Category: In-house

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.

On December 9, 2016, CEELM reported that A&D Pharma Group acquired 78 pharmacies from Sibpharmamed in Romania. We invited Mihaela Scarlatescu, Head of Legal and Compliance at A&D Pharma, to explain how the transaction was realized.

CEELM: According to PeliFilip, who advised A&D on the deal, the transaction was “very complex.” Could you elaborate on what made it so?

M.S: In the pharma retail business, the economic and commercial environment is in continuous movement, being challenging by its nature. Development and business both increase by acquisition of a new chain of pharmacies, and its integration into the already existing business is not a one-day task. It requires full commitment from all available resources and professionalism from all those engaged into the transaction: operational, finance, legal and regulatory, HR.

The acquisition of the Polisano pharmacy chain was particularly complex because of Polisano Holding’s position on the market, which included: high financial risk, insolvency announced by Polisano’s distribution business line; and several pledges against Polisano’ business. All these aspects together with other ones that were not so difficult to mitigate were a real and tumultuous challenge which our team and our collaborators had to encounter and had to solve with no risks for Sensiblu.

CEELM: Why did you opt for PeliFilip as the firm to assist you in this deal?

M.S: We search on the market and we chose to work with one of the best on the market; one for which professionalism and trustworthy are values of doing business. Considering the transaction volume, risks and required resources, we knew we needed an external counseling team of lawyers who were strongly business oriented, proactive, and open to accept the challenge.

CEELM: Why did you prefer to lead the negotiations team yourself rather than relying on your external counsel?

The external counsel does have more experience in similar transactions, but the know-how of Sensiblu business and its particularities, needs, and expectations were known by the in-house legal team. The synergy created was the best recipe starting with the sensitive phases of the negotiations and continued with each step we moved further, until the end of one of the top deals on the Romanian pharma market in 2016.

CEELM: What role in the negotiations did PeliFilip play in terms of “closely assisting” you on the negotiations?

M.S: From the moment when the strategy of enlarging the Sensiblu business was announced, we knew that a business risk assessment was definitely required. At this stage we benefited from PeliFilip’s expertise in business risk assessment from legal and commercial point of view. In addition, during the entire project, Sensiblu faced various bottlenecks which required strong legal expertise for continuing into a healthy and with-low-level-of-risk transaction.

CEELM: As a result of the acquisition the number of units owned by Sensiblu increased by 20%. What challenges does this growth pose to you and your legal team going forward?

M.S: I cannot say if 20% is the precise percentage of growth, but unquestionably this acquisition was not considered completed once the contract was signed. For the legal team a new project started, with new challenges and timelines. This new project is called “integration.” The volume of work is substantial, as the transaction was not about one, two, or event ten pharmacies, but about 78 pharmacies spread all over Romania. We must register the new pharmacies with different Romanian authorities (including the Trade Register, the Health Ministry, and national and local health authorities), we need to renew the licenses, and we have to manage the transfer of personnel and make sure they’re properly integrated. Basically, the work volume is explosive at this level, even if the transaction is considered an achieved success from the business perspective. Once the “legal integration” is completed, we expect to re-enter a normal working flow.

Another aspect which should considered is when we speak about integration; it is significantly about people — for whom we have to build a communication channel that is transparent and trustworthy. Of course, these “soft” aspects are not managed only by the legal department, but also by other resources from Sensiblu: HR, Finance, IT, etc.

We are optimistic and now we are ready to face new challenges!

On February 3rd, 2017, CEELM reported that the Estonian Supreme Court ruled in favor of If P&C Insurance’s claims regarding professional liability involving a construction project for Skanska AS. We reached out to Heinar Olak, the Head of Legal at If P&C, to clarify the grounds of the dispute and its finale.

CEELM: In your view, what were the most complex aspects of this dispute?

H.O: The core of the dispute was which architectural firm should be liable for mistakes in the project documentation where the project was prepared by one architectural firm (in this case Pello IB OU) but officially signed and presented by another architectural firm (in this case Sweco OU) as its own work. Our aim was to prove that liability lies on the firm that signed and officially presented the documentation that eventually led to the damage.

CEELM: What were Skanska’s specific claims in the matter?

H.O: Skanska AS claimed compensation of the cost for rebuilding a methane tank necessitated by the mistakes in the project documentation in amount of EUR 895,549 and compensation of contractual penalties it paid due to the delay of construction in the amount of EUR 790,059.

CEELM: And what arguments did the court find most persuasive?

H.O: In this case the customer of Skanska AS had specific qualification requirements toward the architectural firms that Pello IB OU was not compliant with. That was, in our understanding, the reason why another architectural firm was hired to sign the project. On one hand we emphasized that by doing so Skanska had created a wrongful picture to its customer about compliance with the qualification requirements that was not not nice but also dangerous in these circumstances. On the other hand we stressed the fact that the person signing the project documentation gives the “go” to the project, and therefore must be liable for the consequences.

CEELM: Why did you opt to use Nove as your counsel?

H.O: Although we as an insurance company manage number of litigations in-house, in specific cases are look for support from law offices with relevant experience and knowledge. We believe that legal service is very much a people business where the outcome depends first of all on the persons involved. Therefore when we are looking for support, we target specific attorneys rather than law offices in general. Andrus Kattel, as a Partner at the Nove law office, is a well-known litigation lawyer in Estonia who has also remarkable experience in insurance-related litigation. We have used his services in several cases in the past.

As the Head of Legal At If P&C Insurance AS I’m responsible for ensuring that the company gets relevant and high quality legal service either from its in-house legal team or from external advisers. In this case my role was to coordinate the process and ensure the necessary assistance from my in-house colleagues to the external adviser.

CEELM: What effect do you foresee this Supreme Court judgement will have on construction and insurance contracts in the market?

H.O: We hope this will support honesty and transparency in construction field and thereby protect the customers of construction companies.