Category: Deal 5

On December 7th, 2016, CEE Legal Matters reported that AmRest Holdings had acquired 15 KFC restaurants and the license to operate and develop the KFC brand in Germany. We invited Dawid Ksiazcziak, Chief Legal officer for AmRest Holdings, to reflect on the KFC acquisitions.

CEELM: To facilitate this deal, did you and your team have to interact with the seller alone, or did you need to negotiate with KFC as well for licensing purposes?

D.K: Our team interacted directly with the seller (YUM!, brand owner of KFC), with whom we negotiated the acquisition of their KFC equity restaurants and new franchise agreements for the acquired stores and the development incentive agreement for entire German market. AmRest’s in-house legal team for this deal apart from myself consisted of Joana Johannsen, Head of Legal Germany, and Patrycja Pruchnicka, Legal Manager of the Polish team. We were supported by a Dentons team led by Till Bushman.

CEELM: The transaction did not close immediately. Why not?

D.K: At the moment of conducting this interview, the transaction is already closed, and it happened as planned on March 1st, 2017. The main reason for delayed closing was the necessity to fulfill certain conditions precedent, such as the obtaining of merger control clearance from German authorities, re-granting personal permits issued for the target business, negotiation and execution of a transitional service agreement with seller, and so on. Also, between the signing and closing AmRest had to set up a full internal support structure in Germany to be able to smoothly take over the acquired restaurants and continue its operations without any break.

CEELM: In what way, if any, was working on these deals different from your previous acquisition of Starbucks’ German subsidiary, or, in a deal we reported on in 2015, the acquisition of the Starbucks franchises in Romania and Bulgaria?

D.K: The KFC acquisition in Germany was a so-called “asset deal” while Starbucks transactions in Germany, Romania, and Bulgaria were structured as acquisition of shares in existing companies. An asset deal structure requires a different approach to due diligence and transactional work. In essence the buyer is taking over only the assets of restaurants and related contracts plus employees and is not assuming from the seller historical liabilities related to the pre-closing period. On one hand it has the advantage of simplifying the buyer’s legal position in negotiations with the seller in comparison to share deals, while on the other hand it requires much more detailed work in certain areas. For example, as mentioned already, AmRest has to set up a full support structure in Germany (including incorporation of new legal entity) from scratch to be able to operate the acquired business. In the previous Starbucks deals it was not necessary as we bought existing companies with offices and a full support team.

CEELM: In our previous Deal 5 interview you told us that you opted for Dentons because the firm “was simply the best in every aspect we took into consideration to make a final choice of legal advisor.” For the subsequent two deals in Germany, did you run a new tender, or did you opt for the firm again based on a positive experience? If a tender, what makes their proposals stand out in your view, and, if it was a pick based on your experience, what elements did the firm excel in to make you want to use them again?

D.K: We were extremely pleased with Dentons’ services in Starbucks’ Romania and Bulgaria acquisitions. Based on that experience we asked Dentons to participate in our tender process for a legal advisor in Starbucks’ Germany transaction. Dentons’ offer again turned out to b the best of all we received and we engaged them for the Starbucks deal. Till Bushman and his team definitely stood up to the challenge and did an excellent job — their support was vital in achieving a successful closing of this complex transaction. So, when the KFC opportunity appeared in Germany we engaged them quickly again, this time without running a tender process. Working with Till and Dentons’ team on both transactions was a pleasure. Not only because they are experienced legal professionals who know all the in-and-outs of M&A work — very dedicated, always available, and extremely efficient — but also because of great personal chemistry with our in-house team and a good fit with our unique organizational culture at AmRest.

CEELM: As a CEE-based restaurant operator, what regulatory differences or similarities do you experience in doing business particularly in Germany?

D.K: Actually, from my legal perspective I see many similarities in doing business in Germany and other CEE countries we operate in. As result of the unification of laws within the EU, many legal aspects of operating the restaurant business are similar, which enables our in-house legal teams in various European countries to share best practices and legal solutions freely. A contract template or legal procedure developed in Poland or Czech will usually work quite well, with some modifications, also in Germany, Austria, or Hungary — and vice-versa. For me the biggest difference between Germany and other CEE markets is the quite heavily-regulated labor law and the role of works councils in day-to-day operations and making business decisions.

From a purely transactional/deal perspective, having recently made several transactions across Europe (apart from those already mentioned above also acquisition of Pizza Hut equity and franchised restaurants in France, the acquisition of 42 KFC restaurants in France, and the acquisition of Pizza Hut in Germany) I find doing M&As in Germany to be very efficient, well-organized, and transparent from a legal standpoint.

