Category: Croatia

With political changes on a local level in the nation’s capital and a booming tourism season, Croatia keeps defying the odds and making good progress despite an ongoing global pandemic, according to Cipcic-Bragadin Mesic & Associates Partner Marina Mesic.

“As far as the political situation in the country is concerned, I think that the most interesting issue this year is the change of Zagreb’s mayor,” Mesic begins. Earlier this year, long-time Zagreb Mayor Milan Bandic passed away, three months before local elections were to take place. “Bandic has been tied to a great number of corruption affairs and machinations, for the past 20 years. The citizens of Zagreb, desiring change, elected Tomislav Tomasevic, a green, for the new mayor.” According to Mesic, Tomasevic is promising a number of changes, including increasing transparency and battling corruption, nepotism, and the financial issues and existing debt of Croatia’s capital.

Furthermore, Mesic reports that the Parliament has recently passed an amendment to the law that aims to regulate and shape the way in which Zagreb is to be repaired, following last year’s earthquake. “The reconstruction works are yet to start and the law was amended twice, with the latest change directing the city and the country to bear the full cost of repairs,” she says.

Most of the damage to the yet-to-be-repaired capital of Croatia is in the city center, which is dotted with old buildings that are, for the most part, Zagreb’s cultural heritage. “Given that, as well as a number of high-end real estate, tourist attractions, and the like – reconstruction works have attracted the attention of a great number of potential investors,” Mesic reports. “So far, the prices of real estate in Zagreb are holding level, regardless of the damage, even with some buildings being rendered uninhabitable,” she continues. “What’s more, some prices are actually surging!”

Finally, talking about the economy, Mesic reports good news. “The economy is doing well and our GDP has grown in the second quarter, showing a recovery trajectory for Croatia,” she says. In large part, according to Mesic, this has to do with a record-breaking tourist season. “Even the more remote islands were extremely well-visited, like Lastovo and Vis. Also, with the Peljesac bridge finally being finished, it is to be expected that the Peljesac peninsula and the islands around Korcula and Mljet will keep developing, in the tourism sense,” she says. “Additionally, the construction sector has been doing well until recently, especially following the reconstruction efforts to both Zagreb and other cities struck by last year’s earthquakes. Now, with the increase in the prices of construction materials, activities have somewhat dropped, but I hope that this situation will not prove to be the new norm,” Mesic concludes.

Ilej & Partners, in cooperation with Karanovic & Partners, has advised the Generali Investments Slovenia managed Generali Growth Equity Fund on the acquisition of 74% of shares in Diverto. Lovric, Novokmet, Smrcek advised Diverto on the deal.

According to Ilej & Partners, “Diverto, founded in 2007, is a cyber security company based in Zagreb and among the first companies in this region to work with information security. Some of the services they offer are preventing security threats that can cause data breaches, financial loss, and damaged credibility.” Generali Growth Equity Fund is a special investment fund managed by Generali Investments, the first Slovenian management company, with subsidiaries in Croatia and Northern Macedonia.

Lovric, Novokmet, Smrcek’s team included Partner Mate Lovric and Senior Associate Katarina Simac.

Ilej & Partners, in cooperation with Karanovic & Partners and working with Dentons, has advised Singapore’s Hotel Properties Limited on its acquisition of a 50% stake in Kupari resort developer Avenue Ulaganja.

HPL purchased one share, with a nominal value of HRK 11.1 million, representing 50% of the registered share capital of Avenue Ulaganja d.o.o. za Turizam i Poslovanje Nekretninama.

According to Ilej & Partners, “Avenue Ulaganja has entered into a project agreement with the Republic of Croatia to develop a site for the provision of tourist services in newly constructed facilities. The site is in Kupari, just south of Dubrovnik, Croatia, and consists of about 13.12 hectares of land and 8.6 hectares of the maritime domain. Avenue Ulaganja has also entered into both hotel management and residence agreements with Four Seasons Hotels & Resorts.”

According to the firm, “this investment will enable the HPL Group to expand and diversify its hotel property portfolio to a new market in a fast-emerging tourist location in Europe and one of the most visited tourist destinations in the Mediterranean.”

