By Krzysztof Jasiński, managing associate, radca prawny, and Katarzyna Zarzycka, senior associate, adwokat, Gessel
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The Polish M&A market offers scope for investors to enter the market at an interesting time. The first generation of entrepreneurs who set up businesses as Poland transitioned to a market economy are looking to exit and retire. There are thousands of interesting, profitable businesses looking for a new owner in Poland today and at the same time many private-equity funds are planning to exit their investments.

Assuming buyer and vendor can agree a valuation after due diligence has been performed, M&A is good form of market entry; Poland’s economy is due to grow by 3%-4% over the next few years. With EU infrastructure funds unblocked after last autumn’s change of government, and consumer confidence returning after the pandemic, Poland is a great country in which to invest.

But for UK investors, it’s not that easy – mainly because the code-based (continental) legal system differs so much from the common-law system of England and Wales. M&A became a thing in Poland only in the 1990s, with some of the basic transaction mechanisms and nomenclature derived largely from time-honoured Anglosphere practice, subject to modifications made necessary by Polish statute. In Poland, the letter of the law is more important than the spirit of the law; paperwork is more onerous, and UK-based investors may inadvertently make mistakes. Understanding Poland’s commercial code is key to doing business effectively.

A summary below is a rudimentary guide to M&A in Poland, mapping out a step by step approach to a transaction.

Step 1: Pre-transaction planning

The first step, hardly unique for Poland, involves pre-transaction planning, i.e. defining strategic objectives, conducting market analysis, establishing deal criteria and securing financing. This phase sets the general direction for the transaction by clarifying goals, assessing market opportunities, identifying potential targets, and ensuring adequate financial resources and expert support. At this stage, it is also necessary to select a cohesive transaction team of legal, business and tax transaction advisors who will guide the transaction through its successive stages. In addition to supporting the transaction process as such, the role of this team will be to explain those legal, business and cultural considerations arising in Poland that differ from those in the UK. This stage does not include any material formal requirements as it is much more of a commercial nature.

Step 2: Establishing the transaction model

The next step is to settle on a transaction model. The most typical transaction model in Poland is the share deal, in which the buyer acquires all or part of the target’s shares from the shareholders. Another model is the asset deal, in which the whole enterprise, an organised part of the enterprise, or its selected assets may be acquired; as an example of the issues which investors must keep in mind in the Polish context, these various solutions may entail different ramifications with regard to Poland’s famously complex employment law. Asset deals are more popular in Poland than in the UK due to tax aspects and to the applicable codified rules. Depending on the buyer’s needs, either model may be attractive, but the final choice should proceed in consultation with the transaction and be informed by thorough analysis. It is at this stage that any organisational changes to the acquired entity – demerger, merger, or transformation – should also be planned so that the formal solutions further the overall purpose rather than impeding it. In practice, due diligence is very often initiated during this step.

Step 3: Due diligence

A key step for the buyer is to conduct thorough due diligence of the target. The due diligence should be preceded by an NDA and, advisably, by a letter of intent / term sheet outlining the fundamentals of the transaction. A typical DD will cover commercial, financial, legal and tax aspects discussed, in reports highlighting any identified risks along with recommendations as to their elimination, mitigation, or indemnification. Nonetheless, this is not a close-ended catalogue and it is possible to conduct different DD, such as that focused on IT systems or ESG. The buyer can thus develop an informed idea as to the target’s value and then shape the transaction documentation so as to best secure its interests, e.g. by stipulating appropriate indemnifications, conditions precedent, representations and warranties, and settlement mechanisms (e.g. earn-out).

Step 4: Negotiation and execution of transaction documentation

Once due diligence has been conducted and the deal structure has been established, the parties negotiate the terms of the transaction and the documentation. In the case of a share deal, the key document is the share purchase agreement, while in the case of an asset deal it is the asset purchase agreement, i.e. the agreement transferring ownership title in the enterprise, its organised part, or its individual components. In a situation in which an investor acquires only part of the shares, or several investors accede to the company at the same time, the parties also negotiate the terms of further cooperation, as reflected in their shareholders’ agreement and the articles of association. On top of that warranty and indemnity (W&I) insurance and warranty deeds have become more and more popular recently as well. These are just the main documents; any one transaction is likely to involve many more. During the negotiation process, involvement of specialised advisors is crucial. This is especially true if any points of contention emerge – advisors can draw on their experience to propose creative solutions reconciling their client’s interests, the good of the transaction, and the expectations of the other party. The negotiations culminate in the signing of a conditional agreement (signing) or, in the absence of conditions precedent, the signing of a transfer agreement (closing). The crucial issue at this stage is the requirement of a form for a share-purchase agreement to be valid. The most important one refers to a transfer of shares in a limited liability company – signatures under such a document must be certified by a Polish notary.

Step 5: Regulatory approval and closing

The final stage of M&A transactions involves fulfilment of any conditions precedent and execution of closing deliverables. The number and type of transaction conditions depend on the nature and specifics of the transaction. Typical conditions precedent include securing antitrust clearance for the concentration or administrative permission for a foreigner’s purchase of real estate of a certain category. An FDI regime is in force in Poland as well. Yet the conditions precedent may also concern other matters, such as obtaining permission from corporate bodies or securing a consent from business partners, including banks (change-of-control clauses). Once the last condition precedent has been satisfied, the parties should complete the closing process by executing transaction documents, transferring ownership or control of assets, and disbursing consideration to the sellers.

Step 6: Post-transaction actions

The transaction does not necessarily end with the closing. Depending on the needs of the buyer, certain post-transaction activities may be warranted after the closing, aimed at integrating the acquired company or the business into the buyer’s existing operations. The most typical post-transaction activities include implementation of the buyer’s in-house procedures, employee integration, strategy development with the management team, or securing additional insurance coverage for the acquired business. Some post-transaction actions will be at the discretion of the parties, but others are required by law, e.g. entry of changes resulting from the transaction in public registers.

To sum up, successfully managing of the finer details of an M&A transaction in Poland requires careful planning, well-considered project management, and thorough execution. All in all, some aspects of such a project in Poland will be similar to a comparable transaction in the UK but the risks arising from different business, legal and cultural conditions in Poland should not be disregarded.