On June 2, 2017, CEE Legal Matters reported that regional used car dealership AAA Auto International had negotiated the refinancing of the acquisition of its entire group from CSOB. Jan Siroky, Senior Lawyer for AAA Auto International, agreed to comment on the deal.

CEELM: Clifford Chance reported to CEE Legal Matters that its Prague team had “provided advice under Czech and Slovak law as well as coordinating the services of external counsel in Cyprus.” Which law firm was that in Cyprus and what tasks were delegated to it? Were you involved in selecting the counsel in Cyprus? Why was Cypriot assistance necessary?

J.S: The Cypriot legal counsels were Deloitte Legal. Their task was only to prepare capacity legal opinion, which requires a renowned law office acceptable to the bank. Actually, there was no shopping, the parent company Mototech Holdings Limited (a Cypriot company) and other companies belonging to Abris Capital Partners (our ultimate private equity owner) residing in Cyprus use this office for these tasks on a regular basis. The capacity legal opinion was a CP (condition precedent) for utilization of loan facilities under the Facilities Agreement, so it was necessary.

CEELM: Milos Felgr referred to AAA Auto International’s “clear objectives” in the refinancing. How and why did the company set those objectives?

J.S: Our “clear objectives” were based on our experience from living with a previous version of the Facilities Agreement with the same bank.

In 2014, Mr. Anthony James Denny, the founder of AAA Auto, sold the group to Abris Capital Partners, a private equity fund. Abris intended to finance the acquisition through LBO (leveraged buy out), i.e. substantially from a loan provided by a bank, which would be ultimately repaid from the target (after a merger between the acquiring SPV and the target).

In 2014, Abris was not known on the Czech banking market, and the only bank which was able to provide the financing was Ceskoslovenska obchodni banka (CSOB), of course as a leading member (arranger) of a bank syndicate. Even now, we believe that CSOB is the most pro-business bank on the Czech market and we are grateful for the cooperation with them and their attitude. However, the financing was then quite expensive (high above average margin) and the general undertakings and financial covenants were quite strict and harsh on us.

During the negotiation of the original Facilities Agreement, AAA Auto had no experience with such a type of contract and our internal teams (finance and legal) were not able to negotiate the necessary exemptions and provisos from the vast scope of covenants that were micro-managing every aspect of our activities. On top of that, I was new to the company and did not know its business in detail. Maybe, the banks would not have been ready to listen at that time as well.

Accordingly, within the next two years, we had to repeatedly ask the banks for extensive waivers on third party financing (including provision of security) necessary for our car stock financing, disposal of property, CAPEX limit overrun, and so on. Fortunately, CSOB always listened patiently and our requests were well reasoned, so we succeeded almost every time (sometimes on a second attempt).

In the meantime, CSOB established a rapport with us and understood that AAA Auto is a pretty usual and creditworthy company. At the beginning of 2017, AAA Auto and CSOB (both without involvement of external legal or other counsels) negotiated a term sheet of a new contract, which promised decreasing the interest margin to a current standard market level and provision of a requisite flexibility for our business activities. 

So our objectives were cheaper financing and flexibility (the overall ability to do our business as usual with no need to ask the banks for any waivers), plus an increase of funds for our operations both from banks (a revolving line) and our third party partners. All were achieved as desired, even though it took some negotiation to implement the principles into meaningful and effective contract provisions.

Unfortunately, the bank insisted that we conclude a new facilities agreement, not just an amendment. So we actually refinanced with substantially the same banking club, which entailed a release of the old security and re-pledging of all our assets again.

CEELM: How did you manage your external counsel in this case? How were the roles/responsibilities divided, how frequent was the communication, and so on?

J.S: We instructed Clifford Chance on our focus in this transaction – we only needed to transform the term sheet into the contract and we did not want to open purely abstract legal provisions with no impact on our operations.

The agreement was redrafted by White and Case, who have been working for CSOB (but were paid from us) from the very beginning, so they drafted the original contract in 2014 and were involved in all our later discussions on waivers with the bank. Our AAA Auto team (involving one lawyer and two people from the financial department, plus the financial director in later stages) reviewed the drafts from White and Case in the first place, then I made a quick redraft of the contract and sent it over with our further comments to Cliffords, who were to polish it and elaborate on revisions of purely legal terms (in a pre-agreed extent). They of course consulted with us regarding their legal comments, so the final version was always pre-approved. Then they provided the counter-party with our consolidated comments. So the AAA’s team mostly focused on the matter and business substance and Cliffords on the form and legal standards. Their tasks further involved reviewing the hedging documentation, pledge documentation (just selected issues), corporate approvals and preparing the capacity legal opinion on Czech and Slovak entities. Cliffords were also proactive, so helped us to improve some terms beyond our earlier expectations.

