Krzysztof Libiszewski

Revival of the M&A market

The number of deals completed in Europe in 2013 reached the level observed in 2007.

The second annual meeting of lawyers from the International Bar Association devoted to issues of mergers and acquisitions of non-public companies in Europe was held on 6–7 February 2014 in Paris. Below are several of the key conclusions from the discussion at the IBA forum.

Most parts of Europe are observing significant growth in the optimism of investors.

The number of transactions closed throughout Europe in 2013 reached levels observed in 2007. The total annual value of all completed transactions is still just half as great as historic highs. This reflects the cautious approach of investors and lenders to the valuation of companies. Nonetheless, the value of deals conducted in Europe has slowly begun to grow since 2012.

As has traditionally been the case, the largest combined value of transactions is in the UK. But the total value of deals in Germany and Russia is not much lower.

The most typical form of transaction in Europe remains the sale of company shares. Asset deals are used in certain segments of the market (e.g. real estate projects), or with respect to enterprises which are insolvent or threatened by insolvency, and also where transactions in companies’ assets rather than their shares are tax-favoured.

The parties increasingly often also accept mechanisms tying the final sale price to the future results of the acquired enterprise. Similarly, due to an aversion by any one of the parties to assuming the entire investment risk, deals using a joint venture structure have been fairly common recently.

In most European countries, the clauses in the transaction documents that are most intensively negotiated are those involving the seller’s liability for the subject of the sale. This involves in particular the representations and warranties typically provided in connection with the seller’s title, the accuracy and completeness of the financial reports on which the transaction is based, and any potential tax liabilities of the acquired enterprise. These provisions are also the most common grounds for post-closing financial disputes.

The commonly observed differences in some aspects of M&A practice in Europe and North America also continue. A number of contractual mechanisms commonly used in the US, such as sale without liability for defects, “MAC” clauses covering material adverse changes, conditions suspending the transaction in connection with the unchanged situation of the acquired enterprise prior to performance of the contract, and so on, are rarely used in European transactions.

The discussions at the IBA meeting in Paris clearly showed that the practice for conducting M&A deals is uniform across European countries as far as the key transaction mechanisms are concerned. Meanwhile, the M&A market has revised from the doldrums of the last several quarters.

Krzysztof Libiszewski, Wardyński & Partners