Poland - land of (current and future) M&A opportunities

Poland was ranked third best country in which to invest in the postCOVID “new normal” by the New York-based CEOWorld Magazine. 

And we have seen some signs that the current situation (semilockdown) may create, apart from obvious uncertainties and tensions, positive M&A effects. Moreover, the situation in which Polish private companies are currently finding themselves may be similar to that of Polish state-owned enterprises in the 1990s. At that time, when the Polish economy opened up, it turned out that these stateowned giants were unable to compete with efficiently managed international companies. At the same time, the large local market (Poland has a population of nearly 40 million) required rapid development. Today, in the Covid era, we can see that a number of Polish companies with a significant domestic market share are facing difficulties with, e.g. cash flow.

This is because the dynamic growth of Polish private companies was (and is) based on credit without a special financial "safety net". The pandemic has disturbed the delicate balance. Hence the view that companies particularly affected by the pandemic crisis, as long as they show "development potential", are a tasty morsel for expansionary investors. In the case of Poland, this attractiveness is due, e.g. to access to a big local market, its unique location at the east-west and north-south crossroads and low costs and weak currency. For investors from outside the EU, Poland is a good starting point for expansion onto the 450 million EU market. In other words, the crisis may lead to fairly well-developed Polish private companies, having a significant share of a sizeable market, becoming attractive acquisition targets. We at DZP have already noted this trend and expect it to intensify in the medium and long term. In the first place, investors are interested in companies representing industries that are well developed, but considerably dispersed. There are a significant number of good, modern companies deprived of "critical mass". The reasons for this lack of “critical mass” include unresolved succession issues, outdated management, and excessive debt. Now the effect of these strategies (or frequently, the absence of a far-reaching strategy) for development can be seen (although it is still far from being a disaster for companies of this type). Research carried out by the Polish Business Centre Club shows that such companies can continue to survive the current market situation for about three months. Meanwhile, six months of uncertainty have passed and there is still no sign of a wave of bankruptcies (which, by the way, is very welcome news). 

Another important issue to bear in mind is the growing expansion of some Polish companies onto other markets through mergers and acquisitions. While it is true that, until recently, mergers and acquisitions of foreign companies by Polish companies were largely confined to countries in their immediate geographical vicinity (Central and Eastern Europe), in recent years Polish companies have become accustomed to entering other markets to make purchases. In this context, one of the most promising markets is undoubtedly the Iberian market, as it is a natural gateway to other jurisdictions,
such as Latin America. At DZP, we are working on projects of this type more and more frequently. 

All M&A processes are carried out in Poland using organisational and legal instruments and solutions that are well known to investors on other markets. In view of the size of the transaction (on a European scale, it is usually possible to speak of small and medium-sized tickets), it is important to optimise the process in such a way as to ensure that the value of the transaction is properly proportional to its servicing costs, while maintaining an appropriate standard. The operating model adopted by DZP, which is the largest independent law firm on the Polish market and makes intensive use of international standards and operating models, is conducive to these conditions being met (size of transaction – cost – service standard).

We draw on 27 years of cooperation with leading law firms and lawyers from around the world, including the UK, Spain, Scandinavia and the USA. Our operating method is described in the recently published Wolters Kluwer M&A Guide (in Polish), a book on the Polish market that is completely unique. 

Full text of this article authored by Bartosz Marcinkowski, Partner in Corporate & M&A Practice, and José Luis Villacampa Varea, Partner in Spanish Desk, is also available in Iberian Lawyer magazine.