The frequency of our communication was as needed, actually quite low and mostly via quick call (I prefer it) – all of us knew our roles and everyone played them well.

CEELM: How big is the legal team at AAA Auto International, and where are they located?

J.S: Our legal team consists of four experienced senior advocates sitting in the Prague headquarters, so we are able to independently handle almost all legal matters. In addition, we have two lawyers in Slovakia and one in Poland and Hungary, where we run our branches as well.

We only outsource special tasks – such as legal consultancy relating to M&A, where it is necessary given transaction’s value, stakes and the complexity (mostly involving more jurisdictions). However, the experience of our in-house lawyers enables us to efficiently manage the external lawyers.

CEELM: You’ve commented that, “we selected Clifford Chance based on their excellent performance when advising AAA AUTO Group on its disposal in 2014.” Do you have a formal performance evaluation system in place for external counsel? How does it work?

J.S: Yes, it is mostly a beauty contest (smiles). It’s not a science, we cooperate with about firms – both Czech and international law firms residing in Prague (plus a few others in other countries) – and we pick up one of them as needed for the task at hand. Sometimes we add one more to our list, when needed. Our choice is always driven by the specialization of their teams – we always focus on effectivity and a smooth cooperation with our legal department.

A previous cooperation with us on a similar or related transaction is always reflected, as it cuts down the need to provide long explanations. Only exceptionally do we let them bid and then compare their prices. Despite that, we know that we always get pretty decent fee quotes.

In other words, once we need the external lawyers, we require skilled and cost efficient lawyers who will not complicate the deal for us or our partner, and we always reflect our previous experience. Our approach must be right, as we have always been satisfied so far.

On May 3, 2017, CEE Legal Matters reported that facility management company Mundus Services – a joint venture of EMPower Capital and KJK Capital – had acquired engineering solutions and services company VM Automation from VM Finance Group in Bulgaria. Stanislav Nikolaev, Operating Partner for EMPower Capital, agreed to answer our questions about the deal.

CEELM: Mundus Services is a JV of Empower Capital and KJK Capital. Was KJK Capital involved in the acquisition and what was their role in the process?

S.N: Just to clarify, KJK (42.5%) and Empower Capital (42.5%) are partners in Mundus Services along with Mr. Lachezar Petrov (15%) – founder of Viki Comfort, one of the companies initially acquired by the JV. The two funds have two representatives each on the Board of Directors and we are all equally involved in the strategic management of Mundus Services, including in the process of acquiring VM Automation: Negotiations, valuation, due diligence, etc.

CEELM: According to a DGKV press release, “the acquisition of VM Automation will add technical capabilities to Mundus’s portfolio.” Can you describe what those technical capabilities are, exactly?

S.N: VM Automation is a leader in providing engineering solutions and services for energy efficiency and automation for enterprises and office buildings in the fields of industrial and domestic air conditioning, heating and ventilation, refrigeration equipment, backup and uninterruptible power supply (UPS and diesel / gas generators), and precision air conditioning technology for data centers, clean rooms, and infrared heating. The company offers complete engineering including investment consulting, technical management, design, supply and installation of complex solutions, and commissioning, warranty and post warranty maintenance of equipment. VM Automation delivers a wide range of maintenance & repair services for all types of equipment, as well as the supply of genuine spare parts, which minimizes the risk of breakdowns and equipment failure. The company is the official service center in Bulgaria of Johnson Controls, YORK, EATON, Systemair, Sital Klima, Riello UPS, SDMO, Alimar, SABROE, VIVAX, among others.

CEELM: How did you decide to work with DGKV on this acquisition?

SN: Based on our experience DGKV is our preferred and most reliable partner for legal due diligence, legal advisory, and documentation preparation. Mundus Services was creation originally from the acquisition of two companies, and subsequently expanded with two more acquisitions. DGKV were involved with Mundus from the initial stages of due diligence and of the establishment of Mundus Services. In this particular case we started working with DGKV since the setup of the JV and the natural choice was to continue this cooperation on the acquisition of VM Automation. We are convinced that DGKV are the go-to legal firm for complex transactions like this.

CEELM: DGKV assisted you in the negotiation process. What exactly was the firm’s role? Did it lead the negotiations, or focus more on the drafting and documentation while you led the actual negotiations?

S.N: We, the two funds, were leading the negotiations, while DGKV assisted us during the process and of course they took care of drafting all the necessary documentation.

