Hungary – Distressed M&A 2022

Businesses from a great variety of industry sectors have remained exposed to the negative effects of the covid-19 pandemic, including consumer goods and services, business services, and hospitality and tourism. Companies operating in these business segments continue to be targets for distressed M&A transactions in Hungary in the mid- to long term.

The various forms of government rescue measures offered to owners, as well as the stringent screening of proposed acquisitions by foreign investors into Hungarian companies under temporary rules, are expected to further delay lucrative divestments in the market by opportunistic buyers at favourable valuations.

Accordingly, looking ahead, the general consensus is that distressed M&A deal activity is likely to remain modest in Hungary, with further domestic consolidation possibly generating some deal volume. High-profile collapses mean that potential investors are eager to purchase distressed targets at favourable valuations. Conversely, the sale of non-core operations and the disposal of weakened assets is expected to offer a reasonably stable deal flow in Hungary, as much as those transitions can be considered distressed.

In asset disposals concluded in the context of insolvency proceedings in Hungary, the recent remarkable trend is the increasing preference by administrators to sell the debtor’s business as a going concern, rather than selling individual assets in distinct attempts, allowing cherry-picking by informed buyers to the detriment of creditors’ interests.

In addition, the Insolvency Act authorises the Hungarian government to declare insolvency proceedings running against debtors with significant market presence, engaged in specific regulated industries or otherwise holding strategic assets as proceedings of ‘strategic national importance’. This then elevates the oversight of those proceedings to higher state courts and exempts the administrator from the obligation to observe certain cumbersome and time-consuming procedural requirements.

Finally, the Hungarian government has proposed to reform and modernise insolvency proceedings by preparing an entirely revamped new Hungarian Insolvency Act. The ministerial draft is not available for public consultation yet, but the overall market expectation is that the new Act will resolve all of the problem areas embedded in the current rules, in some instances those dating back 30 years.

Originally published in Distressed M&A – Work areas – Getting The Deal Through – Lexology