According to various reports, Banca Transilvania is in the final stages of an M&A agreement for OTP Bank’s Romania subsidiary. Furthermore, the OTP Romania subsidiary is valued closely at EUR 350m. In this overview, we’ll look at what this means for Banca Transilvania, as well as try to answer the question: Would this deal be favorable at EUR 350m for Banca Transilvania, or not?
Discussions regarding the M&A of OTP Bank’s Romania have been going on for quite some time now. According to the latest report by Bloomberg, OTP Bank has agreed to sell its Romanian unit to Banca Transilvania. While no details regarding the transaction price are yet available, according to media writings the business has been valued at app. EUR 350m.
The deal could be announced soon, possibly by the end of Q1 2024. OTP and Banca Transilvania have moved closer to the deal after meetings with senior executives last week. Discussions have been ongoing since late last year when Banca Transilvania remained the only remaining bidder in talks to acquire the unit. OTP’s decision to sell its Romanian unit came due to OTP’s desire to divest units that have smaller market shares. This deal would also mark the largest banking deal in the making in Romania.
Top 10 banks’ market share in Romania, by total assets (2022*, % of the total)**
*Latest available data for all the banks
**Alpha Bank has been acquired by Unicredit in October 2023
Together, the 10 largest banks accounted for app. 87.7% of the total market share in Romania at the end of 2022. At the same time, Banca Transilvania held app. 19% of the market share, while OTP Bank held 2.8%. Furthermore, the entire banking sector in Romania grew by app. 8% in the 9M 2023, while Banca Transilvania’s total assets grew by 18%, meaning that by the end of September, it held app. 20.8% of the entire market. At the same time, OTP Romania’s assets grew by 8%, to app. RON 21.5bn, meaning that based on the 9M 2023 results, it holds 2.8% of the market, remaining unchanged compared to 2022. As such, if acquired, Banca Transilvania would hold app. 23.6% of the entire market share in Romania.
If OTP Romania gets acquired at the estimated EUR 350m value, it would imply a P/B of 0.64x. For financial institutions, a P/B ratio is more often used, as the book value is more reflective of the true value of a financial institution, in this case, a bank, than it is in other industries. A P/B ratio below 1 is usually considered a “good” investment. However, it should be noted that there usually is a reason why a certain company/bank has a P/B lower than 1, but they don’t necessarily have to be negative. In this case, it would represent good value, especially if compared to other regional peers, and the banking sector median.
P/B comparison between regional banks, Bloomberg East Europe Banking Sector*
Source: Bloomberg, Companies’ data, InterCapital Research
*P/B based on the latest available data, excluding OTP Romania which is based on the deal described above
As we can see, the Bloomberg median for the East Europe banking sector amounts to 1.01x, while the Romanian banks are usually trading at an even higher multiple, while the regional peers in Croatia and Slovenia are trading at either similar or higher multiples. Of course, this is all subject to change, as no final transaction price has been announced as of yet.