HUF 32,000. You might well ask if it can really be worth that much, but if you’ve got the cash to burn, the treat is very special. The same goes for Zoltán Demeter’s pricey but perfect aszú wines. Incidentally, earning a score of

95

points,

Dereszla’s five puttonyos 2009 scooped 20th place in Wine Enthusiast’s Top 100 wine hit list for 2017, and was the only Hungarian wine to make it onto the prestigious magazine’s ranking. It was also picked as the Editor’s Choice. This same wine also bagged a gold medal at the DWWA (Decanter World Wine Awards). The big story regarding Tokaj in recent years is, of course, the emergence of Furmint and Hárslevelű (those grapes that partner so well in aszú) as single varietal dry wines. Dry Furmint with its quince notes and linear structure, and the more aromatic and generous Hárslevelű are also ideal winter warmers for those who prefer their wines white.

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Sok almából zamatos gyümölcslé lesz, édes lekvár, sütemény, befőtt, sokan sokféleképpen szeretik. A feldolgozás során azonban vannak olyan részek, melyeket nem használnak fel, hátramarad mint felesleg. A Lediberg csoport felismerte, hogyan lehetne újrahasznosítani a feldolgozás során visszamaradt anyagokat, a héjat, rostokat, magokat, melyek az alapját képezik a szabadalmazott technológiának, mely során papírrá, illetve környezetbarát műbőrré alakítják mindezt. Az Appeel kollekció ezzel az úttörő és előre mutató eljárással olyan exkluzív és magas minőségű termékpalettát kínál, melyben egyaránt megtalálhatók jegyzetfüzetek, noteszek, kulcstartók, mappák, tárcák, táskák, melyek mind egyediséget sugároznak. Vidám színeikkel és mintájukkal viszszaadják mindazt, amit a gyümölcs „láthatottˮ: a természet ébredését, a forró nyári napot, az őszi naplementét. AZ APPEEL TERMÉKEK M A G YA R O R S Z Á G I FORGALMAZÓJA A CHRONOS KIADÓ