Completing complex transactions, investment procedures, and deals is never easy. With the amount of work and pressure exerted over businesses, in-house legal teams must be versatile, nimble, and ready for everything.Taking a closer look at all the Deal 5 interviews that CEE In-House Matters has conducted over the years, we sought to map out the biggest challenges that got in the way of smooth sailing. And, perhaps unsurprisingly, the most frequent challenge that in-house teams and General Counsels working on some of the most important deals across CEE have mentioned was multitasking, or working in multiples.
Covering multiple jurisdictions, integrating multiple legal workstreams, and balancing multiple stakeholder interests brough the most headaches and forced both in-house and external legal teams to go above and beyond.
Balancing Multiple Jurisdictions
Integrating multiple legal frameworks, on a tight schedule, while making sure that all requirements and prerequisites are fulfilled is no easy task. Simultaneously following two or three regulatory framework compliance efforts in parallel is no mean feat. “The transaction covered four jurisdictions: Denmark, Poland, China, and Lithuania – it was quite difficult to organize the due diligence process, as we needed to understand how the company was run and get the transaction documentation ready,” INVL Baltic Sea Growth Fund’s Nerijus Drobavicius said, commenting about the fund’s acquisition of a stake in MBL.
The same was true of Infosys’ acquisition of GuideVision, according to Infosys’ Inderpreet Sawhney. “One of the most complex aspects of this acquisition was the presence of Guidevision in the Czech Republic, Hungary, Poland, as well as its having capabilities in Germany and Finland, which presented many compliance-related and jurisdictional challenges,” she said.
Kofola’s Martin Pisklak agreed, adding that the “coordination between four jurisdictions: the Czech Republic, Slovakia, Slovenia, and Croatia,” was the toughest part of Kofola’s refinancing. “The legal requirements and procedures differ from country to country – especially pledges and other security procedures.”
Of course, issues arose even in those cases that featured fewer jurisdictions. “As the deal in the Czech Republic was linked to another portfolio from the same vendor in Serbia, we had to consider more parameters for this deal in order to align both acquisitions in terms of timing and commercial aspects,” pitched in Immofinanz’s Stefan Frommel on the company’s acquisition of Mitiska Reim’s retail parks. The same was true for Trei Real Estate’s financing for its Polish subsidiaries from Deutsche Pfandbriefbank. “The coordination between German and Polish law and legal understanding was the biggest challenge,” commented Trei Real Estate’s Matthias Schultz.
Mapping the Approach
Assembling the puzzle that is cross-jurisdictional work is never easy, but luckily businesses and in-house teams were able to rely on experienced external legal experts to pitch-in and help. “The greatest threat we saw to the deal was our lack of familiarity with Croatian legislation,” said MSIN Group’s Tina Bacic, commenting on the company’s acquisition of Neograf. “That was minimized through the help of the ODI Law team and their experience,” she said, explaining that the firm’s experience and expertise in the Croatian market was able to help the MSIN Goup seal the deal.
Infosys’ Sawhney agreed with the approach and reported that the company went a step further and engaged not one but three different law firms to help out on their deal. “We had a pleasure working with different firms and teams and a lot of learning opportunities presented themselves,” she said, commenting on the company’s cooperation with Osborne Clarke, Kinstellar, and DLK Legal.
Ultimately, solid and sound cooperation from the get-go seems to be another key to successful deal completion. Trei Real Estate’s Schultz said that “due to the good cooperation with the bank, the bank’s law firm, and our law firm, we kept the coordination process as simple as possible, so that there were no major problems.”
Running Multiple Legal Tracks
Further, it would appear that simply being forced to run multiple legal workstreams in parallel can prove to be a serious (potential) spoilsport for successful dealmaking. Running a tight deadline and juggling the inputs from many sides, both internal and external, put a strain on things and really challenged the full capacity of all teams involved.
“Perhaps the most complex aspect was that ours was an asset deal, which, even though more flexible, is also way more complex than a share deal,” said Telecentras’ Aida Raziulyte, commenting on the Mezon sale. “A carve-out is a rather tough exercise, since the business does not stop for a single day. It is about selling a ‘moving target,’ with data changing over time, with the need to update it all again and again,” she stressed.
A similar situation occurred in the Hranilica Lon share issuance, according to Imre Balogh. “The issuance was combined with the pre-emptive right of the existing shareholders in the first round, with external investors having the opportunity to subscribe in the second round,” he said. “Running the process partially parallel meant we needed to develop a methodology for the pricing of the second round based on the success of the first round. Those involved in the legal framework had to deal with the dual-level of the procedure, meaning they had to be very precise to treat all investors fairly and equally while achieving a pricing that reflects market conditions,” Balogh explained.