CEELM: Do you intend to establish an in-house legal function for the company in the near future? Is there any advantage when CEOs/COOs manage the external counsel directly over the in-house lawyer?

S.N: No, at this stage we do not consider the option to establish an in-house legal function, because we don’t need it. The question about the advantage when CEO/COO manage the external counsel seems too broad to me, because it all depends on the nature and the size of the business. For daily, routine legal issues we can indeed rely on an in-house lawyer, but when it comes to more complicated and serious problems like preparing transaction documentation, court cases or negotiations, we consider it appropriate and less time-consuming for the decision making process if the CEO/COO liaise directly or work closely with the external counsel.

On November 18, 2016, CEE Legal Matters reported that Eesti Energia AS had issued EUR 500 million bonds, which were listed on London Stock Exchange. We reached out to Ivar Kurvits, who acted as the General Counsel at Eesti Energia at the time of the transaction (he is currently General Counsel at AS Inbank), to comment on the deal.

CEELM: This EUR 500 million bond issuance was reported to be the largest in Eesti Energia’s history. What concrete plans was this bond issuance made for?

I.K: The main aim of such a large bond issuance for Eesti Energia AS was to use the favorable interest rates that were offered by the market at that time and to reduce the cost of financing for Eesti Energia AS by refinancing the previous bond issuances which carried a higher interest rate. Also the MEUR 500 bond issuance allowed us to reduce the risk related to the number of refinancing events scheduled to take place within the next five years.

CEELM: Where there any particular challenges that arose due to the value that you haven’t faced before?

I.K: I don’t believe that there were any particular challenges related to the legal work due to the size of the issuance itself. The truth of the matter is that it really doesn’t matter whether it is a MEUR 100 or a MEUR 500 bond issuance from the legal perspective as the rules and requirements which have to be fulfilled and ticked are essentially the same.

However from the commercial perspective there is a big difference whether you do a MEUR 100, MEUR 200, or a MEUR 500 issuance. The MEUR 500 issuance requires the banks to be able to find a much larger pool of interested parties to participate in the issuance. This also limits the number of regional banks (in addition to international book runners) which have the ability to take part in the transactions. Also combing the new issuance of MEUR 500 with the simultaneous buyback of already existing bonds requires good relationships with the current bondholders, [so one can] explain the rationale behind such offers in order to make it all happen and run as smoothly as possible when the morning brakes.

CEELM: According to Ellex, “concurrently with the issuing of the new notes Eesti Energia AS bought back EUR 248 million worth of bonds with a maturity date in 2018 and EUR 193.7 million worth of bonds with a maturity date in 2023.” Did Ellex advise on that earlier issuance as well? Why did you choose to work with them?

I.K: Before going ahead with the preparation of the MEUR 500 issuance we discussed internally the possible ways of including alternative external legal counsels for these transactions. However, we quickly realized that in order to have a smooth process, it would be logical and cost efficient to have the same external legal counsels advising us on both transactions. The whole MEUR 500 bond issue was so connected with both of these transactions that it made a lot of sense to use the same external legal counsel.

CEELM: What were the considerations for which you led you to list the bonds on the Regulated Market of the London Stock Exchange?

I.K: Ultimately there were two options for the location of the listing of the bonds. Either list some of the bonds also on the NASDAQ OMX Tallinn Stock Exchange or continue with previous practice and go ahead with the full listing at the London Stock Exchange. The choice fell for the full listing at the London Stock Exchange mainly for two reasons: The depth of the market required for a MEUR 500 bond issuance and the lower fees related to the issuance.

CEELM: How did you split the legal work between your in-house team and your external counsel on this matter?

I.K: When it came to the division of work between our in-house team and the external legal counsels then we opted to use a similar approach to that we had used in previous cases. As the agreements were governed by English law our international legal counsel held the pen when negotiating these agreements with the arranging banks and other institutions. The local external counsel was in charge of reviewing the agreements with respect to local legislative requirements. The main focus of the in-house legal team was on the Prospectus — namely drafting various parts of it in cooperation with the internal business and finance team which provided commercial input for the whole document. I believe that such a division of responsibilities between internal and external legal counsel provides a good balance. There are always issues which have to be taken care of by the external international legal counsel already because of the governing legislation. Then again, the real essence of the business is best known and understood by the people working for the issuer itself. That part is reflected in the Prospectus itself.

On March 13, 2017, CEELM reported that Arcus Infrastructure Partners, an independent fund manager specializing in European infrastructure, had acquired an 85% stake in Gdansk Transport Company S.A., established to work on AmberOne A1 motorway concession in Poland. We invited Toby Smith, the General Counsel for Arcus Infrastructure Partners, to share his thoughts on the company’s first transaction in Poland.