Ilej & Partners could not provide additional information on the deal.

DTB has advised Dogus Croatia and Martimus B.V. on the sale of D-Resort Sibenik to Villa Dubrovnik and subsequent sale of a majority stake in Villa Dubrovnik to the Erste Pension Fund. Bogdanovic, Dolicki & Partners advised the buyer on the deal.

Villa Dubrovnik is listed on the Zagreb Stock Exchange and operates a five-star hotel in Dubrovnik.

According to DTB, the transaction is perceived as one of the most notable in the tourism sector in 2021 due to the volume of the deal and the fact that Villa Dubrovnik is one of a handful of luxury hotels on the Adriatic coast with huge popularity among premium guests.

DTB’s team included Senior Partner Damir Topic and Attorney Dina Salapic.

What is ESG?  ESG refers to the three key factors (environmental, social and governance) when measuring the sustainability and ethical impact of an investment in a business or company and it is commonly used in capital markets and commonly used by investors to evaluate the behavior of the companies, as well as determining their future financial performance.

ESG as a real estate value driver

According to the ENEP Buildings Global Status Report, CO2 emissions in 2019, from the operation of the buildings, has increased to its highest level yet, around 28% of the total global energy related CO2 emission. Therefore, extensive measures must be taken in order to decarbonize the European economy and reach the goal of being climate neutral by year 2050, which goal is being pursued at the EU level through both the European Green Deal and EU Financing Sustainable Growth Action Plan. The EU has set out six specific environmental objectives, which include: climate change mitigation, climate change adaption, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, and protection and restoration of biodiversity and ecosystems. The Green Deal will not only impact the real estate companies, but also their business models, market demand, and financing conditions. With respect to that, the European Union has developed funds within the European Green Deal Investment Plan, such as the European Energy Efficiency Fund, in order to support and assist EU Member States during their transitions to green economy while easing the implementation of these new practices. However, the support from the EU must be accompanied by private investment as well, including multiple banks and investors offering larger credit and better terms for “green financing.”

Even though the environmental seems to be the most important criteria of the ESG in the real estate sector, the governance scrutiny is critical for companies’ ability to continue their operations. Not addressing governance considerations carries a high risk for real estate companies, including significant penalties and fines, loss of reputation, and even reduced market penetration. However, promoting a corporate governance presents opportunities for real estate companies to drive up their long-term value. Governance elements consist of compliance with governance rules, ensuring transparent and efficient remuneration, fostering diversity, reducing corruption, and prompting transparent disclosure of these issues. Establishing and communicating organizational values, such as a culture of ethics, compliance and integrity, is ultimately the basis for companies to have positive long-term impacts.

During the COVID-19 pandemic, the social aspect of ESG has gained increasing attention. Social aspects include affordable housing, ensuring security of buildings, participation in rehabilitating public spaces, and assuring human rights. Internally, this would include guaranteeing workplace safety, high standards of labor practices, promoting diversity, and implementing responsible marketing strategies. Neglecting these social elements can lead to loss of reputation, higher employee turnover, increased operating costs, and more. However, incorporating these social aspects can attract more talent to companies and improve their reputation overall.

Ultimately, implementing ESG strategies allow companies to have higher profits, better reputation among stakeholders, and a higher change of attracting and retaining new clients. These efforts will provide viable long-lasting value for companies and the real estate sector in general.

Further, as a guide for investors and practitioners, the EU Taxonomy, drafted by the European Commission within the Sustainable Finance Action Plan (SFAP) has provided guidelines and objectives to ease access to capital at the project level. The EU Taxonomy requires that economic activities which are considered environmentally sustainable must be defined and classified so that the degree of environmental sustainability of an investment can be determined and consists of three objectives: optimizing the use of resources, reducing emissions and waste, and extending the lifespan of assets by adopting a more circular economic approach with the goal of creating elongation of said project cashflows. These new objectives are in place to motivate companies to use innovative technology and methods to extend the life of their buildings and/or find solutions to extend the usability of their materials. Taxonomy Regulation, has most requirements applicable beginning January 1, 2022.

