Category: Uncategorized

Freshfields and PeliFilip advised the Veranda Shopping Center in securing a EUR 25.5 million financing from Raiffeisen Bank and Raiffeisen Bank International. CMS advised on the lenders side.

The financing is aimed at partially financing the project — a shopping centre to be developed by businessman Florin Pogonaru on Ziduri Mosi Street, in the area of Obor market in Bucharest, that will have a gross building area of approximately 65,000 square meters with a gross leasable area of 25,000 square meters, and over 1,200 parking spaces.

The Freshfields team consisted of Partner Florian Klimscha, Counsel Blair Day, and Associate Mathias Lehner. 

Working together with Freshfields, the PeliFilip team was made up of Partner Alexandru Birsan and Senior Associate Mirona Apostu.

Advising the lenders, the CMS team was coordinated by Partner Simona Marin, supported by lawyers Maria Tomescu, Lawrence Florescu, Catalina Gildau, Petru Seicaru, Roxana Fratila, Alexandru Dumitrescu, Horia Draghici, and Andrei Cristescu.

Image Source: verandamall.ro

AstapovLawyers International Law Group has announced that it will continue to act as the legal partner of the Ukrainian Tennis Federation in 2016.

According to a release of the firm, a memorandum of cooperation for the new year was signed on February 23, 2016, between Managing Partner Andrey Astapov and the Executive Director of the Tennis Federation of Ukraine, Eugeniy Zukin. As part of the memorandum, AstapovLawyers will “act as the official legal partner of the Federation and assist in all needed legal matters.”

The agreement follows closely the memorandum signed with the Kyiv Chess Federation on February 11. 

Wolf Theiss’ sole focus is the CEE/SEE and we can’t think of a better place to have been in 2015 and to be in the years to come. 

Our 13 offices cover a geographic area equal to 27% of the United States, another of the world’s premier legal markets, with 50% of its population (approximately 170 million people). Unlike the United States, each of our mixture of EU/non-EU countries boasts its own language, historical legacies, and stage of societal / governmental / economic development. In this context our 320 lawyers have assembled a single partnership which is the largest fully integrated, full service law firm in the region with top rankings from Chambers, IFLR, Legal 500 and Who’s Who Legal.

Our footprint challenges generalizations even from those of us who lawyer in the CEE/SEE on a daily basis. However, we have noted the following in 2015: (a) Robust M&A activity, but no boom; (b) Varying activity on a country-by-country basis; (c) Big-ticket global M&A spun off work to the region (e.g., the July 2015 merger of cement companies Holcim and Lafarge); (d) The CEE/SEE benefited from inbound European M&A trends; (e) Intense and opportunistic scouting for targets, both by strategics and private equity; (f) Consolidation was a driver (telecoms, insurance, banks, retail, pharma wholesale); (g) Distressed opportunities and “special situations” gave rise to transactions (e.g., Dutch Heineken’s purchase of our client Slovenian brewer Lasko); (h) Restructuring work was still plentiful; (i) Big-name-private equity pursued mid-cap transactions, something new in the CEE/SEE (e.g., KKR’s purchase of Belgrade-based cable company SBB/Telemach); (j) NPL transactions continued – banks are keen on cleaning up their balance sheets; (k) Regulators pushed for consolidation in some jurisdictions (e.g., banks in Slovenia); (l) Privatizations are still taking place (e.g., Slovenia, Serbia, Romania, Ukraine); (m) Chinese investors are scouting for opportunities (including Chinese private equity funds; (n) Russian investors look for EU-based targets to diversify; (o) The CEE/SEE region is generally perceived as a relatively stable “emerging market”; (p) Russia vs. EU is a big theme, primarily in the energy sector; (q) The disputes practice remained robust with the strongest growth being in the white collar crime and compliance areas.

Although our own positive revenue growth of the last several years continues, 2015 will not see a dramatic jump over 2014, just as 2014 revenues did not dramatically overtake our 2013 experience. The year end is again shaping up strong. Disputes continue to constitute an ever larger portion of our overall book of business. 

We have certainly enjoyed our share of blockbuster deals. The parade was led by state-owned Austrian bank Hypo-Alpe-Adria’s sale of its SEE network to our client Advent and the EBRD. We also advised a bidder in Enel’s contemplated sale of its stake in the Slovak Republic’s Slovenske Elektarne, a deal that failed to make it to the finish line. Wolf Theiss also advised OBI, a major German DIY group, on the acquisition of a majority of the business of bauMax AG, a DIY group in our region, in the largest and certainly most complex distressed asset M&A transaction ever done in CEE/SEE. That deal required the close, careful, and collaborative attention of nearly 50 of our lawyers for more than a year in Austria, Slovenia, the Czech Republic, and Slovakia – and represents to us a true validation of our business model.