Echoing Balogh’s input was Sun Investment Group’s Maciej Kalinowski, commenting on the Solar Park portfolio sale. “I would say that the most important aspect that we had to focus on was making sure that the requirements of the Polish regulatory framework were properly transposed into the typical corporate elements of the transaction,” he shared. “It is one thing to draft the share purchase agreement, and an entirely different challenge to make sure that the agreement complies with the regulations applicable to the PV plants and foresees challenges resulting from these regulations for the successful commercial closure of the transaction,” Kalinowski elucidated.
Indeed, complying with regulatory requirements in parallel to transaction work is a challenge throughout CEE. 4i Capital Partners’ Konstantin Vasiuk testified as much, in his commentary on the sale of Portmone. “Overall, such deals are rather complex processes with a lot of moving parts – the deal was a bit stretched in time as it required clearance of two regulators in Ukraine – the Antimonopoly Committee and the National Bank of Ukraine,” Vasiuk reported.
Such operational hurdles are further exacerbated when happening without a market precedent. This was the case in GTC Group’s sale of its Belgrade office portfolio, according to Klara Bujdoso. “The deal involved a complex interplay of real estate, corporate, and financing aspects,” Budoso said. As a particular challenge, she stressed the coordination of the negotiations and the sale of “project companies in two jurisdictions, all while juggling pre-completion activities and putting together very substantial cross-border bank financing.”
Satisfying Multiple Stakeholders
Finally, just as it is challenging to cover multiple jurisdictions in complex transactions and balance all their different aspects, it is as challenging, if not more, to properly balance, integrate, and appease multiple, diverse, and sometimes diverging stakeholder interests.
“The structure of the transaction was not very easy because there were many parties involved – VSS, two financing banks, existing shareholders who remain as minority shareholders of VSS, and the new investor,” said VSS’ Ilze Saviele of the company’s sale of share capital. “The biggest headache was to make everyone happy – our current investors and future ones,” chimed in Turing College’s Benas Sidlauskas, commenting on the college’s participation in the Y combinator.
Resonating Saviele and Sidlauskas’ words was Agacad’s Donatas Aksomitas, commenting on the sale of the company to Arkance. The biggest issue here “was to properly represent the interests of the selling founders, while at the same time allowing the strategic investor, to a certain extent, to maintain the practices used in its M&A activities in a number of other countries.” A similar situation occurred in the Product Lead financing round, according to Founders Bridge’s Liviu Munteanu. “Because three venture capital funds were involved in the round, the most intricate part was probably the new shareholder agreement, that needed to accurately represent the interests of all parties,” he reported. Indeed, incorporating the individual requirements and goals of each and every stakeholder into the structure of the deal is not easy. Sometimes, this is exactly what breeds difficulties in a deal. “The complexity [of the transaction] resulted from a wide range of operational factors,” confirmed Pekao TFI’s Dominik Mielczarek speaking of the bond issuance of MPO Warszawa.
And sometimes, operating in a multiple stakeholder environment could also spell additional compliance challenges. “Being a multi-stakeholder project, challenges have been mostly related to compliance,” said Innovation Fund’s Mladjan Stojanovic about the fund’s launch of the Katapult program in Serbia.
Betting on Expertise and Flexibility
Successfully completing a complex deal while making everybody happy requires a high level of expertise and flexibility – which is exactly what GCs underline most frequently as being the key for thriving transactions. Founders Bridge’s Munteanu stressed that the “expertise of ACT Legal [advising on the financing] came in very handy,” and helped the process complete smoothly.
And Innovation Fund’s Stojanovic agreed, in the case of Katapult. “Karanovic & Partners were a great asset to rely on,” he said. “The specific set of regulations on granting state-aid, for which the EU has a special interest, made us change internal acts and the design ought to take into account the specific provisions of this regulation. Complying with this segment of regulations required specific expertise,” he explained.
And finally, Agacad’s Aksomitas reported the company’s sale to Arkance “went very smoothly due to the reasonable and flexible approach taken by both Arkance and Agacad and the counsel of both parties throughout the process.”
The analyzed Deal 5 interviews were published between June 2020 and September 2022. Companies and positions were current at the time of their respective publishing.
This article was originally published in Issue 9.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.