For the past few months, the IT industry has been experiencing a major crisis, as post-pandemic demand on IT services is decreasing and the cost of the services is still high. Headlines such as ‘What awaits the IT industry?’ (Co dalej z branżą IT?)[1], ‘End of the Eldorado in the IT industry’ (Koniec eldorado w branży IT)[2] or ‘IT market crisis: digital cataclysm, course correction or business as usual?’ (Kryzys na rynku IT. Cyfrowy kataklizm, korekta kursu czy business as usual?)[3] reflect the uncertainty in the market.
However, as in any crisis, there are new opportunities for those who can adapt to change. It is the right time to consider whether future crises will have a much less impact on the Polish market if Polish businesses, of the generally limited territorial scope of activities, enter the global market. One of the finest platforms for that is certainly the British market.
It’s true that, in the current post-Brexit era, cooperation between businesses from the EU member states and the UK has become formally more complicated and demanding for the participants of such processes. However, even in such an adverse situation, there are some positives. British legislators have tried lately to stimulate their market – generally speaking – by relaxing the grip of regulations on corporate governance and capital-markets law to attract new investors and the extent of their capital commitment. Amid the mentioned changes, which hopefully will result in fresh, ready-for-investment capital, Polish firms should look at the UK market as a springboard for their business. In this article, we present the six main ways for Polish businesses to enter the UK market.
1) Gaining capital commitment from foreign private equity or venture capital funds
The first thing that comes to mind when seeing the section title is probably doubt, as gaining capital commitment would usually rather be considered an entrance of the Polish market by the funds, not the British market by their portfolio companies. However, such investments usually also result in entering by the investment target the nexus of contacts of such funds. Finding themselves amongst other portfolio companies and benefiting from the market position of the managers of such funds, Polish firms should find it much less problematic to connect with businesses operating in foreign markets. Given the above reflections, the investments of foreign private equity or venture capital funds should be deemed a chance to boost the geographical scope of the business of Polish firms.
Recent investments confirm that thesis. Following the latest tender offer launched by the shareholders of one of the largest Polish listed IT companies – Comarch, alongside CVC Capital Partners, the head of the Warsaw office of CVC – Krzysztof Krawczyk, said that the tender offer is a step in boosting the scope of the Comarch business activity into the international market.
Still, such cases are not common in the Polish high-tech or IT market, which has lately been dominated by mid-market transactions involving investments of local funds (an example is the recent CofounderZone investment in Aleet, on which we had the opportunity to advise). Nonetheless, there is still a buyers’ market in Poland right now, hence, we should probably anticipate more investments of foreign funds in the Polish tech or IT sector in coming years. As mentioned above, such investments might establish a good platform for entering the global market.
2) Directly entering the British market
Entering the British market by a company on its own surely is a more risky and challenging way. The crucial role in such a territorial expansion will play the advisers having knowledge and experience, allowing them to identify the potential pros and cons for the business in question.
Given Brexit, the free movement of capital rule known from the EU regulations does not apply in the same scope. Therefore, two different ways of direct entrance should be under consideration: (i) setting up a place of business for an overseas company in the UK and (ii) registering a company in the UK.
However, alongside the legal aspects, the decision-makers should bear in mind the existing successes of Polish firms in the British market. The InPost may serve as an example, as the company entered the British market successfully and has been gaining more and more recognition, lately having opened its seven thousandth Paczkomat®.
3) Acquiring shares in companies on the UK market
Since the collapse of communism, it has been companies from the Western world that have looked at the Polish market for businesses fitting into their operations. The acquisition of such businesses has given foreign companies the territorial expansion of their activities but avoiding green-field scenarios (for example, the latest Solita’s investment and integration with Future Mind – another transaction where we had the pleasure of advising). Perhaps it’s about time Polish IT and high-tech companies made similar attempts.
Even though Brexit resulted in greater complexity of transaction-making, the latest changes in the UK law should be considered as enhancing the process of foreign companies entering the British market.
4) Close cooperation with UK market participants
Finding a company that currently operates in the British market and starting cooperation with such a company could attract many businesses and might be considered a first phase of the market entrance. Such a show-up should be much easier for those having access to the nexus of contacts of foreign fund managers.
5) Cross-border mergers
Close cooperation may finally result in a cross-border merger. However, considering the post-Brexit situation and latest changes in UK law, such as the foreign investments bill, the exclusion of a one-stop shop procedure and changes in Polish cross-border merger regulations, decision-makers should carefully choose their legal advisors. Nevertheless, integration of businesses might be the exact solution for not only a territorial but also operational expansion of a business.
6) Listing on the UK market
The new UK listing rules came into force on 29 July 2024 and have shaped a new, more business-friendly regime. It is worth noting that the amendment abolished the previous division into premium and standard segments, introducing one main one, Equity Shares in Commercial Companies (ESCC). Numerous simplifications have also been provided in relation to the duties of public companies performed in the course of their operation. Therefore, larger firms may consider listing on the London Stock Exchange.
The choice of the options described above should be taken based on all the factors that might impact the business. Nonetheless, in our opinion, Polish firms should look for an option for the territorial expansion of their businesses. A massive disadvantage of Polish businesses is their lack of participation in the global market. Despite Brexit, we still believe that the British market remains one of the best platforms to move Polish businesses up into the global competition.
[1] https://www.parkiet.com/felietony/art40838961-co-dalej-z-branza-it
[2] https://www.money.pl/gospodarka/koniec-eldorado-w-branzy-it-rosna-dlugi-firm-i-lista-zwolnien-7017436486355776a.html
[3] https://www.purepc.pl/kryzys-na-rynku-it-cyfrowy-kataklizm-korekta-kursu-czy-business-as-usual-sprawdzamy-scenariusze-obawy-i-branzowe-mity