It is no surprise that Ukraine is a heavy lift these days. The uncertainty has just gone on too long and while there is considerable hope and promise there is just no clear light at the end of the tunnel. Nonetheless, our Kyiv team remains positive as well as busy on such interesting transactions as the Australian insurance company QBE’s sale of its Ukrainian business to Canadian Insurer Fairfax.

The law business is a gem in Slovenia. In addition to the Lasko and OBI matters, our lawyers in Slovenia helped Deutsche Bahn Group acquire a majority interest in the Slovenian bus operating company Alpetour.  Bank M&A, distressed M&A, NPL’s and bond issuances have also been plentiful. We see continued privatization activity in 2016.

We were disappointed that Croatia’s oil and gas concessioning prospects stalled. We are also concerned about the strength and direction of the government that will arise out of the recent elections. However, we remain hopeful regarding the LNG import terminal project on the Island of Krk and appreciated the opportunity to represent British American Tobacco in its EUR 550 million acquisition of TDR d.o.o. This was certainly the Croatian 2015 deal of the year by any measure. 

Things remain promising in Bulgaria. It continues to be a major destination for information technology and business process outsourcing as well as traditional manufacturing (as an alternative to China!). We see (and are a part of) genuine, broad-based momentum for a more positive and inviting business environment. And there are great deals in the here and now. For example, we participated in the Mtel/Max national 4G roaming deal as well as the refinancing of an office park that is the largest in Southeastern Europe. We also represented the EBRD and Deutsche Bank with their financing of the acquisition and launch of the first Bulgarian commercial satellite. 

The Czech and Slovak markets both had strong years. M&A activity is up in each. Although certainly not at pre-crisis levels, commercial real estate is coming back in the form of both sales and financings. An example of this is our work for Czech PPF Banka on the refinancing of the P1 Industry Park Project in Bratislava (owned by the international property fund AlfaGroup).  

Our Prague office began the year participating in the landmark Palladium shopping mall sale, the largest property deal ever recorded in the Czech Republic and the largest single asset transaction in Central Europe ever. The office was also on the buy side of the purchase of the Varyada shopping mall in Karlovy Vary by EPG and has been called upon repeatedly to assist in the ongoing consolidation of the Czech financial sector, including Alpha Group’s acquisition of Zuno Bank. 

The Czech and Polish markets, along with Austria, continue to generate considerable intra-regional cross border work. The Czech Republic is really a stand-out in this regard. Our Czech origin clients CEZ, APS Holding, and EPH are particularly active in the region and beyond. We also helping the Czech real estate developer CTP acquire properties in Hungary. This kind of work obviously plays to the strength of firms like Wolf Theiss. 

Hungarian real estate transactional work has generally been more active this year. We have helped both Volksbank and Erste move substantial properties out of their portfolios. In addition to such trading of existing inventory, the market is expecting new development investment in the coming year. In general there is a friendlier environment for business, with the energy, banking, and advertising sectors reasonably expecting more stability. The market has been heavily dependent on EU funds for growth and it’s a bit worrisome that EU budgeting cycles may cause some disruption in putting funds to work next year. But there is plenty to be positive about. We are particularly pleased to be representing listed Chinese industrial machinery concern Himile which is setting up its very first overseas factory in Hungary. And it would even appear that with the passage of time Prime Minister Orban’s strategies for dealing with refugees and saving Schengen are viewed as more prescient than tyrannical.

Romania has also had its share of attention grabbing deals. We advised UniCredit in acquiring most of the remaining shares of its local banking unit, one of the largest transactions in the Romanian banking M&A market in recent years, and helped IKEA become one of the largest Romanian forestry owners. Real estate work was also up generally but the NPL market seems a bit stalled. The ongoing anti-corruption campaign has certainly helped the white collar crime and criminal practices. While these efforts and the current “cabinet of technocrats” may have some short term chilling effects on business, they should be positive in the medium and longer term. 

Our representation of one of the bidders for the Telekom Srbija privatization has kept things brisk for us in Belgrade. The possibility for investment activity in the Smederevo steel mill remains (perhaps from Chinese interests); talk of airport privatization continues; and at least the grounds have been cleared for the “Belgrade Waterfront” real estate project. The government is stable and IMF relations are good. Last year’s standoff between lawyers and notaries has been resolved positively.  