CEELM: The acquisition was performed in multiple steps, involving Arcus’s acquisition of NDI Autostrada sp. z o.o., from Grupa NDI and Transport Infrastructure Investment Company, and NDIA’s exercise of its right of first refusal on A1 Invest AB Skanska’s 30% stake and on John Laing Infrastructure Limited’s 29.7% interest in GTC. That sounds especially challenging. Was any one part of that process more complicated than others, or was the entire transaction relatively straight-forward?

T.S: There was significant complexity in the early stages of the transaction in the analysis of the existing agreements, particularly the Shareholders’ Agreement governing GTC, to determine the rights available to the various shareholders in connection with a proposed sale process.  The analysis of the concession agreement for the A1 and the finance documents was also quite complex in determining the required third party consent thresholds and applicable transfer restrictions.  Finally, the process of negotiating and documenting the arrangements with the sellers of NDI Autostrada, while conducted in a very constructive manner by all parties, involved significant complexity, particularly in structuring the conditions to procure the exercise by NDI Autostrada of its applicable rights with regard to the other two sale processes. Having completed the acquisition of NDI Autostrada and served the applicable acceptance notices on Skanska and John Laing, the other two acquisitions were conducted in accordance with the Shareholders’ Agreement and were relatively straightforward.

Arcus has significant experience and expertise in the origination, evaluation, and execution of complex transactions and was therefore well-equipped to address the complex issues as they arose.

CEELM: The transaction was Arcus’s first in Poland. Did conducting the transaction in Poland involve any unique challenges or conveniences over previous deals in other markets? Was there anything specific to the jurisdiction that caught your attention?

T.S: There is always complexity arising from the interpretation of complex legal documents that are governed by the laws of an unfamiliar jurisdiction. To that extent, there were certain unique challenges, however, Hogan Lovells (principally, Tomasz Zak, Marek Wroniak, and Mateusz Mazurkiewicz) did a very good job of guiding us through the process. One specific feature that was slightly unfamiliar on the legal side was the level of administration associated with the execution of documents (including the extensive notarization requirements) but, as noted, this is an administrative rather than substantive point. On the commercial side, Arcus is very experienced in executing infrastructure transactions in different European jurisdictions (and with counter-parties from across Europe) and I wouldn’t say there were unique challenges in this regard that were specific to doing a deal in Poland.

CEELM: Hogan Lovells reported that it led and coordinated all three transactions. In what capacity were you and your legal team involved? In other words, what parts of the process did you outsource and what parts did you retain in-house?

T.S: We were involved at a very early stage in the transaction, prior to the appointment of Hogan Lovells. At the outset, we negotiated a non-disclosure agreement with the sellers of NDI Autostrada and, subsequently, an exclusivity agreement. We also prepared (in-house) a draft SPA term sheet. We instructed Hogan Lovells at term sheet stage and they assumed the lead role in the legal due diligence, drafting of all key transaction documents and the legal coordination of the three transactions. We worked very closely with them in reviewing and negotiating the terms of the transaction documents and coordinating matters at our end. We also took the lead role (with the assistance of separate external counsel) in putting in place the arrangements with our underlying investor, APG.

CEELM: What is your general take-away from this deal — from the process of working on it?

T.S: As noted above, the transaction was conducted in a very constructive manner by all parties and their respective advisers, with everyone working together to resolve complex issues as they arose. We believe that the transaction represents a very good outcome, that will enable us to use our transportation asset management expertise for the benefit of the A1 motorway stakeholders. We are very pleased to have completed our first transaction in Poland and are interested in pursuing further opportunities in the region.

CEELM: What metrics did you apply in selecting Hogan Lovells as external counsel for this deal? Why did you ultimately choose to work with them?

T.S: We have worked extensively with Hogan Lovells in London (principally Steven Bryan) and have a strong relationship with the firm. We were aware from our own research of their expertise in Poland and their familiarity with the A1 from previous transactions. We were keen to work with an international firm as the transaction involved both Polish and English law aspects. We ran a process obtaining quotes from two firms and, in our view, Hogan Lovells had the most relevant experience, a clear capability to advise on the transaction and provided a competitive fee quote. We enjoyed working with the Hogan Lovells team on the transaction and were very pleased with the work undertaken.

On January 18, 2017, CEELM reported that CBRE Global Investors had sold its significant CEE retail portfolio to the CPI Property Group. On April 12th, we published an interview with the General Counsel at CPI, and now we present the perspective of Roland Bebcak, the Head of Divestments CEE at CBRE Global Investors.