Regulators, investors, stakeholders and the public have increasingly been holding businesses accountable for sustainable practices. In that respect EU Sustainable Finance Disclosure Regulation (SFDR) should be mentioned, which requires the disclosure of sustainability related policies and data at both product and entity levels. Within the scope of this regulation, certain real estate asset managers, investment products, and/or product manufacturers of real estate investments are included, as well as certain financial products and extending to the product manufacturers and their financial advisors located in the EU. SFDR measures are implemented on (i) “Level 1” – applicable from March 10, 2021 which sets framework principles that establish harmonized transparency rules regarding sustainability risks along with the adverse impact on sustainability factors; and (ii) “Level 2” – applicable from January 1, 2022 which supplements Level 1 with greater details, structure, and clarifications. Until the application of Level 2 in January 2022, SFDR compliance is more “principle based” and qualitative, giving managers the opportunity to adapt and build sustainability strategies before the more rigorous requirements come into action. It is also important to mention that from year 2021 and beyond, tax transparency has and will continue to be embedded in sustainability reporting regulations. Under the SFDR, financial market participants and advisors must disclose sustainability risks in all investments.

Entities who follow or even exceed these sustainable guidelines are highly likely to benefit from easier access to administrative permits, more strategic freedom, and potential new growth opportunities as they expand their services into other regions – all leading to new revenue streams. As environmental and social issues continue to take the lead as a public and policies priority, investors have had a growing concern regarding ESG related data. With respect to ESG Data Management in the Real Estate Industry, it is important to stress out that real estate investors and regulators have been demanding more sustainability disclosures, causing companies to focus their efforts on the related data management issues.

Finally, it is important to note that as ESG regulations continue to come into play, and the visible impact of climate change becomes more evident, the operation of green buildings and green leases have gained increasing importance in the real estate sector. Green leases aim to ensure the sustainable construction, usage, and maintenance of properties. There is currently no common European standard or definition of a “green lease,” however, some countries such as Sweden and France have created uniform green standards that could serve as a reference when developing green lease framework for other countries. When drafting a lease agreement, all particular circumstances should of course be taken into consideration and addressed, such as for example use, supply, and management of the property, construction and maintenance, as well as transparency and data exchange / monitoring. Due to the growing prevalence of ESG criteria, it is expected that “green clauses” will soon be implemented into lease agreements, however, they are currently not common. Therefore, a help by an experienced attorney at law when deciding on how to use them is highly recommended.

Rethinking Due Diligence – ESG Impact on M&A

As the public’s awareness of environmental challenges increases, investors have a growing interest in integrating ESG factors into their due diligence process. ESG due diligences in the Mergers & Acquisitions (M&A) business provides meaningful insights for said investors to gain more knowledge and insights prior to completing a transaction. As awareness rises, shareholders and various stakeholders in the real estate sector expect their company management to contribute towards reaching global and local environmental goals and expect them to dedicate time towards sustainable practices. Ignoring these issues, such as social rights and environmental violations, can have a huge negative impact on businesses growth and public perception. Not only do these issues have the potential to cause financial and reputational risks, but investors are also seeking more transparency before signing deals to avoid potential ESG issues.

The real estate sector has become more closely monitored by governmental and authoritative bodies over their environmental impacts, making ESG due diligence ever so important. Institutional investors and sovereign wealth funds have been at the forefront of the deal making in the renewables space. Both the EU Action Plan on Sustainable Finance and EU Taxonomy have defined certain criteria for sustainable practices and investments, creating more transparency on the issue. ESG due diligence allows management, investors, and stakeholders to assess risks, find red flags, and on a more positive note, shows future opportunity and value creation potential via increase energy efficiency.

The purpose of ESG due diligences is typically to analyze target compliance with international and national regulations. They also provide stakeholders with ESG expectations, emphasizing the companies environmental, social, and governance standpoints. Regarding environmental standpoints, the due diligence summarizes the company’s ecological impact, existence of current policies and management of environmental issues including CO2 emissions, water usages, waste and more. Another important factor is how the business model interacts with important environmental stakeholders and expects to lessen its impacts. Socially, the due diligence covers the company’s responsibilities and policies regarding human rights, the health & safety of employees, labor and equality guidelines, diversity and more. The third dimension, governance, analyses the existence of current corporate codes of conduct (such as anti-corruption), board transparency, risk management systems, and remuneration. Each ESG due diligence varies among different industries and cannot have a “one size fits all” methodology. When selecting ESG criteria, specific target and industry factors must be considered, depending on the company itself. When conducting ESG due diligence, expertise and strong methodological insights are essential to their success and decision making.