There isn’t a lawyer in Albania from an international firm that hasn’t wished at some point this year that there was more work on her desk. There has just been a lot of deal postponement. That said, Wolf Theiss continues to be engaged in interesting World Bank assignments and advised JP Morgan and Deutsche Bank on the issuance of a Republic of Albania Eurobond valued at EUR 450 million.

Our office and developments in Bosnia and Herzegovina continue to please us. We were involved in the Aluminij d.d. Mostar restructuring and the construction of Unit 7 of the Thermal Power Plant Tuzla as well as the Banovici power station. Reform initiatives and legislative changes are positive. BiH certainly remains a complex place to do business, but the trends are relatively positive in our view. 

Although we don’t see a near term dramatic effect from legislative changes in any of our markets, two things are worth mentioning for Poland. A new auction based support scheme for renewable energy will be implemented in 2016 that could invigorate the sector. Also, a new bankruptcy law with Chapter 11-type features will come into effect that should allow creative lawyers to craft more positive solutions for troubled businesses. 

Poland’s incredible stretch of great economic activity continued to benefit law firms generally this year, including ours. It should be noted, however, that the new conservative government is being watched carefully to see if its rhetoric actually turns into something that is broadly negative for business.    

We think 2015 has generally been a happier year for lawyers than 2014. For sure, our business remains very competitive, particularly on pricing. However, we see some relief by a greater acceptance of success fees and other risk sharing arrangements.  

As we observe the global firms that are competing with us in CEE/SEE, we are reminded of the Chinese expression about “sleeping in the same bed but dreaming different dreams.” We can appreciate the continuing difficulty in reconciling the law practices in such markets as Hong Kong, New York, and London with the realities of markets like Warsaw, Prague, and Budapest. The verein structure adopted by many of the global firms accommodates different dreams to a certain extent. Dentons is a firm benefiting from such structural flexibility but we also believe that thus far its continued impressive growth has more to do with smart management, great lawyers, and hard work. 

We are certainly not immune to the stresses that accompany any evolving partnership. Some change is inevitable. Our “international but regional” footprint is not something that is likely to change, though. We are a much more comfortable referral for most non-CEE/SEE law firms knowing that we do not compete with them in their own markets. A Wolf Theiss New York, London, or the like is simply not in the cards. Independence also gives us the chance to write our own story, in our own time and way. 

It also seems to us that the “opportunity ceiling” in many of the region’s firms is becoming all the more pronounced, a development particularly evident in Warsaw and Prague. The lawyer generation that jumped in the game with the opening of the legal market has become established senior hierarchy and accustomed to the perks. The issue is their relative youth – many are still in their early 50’s with no intention of going away any time soon. In addition to spawning boutiques and spin-offs, this reality is creating a type of permanent underclass of very talented and client ready senior associates and counsel who are attracted to firms like Wolf Theiss, which still embrace growth and have no ceilings of any sort.  

What can be said of 2016? Considering the recent horrors in Paris and so many other parts of the world, we know that many forces are intent on disrupting life and economic prospects. We will concentrate on things within our control. We will continue to refine our firm’s collaborative culture, size ourselves correctly for the opportunities we target, and constantly work on improved execution. No matter what, we want to be a place where our lawyers, staff, and clients look forward to coming every day to learn, work, share, advance, and have fun among friends and colleagues. That’s success to us. 

Ron Given, Co-Managing Partner, Wolf Theiss Poland

This article was originally published in the 2015 Special Year-End Issue of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

In general, the Balkans are – both in terms of regulation and legislation – not an easy market for regional firms to operate in, but we at ODI remain very busy across the entire SEE region, and it seem that the year ahead of us will be good as well. In terms of the legal practices group, we are seeing corporate restructurings replaced by acquisitions and privatization deals – a trend that will definitely continue in 2016. Our banking and finance team is keeping busy with NPL transactions, as non-performing loans in the Adriatic region are still burdening bank balance sheets. 

Slovenia: In 2015, Slovenia witnessed the successful sale of seven out of the 15 companies designated to be privatized in accordance with the National Assembly’s consent for privatizations. In late November 2015, The Slovenian Sovereign Holding, a government entity in charge of privatization process, adopted a new policy list on privatization, which will bring more work to the market in 2016. 

In addition, Slovenia undertook to privatize state-owned banks which had been recapitalized since 2013. Recapitalization of four state-owned banks in the amount of EUR 500,000 was performed in accordance with EU rules on state aid, under which around 600,000 shareholders, holders of hybrid instruments, and subordinated debt holders were required to contribute their shares. The matter is pending before the Slovenian Constitutional Court, which has posed a preliminary question to the Court of Justice of the European Union. While the matter is still pending, Slovenia is in the process of adopting a new law implementing a directive on recovery and resolution of credit institutions. Regardless of the court’s final decision, recapitalization has had a significant and positive impact on the Slovenian banking sector, and on the Slovenian economy as a whole.  

