Category: Estonia

TGS Baltic has advised two of Kilo Health’s shareholders on selling a minority stake in the company to Scandinavian and Estonian funds.

Kilo Health is a digital health and wellness company. According to TGS Baltic, “since June, the Danish fund Nordic Secondary Fund II and the Finnish fund First Fellow have become the shareholders of Kilo Grupe. Estonian funds Usaldusfond Specialist VC Primary and Secondary Fund II, Metaplanet Holdings, and Biofuel become the shareholders of the group in May. A small part of the company’s shares was sold to the mentioned funds. After the transaction, there will be no changes in the company’s management.”

In 2021, TGS Baltic also advised Kilo Health on its investment in Revolab (as reported by CEE Legal Matters on June 21, 2021).

TGS Baltic’s team included Executive Partner Marius Matonis and Senior Associate Ruta Tikuisyte.

TGS Baltic did not respond to our inquiry on the matter.

Sorainen has advised Estonian health technology company Antegenes on raising EUR 2.3 million in funding.

“Antegenes raised EUR 1.6 million from investors in a seed round, which was led by Pipedrive co-founder Timo Rein, Pipedrive’s first investor Peep Vain, and entrepreneurs Aare Kurist and Andreas Henn Otsmaa,” Sorainen informed. “In addition, Antegenes has received two grants to bring research-intensive innovation to international healthcare by the EIT and Health Norway Grants Green ICT program.”

According to the firm, the funding will be used to bring Antegenes’ “innovative genetic tests for personalized cancer prevention into wider use in healthcare, scale the team, and expand to new foreign markets.”

Founded in 2018, Antegenes is an Estonian medical technology company, providing genetic tests designed to assess personal cancer risks.

Sorainen previously provided pro-bono legal advice to Antegenes on the possibilities of expanding to other countries (as reported by CEE Legal Matters on December 31, 2021).

“To reduce cancer deaths, the genetic predisposition of cancer should be analyzed for all people, and our vision is to implement this internationally with our partners,” Antegenes CEO Peeter Padrik commented. “This is why the current investment round is very important for our growth and next steps. We are glad that investors share our vision of the future of healthcare.”

The Sorainen team included Partner Toomas Prangli, Counsel Lauri Liivat, and Associate Kadri Puu.

Attorney Kirill Lezeiko has taken over as Head of Banking and Finance at PwC Legal Estonia from Co-Founder Viljar Kahari, effective August 1.

Lezeiko has been with PwC Legal since 2018, having headed the Financial Transactions and Capital Markets team between 2018 and 2020, and again since 2021. Between 2020 and 2021, he was the Head of Group Legal at Supplier Plus, while remaining an Of Counsel with PwC Legal. He began his legal career in-house with Eesti Energia, where he spent almost 13 years between 2005 and 2017.

“I am handing over the management of the Banking and Finance practice area to Kirill with peace of mind, knowing that he is an outstanding lawyer in the banking and finance sector and a strong expert with top knowledge,” stated Kahari.

“In recent years, I have been focusing on investment companies and investment funds,” added Lezeiko. “The main focus has, more specifically, been on legal issues related to the use of Decentralized Finance and solutions based on distributed ledger technology in the context of provision of investment services.”

The resilience of the transactions market and the trust of investors in the Baltic region has proved remarkable, although figures show a 15% decrease in global mid-market M&A deals (according to the Refinitiv published M&A Review of the first half of 2022). Despite the Ukraine war and mounting global challenges the deal flow, although at a much calmer pace, continues and remains promising for the second half of the year. Looking back on the first six months, COBALT experts highlight the main trends in each of the Baltic countries.

ESTONIA 

After the record-breaking year 2021, the transaction market in Estonia continued generally strong during Q1/2022, although with a slight downward correction to previous years’ volumes following a general European wide market effect.

The transaction market has been very versatile and seen a fair mix of sales of highly valued businesses or assets with large bidding rounds organized as auctions, privately negotiated deals with strategic investors looking for greater synergy advantages or new market positions and businesses that are sold with a clear discount due to changed market conditions on specific business sectors, especially in certain retail or wholesale markets. 

During the first half of this year, transactions could be seen focused continuously on start-ups and the IT-sector on a more general level, and therein investment rounds can be seen as increasingly coupled with exit possibilities also based on private M&A transactions as an alternative to the IPO-tracks. Fintech as a point of interest can be singled out with transactions such as the sale of Maksekeskus to Luminor Bank.

The current geopolitical situation and European heat waves have acted as an increasing motivator for the renewable energy sector transactions, which have been active along with the whole energy sector boosted further by covid related effects on energy use.

The health-care sector and real estate market have also been active during the last 6 months, wherein as an example Viru Keemia Grupp bought Stockmann department stores in Estonia and Latvia for 87 MEUR. The real estate market has also clearly acted as an attractive investment opportunity for local investors that have been able to materialize on their prior investment within the last few years from other business sectors. 