End note

The real estate sector must adapt their business approach to fulfill many current and future sustainable objectives, on a local and international scale. These include being compliant with all regulations, detect new opportunities to control building operation costs, and attract green-driven investors and talents. Defining specific decarbonization targets, and creating a roadmap, is critical to the corporate development and transformation of the real estate companies. The entity’s strategic approach has and will continue to have a major impact on future business endeavors. Ultimately, entities have two choices: the compliance path, with minimum effort put forth to align with national plans and regulatory obligations, or the leader’s ambitions, moving quickly towards ESG excellence and upping their value in the market and reputational aspects. To conclude, instead of focusing solely on regulatory compliance, it is crucial to create a big picture definition and implementation of ESG strategy for the near future.

By Matea Gospic Plazina, Partner, Krehic & Partners in cooperation with Deloitte Legal

To comply with the General Data Protection Regulations (GDPR), companies must have technical and organizational measures in place to protect personal data. In light of the recent decision of the Croatian Personal Data Protection Agency (AZOP) against a leading local security company, one measure that requires closer scrutiny is the prevention of data breaches by employees. What happens if, regardless of various security measures, a careless employee commits a data breach? Will the company be liable for a breach committed by its employee?

AZOP’s Decision

AZOP found that the security company committed a breach of personal data even though the breach arose from the actions of one of its employees. The employee recorded video surveillance footage on his/her phone and shared it with a third party; the recording was ultimately made available on social media and in the media. A data subject was thereby exposed to insults and ridicule by the public, and the data controller using the security company’s services reported the breach. The AZOP found that the security company as a data processor enabled the breach by not implementing adequate technical measures to safeguard personal data security, which would have eliminated or minimized the risk of such a breach.

Although it is yet to be seen whether the security company will successfully challenge AZOP’s decision in court, there are a few takeaways from this case even at this stage. First, this decision is a good reminder to employers that they can be liable for their employees’ data breaches. Similar conclusions have been reached in the past both by AZOP (e.g., case UP/I-041-02/18-01/36) and the administrative courts (e.g., case UsI 12/2019-9). This principle also accords with the general civil law rule on the vicarious liability of employers, which stipulates that the employer is liable for damage caused by an employee in the course of or in connection with employment. Second, the decision emphasizes that the employer bears responsibility if the breach occurred due to inadequate preventive measures. In other words, it is up to employers to ensure that work processes are designed to prevent the unauthorized processing of personal data. This principle seems especially relevant in the context of the modern workplace, including remote work, use of personal devices for business purposes, and so on.

What remains unknown is whether the employer would still have been liable for the data breach committed by the employee even if it had applied all the adequate processes and procedures. A literal interpretation of the rule on vicarious liability and the GDPR rules on controllers’ and processors’ obligations would suggest that the answer is no. However, this matter has not yet been expressly clarified by Croatian authorities (as it has in some other jurisdictions, such as the United Kingdom). Either way, it is in the employers’ best interests to apply adequate measures to prevent breaches – both to deter employees from committing them and to demonstrate to the regulators that they “did their part.”

What Measures to Apply?

What is appropriate in one situation may not be in another. Businesses should thus assess whether certain measures are indeed appropriate and sufficient for their specific situations. Evaluation after implementation is important as well.

In the decision described above, AZOP found that the company did not implement appropriate technical measures either before or after the breach. Applying different technical measures is definitely important, but not sufficient to ensure employee compliance. In many cases, the breach is caused by an employee’s careless behavior. Organizational measures aimed at building a culture of security awareness are very important in that regard and it is the employer’s duty to ensure that employees understand their responsibilities concerning data privacy and that they abide by them.