CEELM: Your external counsel on the deal, Clifford Chance, described the deal as“the biggest retail real-estate transaction ever to have been completed in the region.” What legal and regulatory complexities did the deal entail and how did you manage to solve them?

R.B: I believe this is the most complex pure, predominantly retail, real-estate transaction to have been completed in the relatively short history of commercial real estate in the CEE region. The entire transaction was initiated a year ago with the preparation of the international tender. The portfolio’s assets are located in four different jurisdictions and the sellers are based in a further two jurisdictions. All assets were sold in the form of share deals, meaning that the deal transcended real estate law to also concern the sale of company shares. This in turn required complex due diligence of the SPVs involved. We had to seek antimonopoly clearance in the Czech Republic and Hungary, and the buyer had to arrange for full W&I and title insurance. Financing for the transaction was provided by one syndicate of four banks, another club of two banks and two stand-alone refinancing.

CEELM: Clifford Chance described you as “the deal manager putting the deal together.” Did your in-house team provide any other assistance on the matter, or was all work outsourced to Clifford Chance?

R.B: I enlisted our in-house counsel to assist me with all matters of internal compliance and a review of all binding sale documents and internal documentation. I outsourced all other legal work to Clifford Chance, who assisted me by providing their expertise in all fields of law and all of the jurisdictions mentioned above. I really enjoyed cooperating with Emil Holub and Aneta Sosnovcova, who lead Clifford Chance’s legal advisory team.

CEELM: Who was responsible for selecting the external counsel on this matter? Why was Clifford Chance chosen?

R.B: I launched an international legal tender soliciting the assistance of top-tier legal advisors who could offer a sufficiently broad range of services and vast expertise, combined with an on-the-ground presence in each jurisdiction, either through a local branch or a proven affiliated local law firm. The offer submitted by Clifford Chance ticked all the boxes and the firm’s proven track record was the decisive factor in making me recommend Clifford Chance as the front-runner for this task.

CEELM: What impact is this divestment expected to have on the operations of CBRE Global Investors?

R.B: The portfolio belonged to two investment vehicles with a focus on the CEE region. These investment funds were founded in 2004 and 2006, and reached their end-of-life and redemption date, respectively. By decision of the investors, I started the project of divesting the vast majority of the assets in these funds in early 2015. The volume of assets to be divested totalled EUR 1.5 billion. This sale is a part of the activity planned for the CEE region this year and we will be active on both the buy and sell side going forward.

CEELM: Were you personally involved in the negotiations with the buyer? What were the most challenging aspects of the negotiations?

R.B: I took part in all negotiations from day one of the project. Aside from the deal’s very competitive bidding stage, which was structured into three elimination phases, I found the most crucial and complex part of the deal to be the due diligence process and the negotiations surrounding the transfer documentation. We had to conduct the due diligence process simultaneously in four countries concerning eleven assets, with all due diligence processes covering legal, commercial, tax, financial, technical, environmental and other matters. We provided tens of thousands of documents and had to respond to thousands of questions as part of the regular Q&A, while at the same time having to stay on top of the overall impact such disclosure of information had on the deal. I must admit that, looking back, I am enormously grateful to the buyer’s team, which was always on top of the issues being discussed and were able to set priorities and maintain a reasonable approach. In addition, I would again like to warmly thank the team led by Tomas Salajka on the side of CPI. Closing this complex cross-border real-estate transaction in such a short period of time has been a genuine achievement on the part of the internal teams and external advisors across the CEE region, as well as in Luxembourg and the Netherlands, and I would like to express my sincere gratitude to everyone involved. Special thanks go to Aneta Sosnovcova at Clifford Chance for the tremendous effort she put in managing the cooperation across all six jurisdictions on our side, and for the intense cooperation with the buyer’s lawyers to get all documents in on time.

On January 18, 2017, CEELM reported that CPI Property Group had acquired a high quality retail portfolio, including 11 shopping centers across CEE, from CBRE Global Investors. As soon as the transaction was closed on March 29, 2017, Martin Matula, the General Counsel at CPI Property Group, agreed to share his thoughts on the deal with us.*

CEELM: What legal and regulatory complexities did this cross-border transaction entail and how did you manage to solve them?

M.M: This EUR 650 million acquisition might be the biggest real estate deal completed in the CEE region this year.  It was demanding due to size of the acquired portfolio and the multiple jurisdictions of the target assets, but also due to the high number of parties and advisors involved.  The most challenging part was to centralize all participants to achieve effective negotiations and closing mechanics.       

CEELM: Did you have full discretion to select your external counsel yourself? Why did you select Dentons?