Investors have window-shopped more prior to making investment decisions. Nevertheless, the market is full of equity looking for a place to be invested, whether it be due to sale of prior investments by local entrepreneurs, investors or institutional investors that have been able to attract considerable funds under their management. Only last year six new investment funds were established in Estonia raising close to 300 MEUR and in the end of last year it has been valued that local funds have free capital to be invested in the range of some 800 MEUR. This means that when valuations of companies better match the future prospects, i.e. a correction in general valuations on the market and/or more clarity on the future market developments emerges, the transaction market will surely see a boost from the level we could see during the last 6 months.

By Jesse Kivisaari, Managing Associate, COBALT

ESG has moved from conference halls to a daily function for many companies worldwide. In Estonia, stakeholder expectations for corporate ESG are still evolving, yet rising. Some companies are already incorporating ESG into their daily business, as they understand its value. Along with stakeholder expectations, regulatory scrutiny is also increasing, showing a dramatic increase in ESG reporting requirements worldwide.

The EU has taken a leading role in driving the UN Sustainable Development Goals (SDGs) throughout its member states. The SDGs are reflected in the Estonia 2035 development plan, designed to power the sustainable development agenda in Estonia. Many NGOs, think tanks, and universities are helping to incorporate ESG in everyday public and private sector activities, with organizations such as the Responsible Business Forum Estonia sharing practical know-how.

From NFRD to CSRD

In Estonia, the Non-Financial Reporting Directive (NFRD) was transposed into law by the Accounting Act, which applies to public-interest entities with over 500 employees. Currently, only a handful of companies in Estonia fall within the scope of the NFRD. However, the proposed Corporate Sustainability Reporting Directive (CSRD) will bring significant changes, by extending the scope of the NFRD to large and regulated market-listed companies (except micro).  According to the impact assessment, the CSRD will affect around 260 undertakings in Estonia.

The CSRD requires audits and sets more detailed reporting requirements, including digital tagging, whereby information is machine-readable and feeds into a single European access point, as envisaged in the capital markets union action plan. Considering that 99.8% of firms in Estonia are SMEs, Estonia proposed to the EU that the CSRD should only apply to large companies that meet all three threshold criteria in the directive, to not overburden SMEs, and that listed SMEs should report voluntarily.

The CSRD is expected to enter into force in 2024 for companies already subject to the NFRD, in 2025 for large companies not presently subject to the NFRD, and in 2026 for listed SMEs. Sanctions for non-compliance will depend on the member state, however, Estonia is unlikely to impose strict fines.

Regulatory Tsunami in the Financial Sector

The Sustainable Finance Disclosure Regulation (SFDR) lays down sustainability disclosure obligations for certain financial advisors and market participants who provide certain financial services and products. The aim is to reduce greenwashing and increase the comparability of investment products. The Estonian Financial Supervision and Resolution Authority (FSA) will supervise SFDR compliance. Although compliance with the SFDR in Estonia is sporadic and confusion abounds, this should improve as the FSA is currently boosting its ESG capabilities to monitor compliance.

Furthermore, the EU introduced six delegated acts that add ESG-related responsibilities to MiFID II, AIFMD, UCITS, Solvency II, and IDD. The ECB, EBA, and EBRD have also introduced ESG requirements that mostly credit institutions need to comply with.

Taxonomy Regulation

The Taxonomy Regulation (TR) establishes a classification system, which provides companies with a common language to identify whether a given economic activity should be considered environmentally sustainable or not. While the TR is primarily a classification tool, it also requires NFRD/CSRD and SFDR-scoped entities to disclose information concerning the degree of alignment of their activities with the TR.

For transparency and uniformity, the EU issued the TR together with delegated acts, detailing technical criteria for companies to classify their activities. Criteria for climate change adaptation and mitigation have been published, with criteria regarding water, the circular economy, pollution prevention, and biodiversity to follow. The TR uses EU-wide rules as a benchmark for classification, to ensure common language and substantive criteria. However, some localization is necessary as many of these rules are issued as EU directives requiring national transposition, and some technical criteria allow equivalent national rules as a benchmark.

TR-scoped companies will need to examine their activities, including materials used and supply chains. Some cases require additional and more detailed data to categorize activities as sustainable. Striking a balance between data sufficiency and avoiding over-administration is a challenge for many companies.

Key Takeaways

ESG is here to stay – through regulatory and stakeholder scrutiny. Currently, financial market participants, large companies, and public interest entities are in the limelight – but the scope is widening – while compliance monitoring capabilities are also improving.

However, a noticeable lack of awareness, leadership, resources, and know-how prevails. ESG is often delegated to PR/communications, legal, or compliance teams without properly focusing on the need to implement ESG throughout the whole company, while not abandoning responsibilities towards supply chain(s), as required by the proposed Directive on Corporate Sustainability Due Diligence.

As the topic is novel, learning from peers, consulting relevant ESG professionals, plus hiring competence from abroad could help Estonian companies to catch up.

Mervet Kagu, Head of ESG, and Siim Vahtrus, Senior Associate, Cobalt

This Article was originally published in Issue 9.7 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

PwC Legal has advised the Wolf Group on the issuance of non-fungible tokens.