To this end, it is likely that having internal guidance and policies in place would not, on its own, be sufficient. Companies will likely be in a better position, compliance-wise, if they can demonstrate that they actively make employees aware of data protection rules. A good practice is to set up internal employee training or other compliance programs for all employees dealing with personal data. Likewise, checking whether security measures are really being adhered to and investigating incidents should help companies reach and maintain a necessary level of protection.

By Marija Zrno Prosic, Partner, and Lucija Vranesevic, Attorney at Law, CMS Zagreb

This Article was originally published in Issue 8.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The amendments of the Act on the Prohibition of Unfair Trading Practices in the Food Supply Chain (the “Amended Act”) shall enter into force on 1 September 2021, with a few exceptions. The main reason for adopting these amendments was transposition of the Directive (EU) 2019/633 of the European Parliament and of the Council of 17 April 2019 on unfair trading practices in business-to-business relationships in the agricultural and food supply chain (the “Directive”) into the local legal regime. The Directive aims to set out the minimum Union standard of protection by harmonizing Member States’ diverging measures relating to unfair trading practices. With these amendments, the Amended Act is further harmonized with EU acquis.

The Amended Act left a deadline of six months from the date of its entry into force for harmonization of the contracts between suppliers and customers – i.e. until 1 March 2022.

Below is an overview of the most important changes.

• The range of agricultural and food products has been expanded.

First, it should be noted that the definitions in the Amended Act are in line with the definitions in the Directive. As an example, the term “buyer” was introduced to replace previously used, more narrowly defined terms, and the term “food” was expanded to include “agricultural and food products”.

The list of “agricultural and food products” is set out in the Schedule 1 of the TFEU and will also be reflected in a bylaw which is yet to be adopted by the Croatian Ministry of Agriculture.

The Amended Act also defines “production and market sensitive agricultural and food products” for which it prescribes (i) the final selling price, below which such a product may not be sold to the final consumer and which is formed by multiplying the purchase price of the product by minimum factor of 1.10 and (ii) the limit of the price of such products on sale, which may not be lower than 34% of the final selling price of such a product for the final consumer.

• The number of addressees to the Amended Act has been expanded by defining the term “buyer” and redefining the scope of the term “significant bargaining power”.

Under the Amended Act, the “buyer” is defined as any natural or legal person, regardless of the business address of that person, that purchases agricultural and food products. The definition of the buyer also encompasses any public body in the European Union or any public body (defined in accordance with the regulations governing administrative disputes) that purchases agricultural and food products, or a group of such natural and legal persons. Previously, there was not a unique definition of a buyer, but rather the law contained separate definitions for a purchaser, trader and a food processor. The definition of a buyer under the Amended Act encompasses a purchaser, a processor and a trader.

The list of addressees to the Amended Act has also been expanded by lowering the threshold of buyer’s total annual turnover which is an indication of having a “significant bargaining power”. Buyers with “significant bargaining power” now encompass all buyers and affiliated companies with a total annual turnover of more than HRK 15 million (approx. EUR 2 million). It should be noted that this is a significant difference, as the threshold was previously set at a substantially higher amount – i.e. it applied to “traders” whose total annual turnover exceeded HRK 100 million (approx. EUR 13,5 million), and “purchasers” or “processors” whose total annual turnover exceeded HRK 50 million (approx. EUR 6,5 million). Furthermore, the Croatian Competition Agency may require the buyers to provide information relevant to the determination of their annual turnover. If the buyer does not comply with this request within the required deadline, he will be considered as having significant bargaining power and may also be subject to misdemeanour fines. This is a rebuttable presumption, but the burden of proof is on the buyer.

The Amended Act is furthermore directly applicable to contracts between suppliers and buyers governing the purchase and sale of agricultural and/or food products, regardless of the law applicable to such contracts.

• New unfair trading practices

The Amended Act divides unfair trading practices to (i) those that are always and strictly prohibited, and (ii) those that are prohibited, but exceptionally will not be considered as such if they are clearly and unambiguously agreed before the implementation of such practices and provided that they meet the conditions for exemption from the prohibition established by the Amended Act.

