“Merger and acquisition in Poland” by Roger Barot Ivern

 

Spanish Lawyer and certified project manager. I currently collaborate with Avv. Enzo Quattrini and work as International Integration & Development Project Manager. Working in Wroclaw since 2016. I developed and implemented business processes tailored to Spanish legal proceedings and in the present I am collaborating in the European expansion of a Polish financial group, leader in its sector, working in the post-M&A integration of foreign companies with the acquirer.

 

Attended University of Barcelona and graduated Law in 2014. Admitted to Spanish Bar council. Also, attended different courses including Company Law and all of the mandatory subjects of the LL.M’s specialization in European Financial Law.at  K.U. Leuven, Belgium. In 2012 as part of the Dual Degree program of Law scholarship I attended Nova Southeastern University, Florida.

 

Merger & Acquisition in Poland

M&A investment model is a solution that experienced a growing importance over the last years. The 2016 M&A Global Outlook report of JP Morgan showed that 2015 was a record year led by many mega-sized transactions. In the next years, we will probably continue to see a rise in volumes for a number of reasons:

 

• Market compensation: Share value usually rises after an acquisition.
• Cheap debt financing.
• Emphasis on improving efficiencies and profitability in a slow-growth economy.
• Competitors consolidating positions: looking to M&A as a strategy to build up market share, increase revenues and reduce costs.

 

Meanwhile in Poland, according to the Emerging Europe M&A Report 2015/2016 published by CMS, M&A deals grew from 285 deals in 2014 to 346 in 2015 as well as the total value from 4.5bn to 6.3bn Euros.

As in other countries, acquiring a non-public company can be generally designed under Polish law as:

• A purchase of shares in a limited liability or joint-stock company, or a purchase of rights and duties in a partnership
• A purchase of all of the assets of a company, of a productive unit or of separate assets
• A merger transferring all of the assets of the target company into an existing or a newly established company
• A de-merger dividing a company into two or more new or existing companies.

Merger and de-merger transactions are regulated mostly by Polish law. Instead the purchase of assets or shares has been developed in Poland mainly by jurists and practitioners that largely adopted UK and US’ legal frameworks. In this last option, share deals prevail over asset deals. Even when the share deal is not possible a vehicle can be used to transfer the assets to later conclude the share deal. This is a solution to avoid the risks and complexity of an asset deal.

Depending on the negotiating position of the buyer and the seller the contract chosen can be a preliminary sale agreement or a final contract subject to conditions.

M&A investment model is more flexible than greenfield and gives more control over the investment than a Joint venture. It also allows to reduce payback period and the time to resume the business as usual. This is a consequence of being able to instantly access to technology, resources and know-how of the acquired company together with eventual licenses and bureaucratic requirements that can be skipped. In addition, as a start off, the acquirer counts with an established market share, business partners, branding and, of course, one possible competitor is eliminated.

On the other side, there are potential risks that need to be taken into account like unexpected and non-detected downsides in the acquired company, a lengthy and time consuming acquisition process that is not always successful and the integration process of the target employees. Adapting to a new company culture requires commitment and building engagement on employees. This can be achieved using a number of tools like trainings or certain communications.

To have these risks under control it is well known that a due diligence needs to be undertaken for key aspects: Legal, Tax, Labor, Financial and Commercial. Nonetheless, experience has showed us that there have been quite a good number of examples of companies that failed to materialize synergies and the value that justified the investment due to cultural differences or deficiencies in the integration.

A well-known case was Daimler (manufacturer of Mercedes-Benz) merger with Chrysler. Even if considered a merger of equals, German culture quickly took over in many dimensions. For Americans, their level of formality, philosophy on issues such as pay and expenses, and operating styles was too much of a shock. Consequently, Chrysler’s employee engagement dropped off followed by major losses and the subsequent sale of Chrysler to Cerberus Capital Management losing about $25.7 billion in few years.

This is a strong enough argument to include the human aspect as a key element to be checked in any deal of this nature. This human aspect includes the company culture that can be assessed through a number of techniques like surveys, interviews or shadowing that allows the acquirer to pre-define the organizational culture of the target company before closing the deal

When meeting a new company, there are many aspects that need to be understood. For example, the relationships between employees and the decision-making process. Details in the atmosphere of the company, behaviors of employees and the space arrangement or even dress code can give enough hints to understand the company and the employees to design an adequate communication and change management plan to implement after the closing.

All these activities have a primary goal, people engagement, which is a key factor for the integration success. Especially in Poland, having human capital as one of its strongest assets, ensuring a smooth and consistent communication is crucial to retain Polish talent. Polish employees stand out for their excellent qualifications, strong communication skills, proficiency in foreign languages as well as motivation to work.

Roger Barot Ivern