M.M: We went through a thorough selection process for the external counsels to ensure that we received the best service for a transaction of such importance. We chose Dentons due to our past experience and also because of their strong presence in all jurisdictions related to this deal. Last not least we also relied on Evan Lazar’s direct involvement. He personally led the negotiations and significantly influenced the overall process. 

Jitka Bortlickova of AK Rybar, Soppe & Partners also helped substantially on our side. With respect to competition aspects of the acquisition we mandated Kinstellar. We have been very satisfied with our external counsels involved in this transaction.      

CEELM: Who all from your internal in-house team worked on the deal, and what were their responsibilities?

M.M: Tamas Pasztor from our Budapest office did a very good job on financing of the Hungarian assets. 

CEELM: What impact is this acquisition expected to have on CPI’s legal team? Do you expect new responsibilities or colleagues to join the team?

M.M: Given that we acquired assets that are in operation, our goal is to ensure smooth transfer and continuous operation of the shopping centers.  As such, we are taking over the current external counsels working for the respective assets. Within next 3-6 months we will review their performance and evaluate whether we will continue on external basis or if we integrate legal services for the new assets in house. In case we choose the in-house option, we will have to strengthen our teams in Hungary and Poland.

CEELM: What aspects of the negotiations would you describe as most challenging?

M.M: The size of the transaction brought many complexities. The negotiation and organization of the financing was the most challenging due to a large number of banks involved. Thankfully all parties showed high motivation and competence, such that we accomplished the successful closing.  

* Our Deal 5 interview with the Deal Manager from CBRE Global Investors is coming up next week. Read that story to get the seller’s perspective on the transaction.

On February 16, 2017, CEELM reported that GTC Real Estate Development had sold the Sasad Resort, an almost-completed residential project in Budapest, to Futureal, the largest real estate developer in Hungary. We reached out to Viktoria Molnar, Legal Counsel at GTC Hungary, for information about the deal.

CEELM: Robert Snow, the CEO of GTC Hungary, has said that “GTC is no longer involved with residential development projects.” When and why did GTC change its strategic focus?

V.M: It is mainly related to the change in the corporate structure of GTC group. Lone Star Funds became a shareholder of GTC Poland in 2013 and in 2015 raised its stake within the group by becoming the majority shareholder of the Polish company. The main investor of the group is more involved in commercial projects than in residential, therefore, the main focus of GTC group simply adapted.

CEELM: Why did GTC decide to sell the Sasad Resort rather than continue to manage the project?

V.M: The reason is mainly the change of focus I mentioned. GTC decided to sell Sasad Resort to the very reputable Futureal Group, an acknowledged actor of residential business, therefore, GTC wanted to make sure to leave its project in good hands.

CEELM: What aspects of structuring the sale agreement required most of your attention and time?

V.M: The sale and purchase agreement itself was mainly drafted and structured by Dentons, GTC’s outside counsel. I had a managerial position during the transaction, keeping an eye on the whole process to lead it smoothly, so I was the link between Dentons and CMS, which advised the buyer Futureal. We worked closely together on CPs, on transaction documents, and also on closing. I was also responsible for drafting and executing the property sale and purchase agreements within the Sasad project.

CEELM: What external counsel selection system does GTC apply? Did you have full discretion to choose your counsel personally? Why was Dentons selected?

V.M: Selecting Dentons was a mutual decision made together with the management. GTC has often involved Dentons in real estate transactions, and GTC has trust in Dentons’ real estate team, which is led by Judit Kovari, who is no doubt one of the most experienced transactional lawyers in the market. Thus, Dentons was chosen this time as well, after having examined of course proposals from other reputable law firms.

CEELM: What implications does the change in GTC’s focus have for the workload/type of tasks for your legal team?

V.M: I joined GTC when rather commercial real estate projects had already become common. I believe commercial projects brought three main new aspects: First of all, although in residential business the main purpose is the sale of properties, in the commercial market it is more the leasing of the properties, which obviously brings in drafting of lease agreements and negotiation of such deals. Thus, besides representing GTC during the deals, I make efforts to find the middle way to hear future tenants’ requests as well, because it is in GTC’s interest to conclude deals which make its clients happy to be able to create and maintain a prosperous and long term business relationship with them. Second, with commercial real estate projects I work closely with reputable agencies, so drafting of agency agreements and negotiating the deals also form an integral part of my work. Finally, commercial projects involve construction agreements, so many different requirements need to be taken into consideration during the drafting work.

