Bulgaria's outlook is improving, with its elected government working hard to catch up on crucial EU legal updates, while the country continues to attract investments in banking, energy, healthcare, and technology, according to Penkov Markov & Partners Associated Partner Boris Lazarov.
"The political situation in Bulgaria has been challenging, with the constant changes in government making it difficult to maintain a consistent legislative agenda," Lazarov begins. "However, we now have a working government that is diligently catching up and prioritizing major changes to the energy act, an update to the commercial act, and of course FDI controls – if we don’t implement this now, we’ll be in trouble with the EU, so that’s crucial."
"We’re also currently working with several NGOs to implement essential changes to Bulgaria's commercial act," Lazarov notes. "Among others, some financial instruments, such as option agreements like call, put, drag, and tag options or the role of escrow agents are not officially recognized in the Bulgarian legal system. It is crucial to update the law to acknowledge and regulate these instruments properly," he explains.
Despite the political difficulties, Lazarov says "Bulgaria's stable economic fundamentals have maintained its appeal to investors. Factors such as the geopolitical situation in the region, with issues in North Macedonia, Turkey, and the war in Ukraine, have led investors viewing Bulgaria as a comparatively safer investment destination." Additionally, he reports that the Bulgarian National Bank's "decision to set interest rates at 3%, lower than neighboring countries with rates between 5% and 6%, has made financing more affordable in Bulgaria, bolstering investor interest."
"And ESG is also becoming increasingly important in business transactions, with clients showing a lot of interest in understanding and complying with ESG regulations," Lazarov says. "As of now, there are draft bills addressing ESG-related matters, and we expect them to become a crucial part of due diligence in M&A transactions in the future," he points out.
All the while, the banking sector in Bulgaria has seen a period of consolidation, according to Lazarov, "with the KBC Group acquiring the business of the Raiffeisen Group and Post Bank buying Bulgarian Branch office of PNB Paribas Personal Finance. This trend is likely to continue, with more transactions in the next three to five years, primarily small local banks being acquired by international players."
And the energy sector is witnessing considerable interest from both local and foreign investors, particularly in renewable energy projects. Lazarov says they "recently advised the Global Biomet Group on their acquisition of a 100-megawatt project in Bankso, Bulgaria, and are advising another client on purchasing a 230-megawatt solar project." Bulgaria's compliance with the EU's green deal and renewable energy regulations is making it "a prime destination for solar investments," he explains.
In the healthcare sector, "we were involved in advising on the Fidelis deal in the biospecimen sector, which proved to be one of the best exits by a Bulgarian equity fund," Lazarov highlights. "Though there have been fewer transactions in this sector so far this year, it remains an area with significant potential for future investment and development."
Finally, Bulgaria's tech sector has indeed seen remarkable growth, according to Lazarov, "with 40% of all transactions in 2022 occurring in this field. The success of notable acquisitions like VMware Bulgaria and the merger between the Chaos Group and Enscape has showcased Bulgaria's potential as a tech hub." Several factors contribute to this success, he explains, "including equity funds' willingness to invest in startups, a skilled and talented developer workforce, and capable managers who can turn innovative ideas into world-class products."