The Wolf Group is a European manufacturer of construction chemical products and systems. Its main product brands are Penosil and Olive. Its certified production units are located in Estonia, Spain, France, and Russia. 

According to PwC Legal, “the campaign of Wolf Group’s product brand Penosil EasyPRO in Spain is a lottery, with which it is possible to win EUR 3,000 for the purchase of Penosil products in each quarter in the second half of 2022. The NFT acts as proof of lottery participation. In addition, the NFT holder can receive digital artwork created by international artists, which can then be converted into NFT art. The Wolf Group uses the KOOS platform for the creation and issuance of NFTs which is of Estonian origin.”

PwC Legal’s team was led by Partner Priit Latt.

Sorainen has successfully represented Kirsti Valdstein-Timmer in litigation proceedings regarding the publishing of incorrect facts and statements in media by Ekspress Meedia and former Kroonika journalist Vahur Joa.

According to Sorainen, “the cause of the dispute were articles written by Vahur Joa and published in the media in Autumn 2021 that were derogatory towards Kirsti Valdstein-Timmer. After the first article was published, our client asked the journalist to correct the incorrect facts and statements which had been published, but the journalist ignored the request and instead published two more derogatory articles in the following weeks. These articles created a bad impression of the client as a cheater and extortioner.”

According to the firm, “on July 8, the Harju County Court decided to satisfy the claim against the former journalist as well as against Kroonika with the obligation to publish a respective public note, disproving the initially published incorrect facts and statements by recognizing them as incorrect. The court also ordered monetary compensation from both defendants.”

Sorainen’s team included Partner Carri Ginter, Counsel Maria Pihlak, Associate Aleksandr Sapovalov, and Assistant Lawyer Maarika Maripuu.

PwC Legal Estonia has successfully represented the interests of Espak Ehitustood in a construction contracts dispute.

According to PwC Legal, the “dispute related to Fahle Park (the real estate project of 2021) lasted approximately 18 months [and] has just come to an end – as a result of which the contractor Weldon Ehitus paid approximately 90% of the principal debt to the contractor Espak Ehitustood.”

“Espak Ehitustood performed various interior works in the business premises of Fahle Park and provided project management services,” the firm informed. “Weldon Ehitus [had] initially failed to pay almost half of the total cost of the works, offsetting the claims with claims for liquidated damages that Espak Ehitustood estimated as unfounded. In court proceedings, the parties reached a compromise and a positive solution for the contractor.”

PwC Legal’s team included Managing Partner Karin Marosov and Attorneys Jana Tudelep and Ingeri-Helena Kakko.

PwC Legal has advised the eAgronom start-up on the spin-off transaction of blockchain-based carbon credit trader Solid World DAO, as a decentralized autonomous organization.

According to PwC Legal, “eAgronom helps farmers become greener and create certified high-quality carbon credits, which have a global demand that is outstripping supply. Companies can voluntarily use carbon credits to reduce their carbon footprint or bring it to zero and thus help stop climate change. The use of credits is particularly important for companies that have set themselves the target of meeting ESG goals. eAgronom is the first carbon credit program in Central and Eastern Europe that is included in the register of the world’s largest certifier Verra.”

According to the firm, “eAgronom currently operates the fastest growing certified carbon credit program for farmers in the world. The course of rapid growth also saw the creation of the blockchain-based initiative Solid World DAO, in order to facilitate investments in carbon credits. The decision to separate the two business lines came after consulting the world’s leading web3 advisors and funds. A spin-off further increases the potential and focus of both ventures and avoids conflicts of interest. Solid World DAO aims to simplify the trading of carbon credits and make the market safer and more attractive through a decentralized autonomous organization. Solid World DAO is building the world’s first public good infrastructure for pre-purchased but not yet certified carbon credits. This will increase investment in carbon credit projects and, in turn, helps to stop climate change.”

PwC Legal’s team included Partners Priit Latt and Indrek Ergma, Head of Financial Transactions and Capital Markets Kirill Lezeiko, and Lawyer Taivo Liivak.

Sorainen has advised Estonia-based startup 99math on its USD 2.1 million investment round led by Play Ventures, with existing shareholders Flyer One Ventures and Change Ventures participating.

According to Sorainen, “99math has a multiplayer math game that teachers use in classrooms around the world. Together, students in 99math have solved over 600 million math problems, or three million per day, within the last three years. It turns out one of the tricks to getting children into math is to get them to compete with each other in the classroom.”

“We have an extremely exciting fan base, but we are still small in the United States,” 99math CEO Tonis Kusmin commented. “We have a tiny fraction of the 40 million kids. So we are taking the product to more users. And we are improving the classroom experience. We’re already quite good there. And the third mission is building out the full home game.”

Sorainen previously advised 99math on its USD 1 million investment round with Genesis Investments, Change Ventures, and five angel investors (as reported by CEE Legal Matters on August 19, 2021).

The Sorainen team was led by Counsel Lauri Liivat and included Partner Toomas Prangli and Associates Vladislav Leiri and Kristi Tammiku.