On February 6th, 2017, CEELM reported that Ellex had advised AS Eesti Loto, the Estonian operator of the Bingo Loto, Keno Loto, Viking Loto, and Eurojackpot, on the recent completion of a procurement procedure in order to set up a new internal central information system designed to last for seven years. Heiki Kranich, the Chairman of the Management Board at AS Eesti Loto, agreed to explain how the procurement system was designed.

CEELM: What will the new central information system be used to and why particularly for seven years?

H.K: Central system is the core engine for a lottery business. All tickets, draws, players’ data, financials etc. are created, stored and managed in the central system. Seven years is usually the optimal time during which the business needs and available technological solutions have changed significantly in order to renew or replace the central system.

CEELM: What other procedures did you consider? What were the specific recommendations made by Ellex that led to the choice of the “a two-stage procurement procedure”?

H.K: Our expectation in the process of preparation of this procurement was not only to have a new central system but also to find new ideas. In other procurement processes you would have to describe your wishes in full detail upfront and you only get what you ask for. However, with the two-stage procurement procedure you have a  proposal of ideas first, which might allow you to learn something new that you didn’t know to ask before. The two-stage procurement procedure was proposed by Ellex Raidla as a procedure which helps in the best possible way to meet our needs and expectations.

CEELM: What were your key requirements to the bidders? What was it about the proposal of Novomatic Lottery Solutions that made them stand out from other applicants?

H.K: In addition to the usual requirements regarding financial and economic standing and technical and professional competence, we paid special attention to the modern architecture, openness of the platform, configuration flexibility, and the application of the conceptual design to the functional needs of AS Eesti Loto. Of course, the ratio between the expected cost of the proposed conceptual design and its functional coverage and capabilities were of major importance. The proposal from NLS was chosen as it received the highest total score according to our comprehensive evaluation criteria.

CEELM: In light of the two-step process, how were negotiations influenced by the design of the contest? Did it help to have the pool narrowed or did you find the results of the contest restrictive in the negotiations stage?

H.K: The procurement procedure chosen by us was not restrictive and did not narrow the pool in any way. Moreover, this would not have been in our best interests. This is evidenced by the fact that all important players on this market participated in the procurement.

At the same time the chosen procedure gave us the flexibility and allowed us to specify some important aspects in more detail during the procedure to avoid possible misunderstandings in the later stages.

CEELM: Why did you choose to work with Ellex Raidla on this matter?

H.K: AS Eesti Loto needed a leading law firm with extensive previous experience throughout the whole procurement process, since the project was big and has a key importance for our company. Ellex Raidla has leading experts in the field and extensive previous experience drafting procurement documents, consulting and carrying out complicated procurement procedures, drafting procurement contracts, and representing clients in procurement-related disputes. Taking this and the long term positive cooperation with the firm into account, AS Eesti Loto decided to use the services of Ellex Raidla for the project.

On January 13th, 2017, CEELM reported that Skanska had handed over its Nordic Light office complex in Budapest to Erste Alapkezelo Zrt. We invited Gabriella Delcsev, the Legal Manager at Skanska Hungary, to describe her team’s work on the divestment.  

CEELM: What were the main aspects you and your in-house legal team dealt with during the sale of the Nordic Light office complex in Budapest? Was this specific transaction different in any way from others you have worked on?

G.D: Skanska has its own CEE divestment standard, created based on its entire experience related to transactions, and this was followed closely. For each divestment Skanska sets up transaction teams, with dedicated members. In case of Nordic Light the team was coordinated by Mr. Adrian Karczewicz, Skanska CDE Transactions Director, and me.

CEELM: What was Dentons’ mandate in this sale?

G.D: Dentons represented Skanska from the seller’s legal perspective, from signing the Letter of Intent, through legal Due Diligence, until signing of the Sales and Purchase Agreement, advising on legal aspects of the transaction and drafting the documents.

CEELM: We have reported on several Skanska deals in the past and different law firms were involved in each of them. Does the company have a panel of preferred firms to work with or do you select firms on a one-off basis for each deal?

G.D: Dentons was chosen to advise us in Nordic Light’s divestment process after the tendering that we did with this scope.

CEELM: Why did you opt to use Dentons on this specific matter?

G.D: We are eager to collaborate with companies from all over the world, always having in mind our values. It is important for us to find partners that share the same values, have high-professional experience in the field that they are acting in and support us in delivering the best value in our projects.

CEELM: Did this transaction involve law elements from other jurisdictions or was it purely based on Hungarian law? Did Skanska offices in other jurisdictions assist or consult with you on this transaction in any way?

G.D: The transaction was made under Hungarian law, therefore legally speaking, Skanska offices in other jurisdiction were not involved in the divestment. What we do have, as mentioned also previously, is a mixed and dedicated team for this kind of projects.