The rules regarding exemption of certain practices from the general ban have also been amended. For example, charging a fee to a supplier for product marketing will not be considered as unfair if marketing of agricultural and food products carried out by the buyer is explicitly requested by the supplier and provided that the payment is based on objective and reasonable estimates.

The list of trading practices which are considered as unfair has been increased from 33 to 43, out of which 25 are strictly prohibited i.e. they cannot be exempt. In this respect, the Amended Act introduced all the practices prescribed under the Directive (such as various types of payment for perishable and other agricultural and food products, provisions on cancellation of orders by the buyer of perishable agricultural and food products and provisions on unilaterally change of the terms, etc.) as well as two additional unfair trading practices. The two additional unfair trading practices will be in force as of 31 March 2024 and they are as follows:

• sale of production and market sensitive agricultural and food products below the final selling price; and
• sale of production and market sensitive agricultural and food products on sale at a selling price that is below 34% of the final selling price for the final consumer.

According to the stance of the Croatian Competition Agency during the discussions on adoption of the Amended Act, the two additional unfair trading practices were added following examples of some of the EU Member States which recognised the importance of these kinds of products as being paramount to the overall food security of a country.

• Unannounced controls

The Amended Act further introduced right of the Croatian Competition Agency to conduct unannounced controls. During such controls, the Croatian Competition Agency may inspect the documentation and/or business premises of the buyers, temporarily confiscate items, business books and other necessary documentation, seal the premises and/or business book or documentation etc., and is authorized to perform “other actions necessary to achieve the goal of unannounced control”. In this sense, the Amended Act authorizes the Croatian Competition Agency to act on petitions or other information filed by third parties.

• Cooperation with the European Commission and the implementing bodies of other Member States

According to the Amended Act, the Croatian Competition Agency will closely cooperate with the implementing bodies of other EU Member States and the European Commission in the procedures for establishing unfair trading practices in the supply chain of agricultural and food products. This particularly includes exchange of information and experiences on best practices, new cases and new developments in the field of unfair trading practices, implementing measures adopted in the procedures for establishing unfair trading practices and providing assistance in the procedures for identifying unfair trading practices which have a cross-border dimension.

• Fines

As for the criteria for imposing fines, the Amended Act introduced new mitigating circumstances (e.g. the fact that unfair trading practices, although contracted, have not yet been applied), but also additional aggravating circumstances (failure to comply with the Croatian Competition Agency’s decision to accept commitments and disabling or otherwise resisting the exercise of unannounced controls).

Also, in case of repeated violations, the amount of fine may be increased by up to 100%, and by additional 50% for every other established case of violation but may not exceed the maximum amount prescribed for certain violations.

Exceptionally, in a situation where the Croatian Competition Agency established that (i) a violation has occurred, but the severity, the extent, the duration and the consequences thereof are negligible for both the suppliers and the public interest, and (ii) provided that, before the notification on the preliminary established facts of the case, the party in breach has submitted evidence that it has settled its obligations towards the supplier and harmonized its operations with the provisions of the Amended Act, the Croatian Competition Agency may further reduce the amount of the fine.

• Other changes

The Amended Act also contains certain provisions that facilitate business, such as an exception to the prescribed obligation to enter into a written contract. A written contract is exceptionally not required if the supplier accepts an offer containing publicly announced and binding conditions of the buyer who buys the primary agricultural product on the purchase block for its further sale or processing, provided that the offer contains provisions on terms such as price, quality, payment, delivery, etc. of the agricultural or foods product sold to the buyer.

In addition, the buyer, as a party to the proceedings, is now entitled to propose commitments to the Croatian Competition Agency that would alleviate the Agency’s concerns within 60 days of receiving notification of the initiation of the proceedings. If the Croatian Competition Agency accepts the proposed commitments, it will suspend the proceedings without finding of the breach.

The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.

By Nika Jurkovic, Attorney at Law at Ilej & Partners in cooperation with Karanovic & Partners

Savoric & Partners’ Boris Savoric and Lovro Gasparac Talk About The Deal of the Year in Croatia.

CEELM: First, congratulations on winning the Deal of the Year Award in Croatia!

