In every transaction, thorough due diligence is fundamental
A discussion with Paweł Ciećwierz, a partner at Wardyński & Partners who heads the firm’s Mergers & Acquisitions practice, about M&A in Poland.
How difficult is it to carry out a merger or acquisition under Polish law?
It really all depends on the complexity of the business model of the undertaking, and not just the legal aspects. Polish practice, much like the practice in other countries within the Continental legal system—such as France and Germany—has adjusted to solutions from the Anglo-Saxon legal tradition, which plays a dominant role in corporate transactions. The reason for this is that the most active investment banks and other institutions financing deals employ contract forms and legal institutions derived from the common law.
In this area, Polish law is founded on the principle of freedom of contract, which enables the parties to adapt the documentation to suit the needs of the specific transaction. Polish law does have certain provisions of mandatory applicability, however, which the parties are not permitted to modify. It is the role of Polish lawyers to draft transaction documentation in a way that achieves the ends sought by the parties but is consistent with mandatorily applicable regulations.
There are several problem areas that raise major issues of interpretation. One example would be liability for representations and warranties—particularly when they are made by a selling shareholder and are addressed to the legal, financial or factual condition of the company, which is formally a third party. Thus it is important to be sure that such liability is precisely defined, to eliminate discrepancies in interpretation which could lead to disputes between the parties.
When carrying out M&A deals, are there any risks specific to the Polish market that the parties need to be aware of?
Poland today is a member of the global economy, so the risks are essentially the same as on any other national market. The risks are commonly known, in any event—for example the risks related to foreign exchange fluctuations. These risks can be managed through proper drafting of contractual clauses.
But entirely new risks also arise that were not taken into consideration before. An example would be the risk of the collapse of the eurozone. Lawyers should now provide for appropriate clauses to deal with the issue of contractual payments defined in euro if at some time in the future the euro ceases to exist.
And in many instances the structure of the transaction, including the legal structure, may be dictated by tax considerations.
Are there any risks that are specific to certain industries?
When it comes to legal due diligence, there are no major differences in terms of the sector or the type of transaction. From a legal point of view, deals are fairly similar. Of course there are certain differences typical for a given industry, but the due diligence as such is generally similar, and must include a thorough analysis of the legal status of real estate, contracts, title to shares, and so on. Familiarity with the specific sector certainly helps, but does not drive the conduct of the transaction itself.
In many sectors, environmental protection presents a serious investment risk. Here we can see that lawyers specialising in this area play a major role.
You said that transactions are similar from a legal point of view. But do surprising or unusual situations arise?
Yes, of course. For example: Once we were carrying out the privatisation of a large enterprise for the Polish Treasury. In the final stage, when there was already an investor onboard, our legal analysis determined that the Treasury had forgotten to nationalise the enterprise. As a result, in the late 1990s, relying on communist-era nationalisation decrees, the Minister of Economy issued a decision nationalising the enterprise, so that the Minister of Treasury could then turn around and privatise it.
Things like this turn up during due diligence. Failure to catch something of that sort could have far-reaching consequences. So, in every transaction, thorough due diligence is fundamental.
How does the M&A market look at this moment? Press reports paint a rosy picture.
As usual, this can be interpreted in different ways. Last year, it is true, there were several very large, high-profile deals, and the M&A market was very active, but at the moment forecasts are fairly conservative.
Poland continues to enjoy a good economy, and it is regarded as an excellent location for investment. Here, much depends on the initiative of the Treasury and the intensity of the privatisation process. Because in recent years a lot has already been privatised, there are really just a few enterprises remaining—the most strategic ones—and there is a debate about whether to privatise them or not. I have in mind energy in the broad sense, including the fuels sector, which continues to generate activity on the M&A market.
But in terms of classic private deals, in which the Treasury is not involved, I believe that the activity of private investors has decreased.
Meanwhile, however, Polish companies that have achieved notable success are receiving very favourable acquisition offers from foreign companies.
We very much look forward to the time when Polish companies will begin to invest abroad, but I think that will still take a while. Our businesses are not mature enough yet to invest elsewhere, but I expect that it will happen in the course of the next 10–15 years.