Croatia: Contrary to the trend of 2013 and 2014, in the first half of 2015 Croatia faced a serious decrease in M&A transactions. In comparison to 2014, which saw 22 registered major M&A transactions, the number of transactions in the first half of 2015 decreased to 9, for a total amount of around EUR 400 million. 

This decrease is surely connected with the failure of the project of monetization of the Croatian highways, which was stopped suddenly due to heavy opposition, as well as to parliamentary elections, which virtually put a stop to the predicted sale of state-owned property in 2015. A positive sign, on the other hand, is the successful closure of the huge Kupari tourism development project south of Dubrovnik, which involved an investment of around EUR 100 million.

As the Plan on property management of state assets for 2016 is going to be adopted shortly, and as a new Croatian Government is expected to be formed, it is expected that 2016 will bring more transactions, especially in the companies and projects owned/sold by the state (including tourism projects and facilities and the HEP Group (the Croatian electricity provider)).

As for legislation, it is important to mention the September 1st entrance into force of the new Insolvency Act, which aims to significantly speed up the insolvency procedures (both pre-bankruptcy and bankruptcy procedures) and resolve the low liquidity on the Croatian market by eliminating insolvent companies from it.

Serbia: In the first half of 2015, Serbia witnessed 22 M&A transactions compared to 28 in the first half of 2014. However, the overall value of transactions stood at around USD 700 million, which was 20 times more than for the same period the year before. Last year was marked by the intention of the Serbian government to sell its majority stake in the country’s biggest mobile operator – Telekom Srbija. Six potential buyers expressed their interest to become majority owner. The sellers’ enterprise value expectations were set at EUR 2.5 billion. 

A joint effort of the government and central bank resulted in a strategy aimed at stopping and reducing the constantly rising number of NPLs in the Serbian banking sector since 2008.  Fortunately, in October this trend showed the first signs of deceleration, hopefully to be continued in 2016. As for legislation, a new law on investment has been adopted, with the aim of creating a level playing field between foreign and domestic investors and improving the investment climate, while work on the new Civil Code continues.

Macedonia: Foreign direct investment (FDI) in Macedonia in the first half of 2015 amounted to EUR 153.4 million – a 6% increase over 2014. Looking forward to 2016, we expect that FDI in the automotive, ICT, and tourism sectors will continue to thrive as the incentives provided in the technology industrial development zones continue to attract foreign companies.

The planned reconstruction and development of road infrastructure throughout Macedonia, estimated at EUR 400 million, should boost the economy and produce substantial work for local companies. Development of renewable energy projects is also on the rise, with both local and foreign companies announcing their plans for investments in such projects. In the meantime, the first wind farm in Macedonia (in Bogdanci (36.8 MW)), worth EUR 55 million, has begun operating.

In 2015, there was only a handful of M&A transactions – though the year was marked by the largest merger in the Macedonian telecommunications sector: that between Telekom Slovenije’s and Telekom Austria’s subsidiaries (One Telecommunications and VIP Operator, respectively). In 2016, we expect that the declining trend of M&A activity will continue, unless the Government decides to privatize several state-owned companies from the mining, weapons manufacture, and pharmaceutical sectors.

Montenegro: In Montenegro, privatizations of the Institute Dr. Simo Milosevic in Herceg Novi, the Tobacco Factory in Podgorica, and the Adriatic Shipyard were the main drivers of state-owned companies’ activity in 2015. However, the Adriatic Shipyard underwent bankruptcy proceedings due to its EUR 16 million debt to creditors. The Montenegrin government intends to find a potential buyer for the Shipyard, located in Bijela. If this process is properly managed, 2016 will be a successful year.

Bosnia & Herzegovina: In the first half of 2015, foreign direct investment in Bosnia and Herzegovina decreased by 18% – approximately 315 million KM in real terms – with investors from Austria, Luxembourg, and Croatia being the most active. Attempts to recapitalize the Bobar Banka Bijeljina failed, which opened the door for liquidation. Over 40,000 accounts remained frozen, even for small savers. Although deposits under EUR 25,000 are guaranteed, the failure was devastating even for many large public utilities and cities. The saga continues as the Banka Srpske, a large retail bank, is also sliding towards liquidation. The Tuzla airport became a regional hub of the low-cost airliner Wizz Air, which will give a boost to the North Bosnian industry and tourism.