Gasparac: Thank you, it is a great honor to receive this award and see that our work on this deal was recognized by the judges!

CEELM: Can you describe the deal for us and Savoric’s role in making it happen?

Savoric: The Stillfront Group, a global group of gaming studios, acquired Nanobit, a game development studio based in Zagreb, for a total of USD 148 million. The transaction consists of two phases. In the first of them, 78% of Nanobit’s shares (excluding treasury shares) were acquired by Stillfront for a consideration of approximately USD 100 million, payable partially in cash and partially in Stillfront shares. The remaining 22% of Nanobit’s shares (excluding treasury shares) will be acquired in 2023 for a consideration of up to USD 48 million, also consisting of cash and Stillfront shares.

Gasparac: Our firm worked on this deal as the sellers’ Croatian counsel. In addition to taking the lead with respect to all Croatian law matters related to the transaction, we provided the sellers and the target’s team with support in all stages of the transaction and coordinated a number of preparatory activities to set up the required structure prior to the transaction, leading up to its successful completion.

CEELM: How did you land the mandate and what do you believe it was about Savoric & Partners that got it for you?

Gasparac: We had the pleasure of working with the Nanobit team and the founders on several previous transactions. A few years ago, they recognized the excellent track record and reputation our firm has on the Croatian M&A market and decided to engage us as legal advisors on a potential transaction. We established a good relationship with the client over a couple of years and lived up to the trust they placed in us on previous assignments, so I believe we made it easy for them to go with our firm once again, on this important transaction. It was a real pleasure to team up with Nanobit again, on this deal.

CEELM: What was the most difficult part of this deal and how did you/your team circumvent it?

Savoric: One of the main challenges of this deal was the cross-border nature of the transaction and the fact that the consideration partially consisted of Stillfront shares listed in Sweden. Therefore, for us as the sellers’ counsel, it was important to ensure that all the relevant factors, across a number of jurisdictions, are taken into account, to protect the sellers’ interests and set up adequate mechanisms ensuring that they receive the relevant parts of the consideration simultaneously with the share transfer.

Gasparac: In addition, within the transaction, several key employees also sold their shares to the purchaser. A number of preparatory actions needed to take place to set up the required structure prior to the transaction, which presented a challenge considering the ambitious timeline within which the transaction had to be executed.

The timeline was generally one of the main challenges in the transaction since it was driven by the purchaser’s disclosure requirements, so we had very little flexibility on the timing side. Considering that the transaction included several simultaneous workstreams (e.g. negotiating the SPA, the Shareholders’ Agreement, arranging W&I insurance, etc.), all teams needed to work hard to make everything happen within the planned timeline.

All challenges were circumvented thanks to the dedication and attention to detail of all teams involved in the transaction, including the sellers and the target’s team, as well as Latham & Watkins, the seller’s English counsel. Everyone was focused on getting the deal across the line as swiftly as possible and was always ready to go the extra mile to make sure that we put in place a structure that would allow all parties in the transaction to achieve their main objectives.

CEELM: In contrast, what, from your perspective, went particularly smoothly and what do you believe contributed to it?

Gasparac: I would say that the entire transaction, in general, went rather smoothly, especially when it mattered the most, around signing and closing. As previously mentioned, we believe that the effort put in by both the sellers’ and purchaser’s teams and advisors contributed greatly to that, as everyone was determined to make the transaction happen as smoothly as possible.

CEELM: Looking back at the whole process, would you do anything differently if you had a second go at it?

Gasparac: Nothing comes to mind at this moment, we are very happy with the way that the entire transaction went, and we believe the client is satisfied as well. As in every deal, there are always moments when the timing gets a little bit tight and the transaction gets somewhat tense, but this is always the case, and I am afraid it is unlikely to change anytime soon.

CEELM: In your view, what is the significance of this deal for the Croatian market? Why do you believe the judges voted for this deal over the others?

Gasparac: The first thing that sets this transaction apart from most other transactions on the Croatian market is its value of around HRK 1 billion in total, which is quite significant for the local market. In addition, as one of the largest Croatian deals in recent years, it put Croatian gaming and IT companies on the map and demonstrated that there are excellent investment opportunities available for reputable international companies such as Stillfront.

