Acquiring a company in Poland: a catalyst for post-Brexit growth
Poland has developed solid foundations for mergers and acquisitions dealmaking. Acquiring a company is a good way to access 38 million Polish consumers, a new brand, a new technology, a specific know-how or to consolidate market presence, and thus improving revenues and the profitability. In the post-Brexit context, M&A is also used as a mean of securing a presence in the EU.
Today, Poland is also attractive for UK investors thanks to its unique combination of competitive advantages: its geographical location bridging Western and Eastern Europe, a strong pool of skilled talent speaking English, relatively low costs compared to more developed markets and a growing middle class. On top of that, Poland has significantly improved its transport system, with new highways, railway lines and airports built or modernised over the past years. Obviously, the capital city Warsaw concentrates a large part of UK investments, nevertheless interesting potential M&A targets might also have their headquarters located in cities like Kraków, Gdańsk, Poznań, Wrocław, Lublin or even smaller towns.
More particularly, 31 years after the fall of communism, succession planning is a growing issue as more and more successful Polish entrepreneurs consider the potential selling of the business they created in the 1990s. Such family-owned SMEs represent external growth opportunities for acquisitive market players coming from the UK. Similarly, the so-called Polish ‘hidden champions,’ European leaders in their niche market, are also interesting targets for foreign buyers.
Brexit and Covid-19 resulting in an increasing interest for M&A dealmaking
During the year preceding Brexit (2019) and the year following it (2020), UK investors have been particularly interested in a few areas of the Polish economy.
Covid-19 has obviously severely disrupted supply chains globally. As a consequence, more and more UK companies decide to near-shore part of their industrial activity in Poland, looking for alternatives to China and South-East Asia. On top of the traditional sectors (manufacturing, food & beverage, automotive), recent UK-Polish M&A also concern the energy sector, with deals realised notably in renewables: indeed, several acquisitions have been done by such leading market players as Aberdeen Standard Investments or Green Investment Group in photovoltaic farms, wind farms and solar farms. Polish technology-oriented companies have also been very attractive, with for example the developer of games Flying Wild Hog being acquired by Supernova Capital or Codewise, a provider of AI-powered online ad measurement and management platform for digital marketers, acquired by CentralNic Group, an UK-based listed company engaged in providing registry services and the sale of internet domain names. The dynamic growth of e-commerce is also a trend originating deals, with for instance the purchase of RTB House (providing retargeting technology for e-commerce companies) by Cinven Partners.
Following Brexit, the banking sector also benefits from the fact that Poland has a strong experience in middle- and back-office services, representing a credible alternative to London, Frankfurt, Paris, Amsterdam or Dublin. While institutions like HSBC and Royal Bank of Scotland (NatWest) already have shared service centres in the country, a wave of mergers and acquisitions in the outsourcing industry is expected.
How to successfully acquire a company in Poland
A typical buy-side M&A process could be split into four main stages, with the potential UK buyer working hand-in-hand with their advisors. The ultimate objective will be to find the appropriate M&A target in Poland for a fair price and ensuring a good return on investment.
The first stage of such an external growth project consists in the definition of the post-Brexit acquisition strategy. The potential UK buyer should consider different parameters before initiating a buy-side process, answering to several questions: is this a good moment to acquire a company in the given sector? Is the future growth strategy shared with all key players within the management? Are internal and external financing available to support such a transaction? The target selection criteria should also be defined in advance, for instance the sub-sector of interest, the expected size of the target(s), its client portfolio structure etc.
Based on that, a ‘long list’ of potentially suitable Polish targets will be established during the second stage. A shortened list will be agreed with the UK acquisitive company and then approached to sound the potential appetite for a disposal. Should such an initial interest appear from the selling party, more in-depth information can be provided to the buyer. Sometimes sellers directly approach potential UK buyers with a dedicated investment teaser or information memorandum, while being in a formal selling process. The two entities will further meet to discuss the possibility of a transaction and negotiate specific terms as well as an indicative price.
The due diligence phase (stage three) is important to assess the potential risks related to the transaction in Poland. Once an initial offer with the final candidate is on the table, the acquirer must conduct a comprehensive process that examines, evaluates, and analyses all aspects of the target company’s operations as well as its financial, tax and legal positions prior to establishing a definitive agreement. Other specific advisory solutions could also be necessary, for example measuring the technical situation and environmental impact of the factory of the targeted Polish firm. Once this verification process has been done and a business valuation realised, a formal binding offer is sent to the seller, which could lead to further negotiations and hopefully to the signing of the final sale contract.
The fourth stage, the post-acquisition phase. is a crucial step often underestimated by UK firms investing in Poland. M&A transactions are by definition risky and are not always successful. In that context, different post-transaction should be taken into consideration to increase the chances of success.
As a conclusion, Brexit can be considered as an opportunity to strengthen business ties between the UK and Poland. Mergers and acquisitions represent one of the main strategic options for a British company willing to develop on the Polish market and fully benefit from its competitive advantages. Both strategic UK investors as well as private equity firms will continue to eye high-quality Polish targets which could potentially guarantee a good return on investment.