An extract from The Real Estate M&A and Private Equity Review, 5th Edition
Overview of the market
In 2019, Austrian general M&A activity increased slightly in terms of the number of transactions announced: a total of 328 statistically relevant M&A transactions with Austrian participation were reported, as compared to the 324 transactions that took place in 2018. In addition, the general transaction volume substantially increased from €7.9 billion in 2018 to €12.1 billion in 2019, which is mainly due to blockbuster deals with a transaction volume above €2 billion.
The most active sector in Austria in 2019 has been the technology, media and telecommunications sector, leading in terms of the number of statistically relevant transactions (75). The industrial sector with 63 relevant transactions remains on top in terms of the total transaction volume (€5.5 billion). Despite the decrease by six counts in the number of acquisitions in the real estate and construction sector, the total transaction volume increased by €1.1 billion compared to 2018. From a general perspective, the demand for Austrian real estate remains stable because of the country's generally stable political and economic framework, which is additionally fostered by extremely low interest rates and available financing. Even though real estate prices have increased significantly over the past few years, Austria is still considered a key place for non-speculative real estate investments. In particular the demographic development and expected urban expansion (with Vienna having been consistently ranked as one of the world's best cities to live in) have resulted in demand that exceeds availability. Therefore, real estate investments also appear attractive to foreign institutional investors. Consistent with the past, Germany plays a key role in Austrian inbound M&A activity with 35.5 per cent of all acquisitions of Austrian companies by foreign investors having been made by German investors. Another 28.9 per cent of the acquisitions were concluded by investors from other European countries.
In 2019, the largest real estate M&A transaction was the acquisition of the congress hotel Hilton Parkview Vienna by Wealthcore Investment Management GmbH, with a transaction value of €370 million.
Despite the overall impression of increasing appetite among private equity investors, driven by notable private equity transactions, the share of financial investor-driven transactions decreased in 2019 (from 27 to 20).
Recent market activityi M&A transactions
Below is a short summary of three of the most significant recent real estate M&A transactions in the Austrian market.Acquisition of Hilton Parkview Vienna by Wealthcore Investment Management GmbH
The Munich- and Vienna-based asset manager Wealthcore Investment Management GmbH acquired the congress hotel Hilton Parkview Vienna in a joint venture with the Korean asset manager Mastern Investment Management for a total price of €370 million. Mastern Investment Management acted on behalf of three Korean investors: Meritz Securities Co Ltd, Hana Financial Investment Co Ltd and NH Investment and Securities Co Ltd. With around 50,000 metres squared of floor space, over 660 rooms and 241 parking spaces, it is the largest congress hotel in Vienna and the third-largest Hilton hotel in Europe.Acquisition of Liegenschaftsbesitz GmbH by KTB Investment & Securities and KTB Asset Management
The South Korean investment fund KTB Investment & Securities and KTB Asset Management acquired 100 per cent of the shares in Liegenschaftsbesitz GmbH, which is the owner of T-Center office building, from GENO Saturn Tower/T-Center Immobilienbeteiligungsholding GmbH & Co.OG and BEGO-ZWP GmbH. The terms of the transaction remain confidential. T-Center was constructed in 2004 and is regarded as one of the landmark office buildings in Vienna owing to its remarkable design. The building comprises 12 upper and five underground floors, totalling a leasable area of around 83,000 metres squared. Core tenants of T-Center include T-Mobile Austria and its Austrian subsidiaries.Acquisition of Quartier Belvedere Central 1, 2 & 7 (QBC) by EPH Eastern Property Holdings
The Swiss-based EPH Eastern Property Holding acquired a large section of the office development QBC from Europe's leading hotel developer UBM Development and the real estate investment company S IMMO AG for a total price of approximately €233 million. QBC, with over 38,000 metres squared of gross leasable space and an underground garage with approximately 580 freehold parking spaces is expected to be finalised by the end of 2020, whereas a large portion of office spaces has already been rented out.ii Private equity particularities
The number and volume of Austrian private equity and venture capital funds is well below the European average. The transactions by private equity investors declined from 27 to 20 in 2019 as compared to 2018. Notwithstanding such decline in the number of transactions, the Austrian Private Equity and Venture Capital Organisation (AVCO) reported an increase in the private equity fundraising from €162 million in 2018 to €192 million in 2019. The allocation between private equity investors in 2019 may be summarised as follows:
- private individuals: 27.1 per cent (2018: 6.6 per cent; 2017: 3.8 per cent);
- banks: 15.6 per cent (2018: 9.4 per cent; 2017: 28.8 per cent);
- family offices: 14.6 per cent (2018: 2.4 per cent; 2017: 0.5 per cent);
- corporate investors: 13 per cent (2018: 4.7 per cent; 2017: 6.9 per cent);
- unclassiﬁed: 10.4 per cent (2018: 45.4 per cent; 2017: 13.8 per cent);
- insurance companies: 7.8 per cent (2018: 9.7 per cent; 2017: 11.7 per cent);
- pension funds: 5.2 per cent (2018: 0 per cent; 2017: 0 per cent);
- fund of funds: 4.2 per cent (2018: 0 per cent; 2017: 1.4 per cent); and
- governmental agencies: 2.1 per cent (2018: 21.8 per cent; 2017: 33 per cent).
The SME Financing Act 2017, which aims to establish a more advantageous taxation system for investors, was published on 26 July 2017. Accordingly, dividends of up to €15,000 annually are exempt from capital gains, resulting in a maximum tax relief of €4,125 per investor per calendar year. Further, after federal elections in 2019, the Austrian government declared in its government programme (which has political rather than legal relevance) its intention to strengthen the private equity sector as a part of its strategy to bolster the economic position of Austria, including by emphasising its intention to incentivise innovative investments through venture capital. In order to encourage private equity investments, the government proposed, inter alia, to mobilise private risk capital by introducing and simplifying the possibility of offsetting losses on income from capital assets. Currently, private investors can only offset losses from investments in start-ups with certain capital income and only in the same year, whereby in future, it should be possible to offset losses over several years. It remains to be seen which policies the government will pursue in the aftermath of the covid-19 crisis.