Savoric: In addition to that, the cross-border nature of the transaction, with various work streams across several jurisdictions taken care of by different teams, added another layer of complexity to it, making it a very significant deal on the market.

CEELM: Can we look forward to future similar deals (size/industry/target/etc)? Why/why not?

Gasparac: I believe we absolutely can. The Croatian M&A market is very active at the moment, especially in the IT industry, and our team worked on several other important deals advising founders/sellers of IT companies within a few months after the completion of this transaction. It is evident that there is an entire generation of Croatian high-growth IT companies attracting the interest of foreign investors, so it seems very likely that the trend of high-profile transactions in the IT industry will continue in the coming years.

This Article was originally published in Issue 8.7 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Marohnic, Tomek and Gjoic has advised Balkan Properties Limited on its sale of Poslovni Park Zagreb to Quattro Logistika. Praljak & Svic advised the buyer. Mamic Peric Reberski Rimac and Lovric Novokmet Smrcek also reportedly advised the buyer.

Financial details of the transaction were not disclosed.

According to MTG, “Poslovni Park Zagreb is the owner of the largest logistic park in Croatia consisting of roughly 230,000 square meters of land and logistic halls with an area of roughly 103,000 square meters.”

MTG’s team included Partner Josip Marohnic and Attorney-at-Law Ivona Zagajski.

The Praljak & Svic team reportedly consisted of Partner Marin Svic and Attorney-at-law Ivan Krnic.

With the summer months comfortably set in, Croatia is experiencing a most favorable tourism season which impacts all areas of business, according to Porobija & Spoljaric Partner Marko Porobija. 

“Things have been very quiet on the political front,” Porobija says, mentioning that the Croatian parliament is in summer recess and that things have slowed down legislatively as a result.

“The tourism sector, on the other hand, that’s what it’s all about right now,” Porobija continues. “The season has, so far, shattered all expectations – some tourism hotspots are doing even better than in 2019, mostly high-end locations in Istria and around Split.” With most tourists avoiding large, crowded hospitality centers like hotels, 2020 has been less than stellar for Croatia, but 2021 has turned a corner. “It would appear that the sector has not only survived but is thriving right now,” Porobija says. 

“This positive trend in hospitality proves that it is a robust and stable sector, with no bankruptcies and insolvency situations among hotel chains on the seaside – Vila Dubrovnik even had an IPO!” He says that several other tourism sector IPOs are in the works for the end of the year and that things are moving along nicely, with no indications that the season will be halted due to the COVID-19 pandemic like it was last year.

The IT sector in Croatia is another “winner of the COVID era,” according to Porobija, with big equity investments in companies such as Microblink, Photomath, or Infobip, and the sale of Nanobit happening in the last 12 months. “This is another industry where we can expect many pleasant surprises, come fall and winter,” he accentuates. 

Further, Porobija says that this fall might see some legislative updates and overhauls that could impact businesses. ” The digital transformation of the justice system is the hot topic here, with an e-communication system, which is already widely used in commercial and municipal courts, finally set to be implemented into administrative courts,” he says. “The justice system should be almost fully e-operational by the end of the year, with courts’ internal operations not lagging far behind.”

Continuing, Porobija says that the issue of work being prohibited on Sundays is another interesting topic in Croatia right now. “It has been attempted to pass this into law several times – only for the retail sector – and the Constitutional Court has shot it down every time, but here it is again, rearing its head.” He believes that it will die away again. Additionally, Porobija says that “certain reforms to the court system could be in the works, as well as potential changes to the company law framework – which was last updated two years ago.” He also mentions expectations for the legislator to address the matter of individual bankruptcy.

Finally, Porobija mentions a piece of EU legislation he considers to be of the utmost importance for the Croatian legal framework and that of the entire Union. “The newly announced Market in Crypto-Assets Regulation (MiCA) has seen its first draft released recently and, while some aspects would require further work, it is a step forward in regulating relevant crypto-market issues and providing a framework for it,” he says. Porobija feels that this is going to be a “hot topic in the future and that Croatia should prepare for it well in advance.”