Uros Ilic, Managing Partner, ODI Law Firm

This article was originally published in the 2015 Special Year-End Issue of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Clearly when the end of year is upon us it’s always a time for reflection on what type of year it’s been and also a time to plan for the future. This year is no exception, and it’s been a record one for the firm, so we share a certain sense of pride at how the team has performed under pressure, especially in the last quarter.

We celebrated 20 years this year, which is no mean feat for a law firm in this part of the world. Sometimes it feels like a much longer time as the pace has been immense and the issues we face on a daily basis are overwhelming, but it’s been really rewarding, too.

I am based in Belgrade but very much traveling throughout our offices in the former Yugoslavia. A pleasant change has been the introduction of Air Serbia routes which make travel in the region much easier. One can do Ljubljana, Zagreb, and Belgrade in three days now.

For us as a firm this year our highlight has to be our presence in Ljubljana, which is still a start-up but rapidly growing and very successful. The key for all expansion has to be the right leader – which we believe we have – and a great young and motivated team. Today, with eight lawyers at full capacity we will likely have to move office space soon to deal with growth, which is nice. In Zagreb we are consolidating again and ready to face the new challenges ahead of us in 2016. Serbia remains the largest market for us, and it’s been a remarkable year. It’s been a very difficult one to plan though, as we had anticipated a number of large privatizations and corporate sales to be completed by the end of the year, which has not been the case. Instead the corporate teams are flat out on a number of smaller deals and the usual end-of-year burst of activity has the whole office at full capacity. Of course we expect a quiet January as a result.

Our smaller markets include Macedonia, Bosnia, Montenegro, and Kosovo, and although all are very different in terms of investment opportunities, as long as they remain politically stable there are interesting clients moving into them, which is keeping our teams busy. 

Looking to 2016, I remain upbeat about the region in general, and by streamlining the practices we have regionally I think that it will be a good year for us. Despite the intense competition from international and local firms I know there is a place in the market for an outfit such as ours (and our client feedback confirms it). Like all law firms we work hard to ensure that our product is relevant to today’s corporate clients, and that will certainly continue to be our focus in 2016.

The world today is clearly in a state of chaos, and as we all experienced the trail of refugees passing through the Balkans this year I believe this will continue to be a challenge for the region next year. The economies are all slowing, and while they continue to experience growth, it is a fragile growth. Governments need to continue reform processes to ensure job creation and new investment. What is really interesting for me – having been in the region now for 20 years – is the type of investors coming and the different sectors they invest in. Our industry groups work hard to develop better understanding of their industries in order to serve them better, and this is a key feature clients appreciate.

So, in summary, it’s always a pleasure to meet with leading law firms and lawyers who work in CEE and SEE and observe the trends that are emerging that will affect the profession and our clients. We all need to be sharp and client-focused.

Patricia Gannon, Senior Partner, Karanovic & Nikolic

This article was originally published in the 2015 Special Year-End Issue of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

2015 has been quite the challenge for most of the legal markets in the CEE region, both in terms of business development and revenues. Legal market sidestepping and general overcapacity amid financial doldrums and – in most cases – negative demand growth suggest a strategic re-engineering of the market environment and call for flexibility and innovation in legal work processes, as well as a re-adjustment of the overall mentality of lawyers and law firms with respect to client relationships and regional expansion.

At Drakopoulos, over our 23 years in CEE, we have launched the “11 Countries, One Instruction, One Invoice” concept, aiming at offering a centralized, streamlined service to clients with multinational presence via our three main offices in Athens, Bucharest, and Tirana. Our approach is geared towards having our clients avoid dealing with 11 different interfaces and legal systems, but enjoy a single point of reference across the region.

As one of the very few Greek law firms with fully-fledged international offices, we certainly have a different story to tell on how the current state of affairs in the region has affected all aspects of the legal market, from growth rates in demand for legal services to alternative fee arrangements. With Greece as reference point, we are face to face with an economy the recovery of which is projected to be muted for at least the next couple of years. An initially modest growth in FDI and demand for legal services recorded in 2014 was subsequently defeated by political developments monopolizing the best part of 2015 – i.e., back-to-back elections, referendum, memoranda, etc.

From a statistical point of view, political uncertainty immediately shrank demand growth in practices such as Corporate and M&A, Banking & Finance, and Real Estate; large-scale projects amazingly froze, investors pulled out from investments worth millions, and developers failed to sell their portfolios of investment buildings only a couple of steps before the transactions completed. On the safe side, dispute resolution, employment, and IP practices retained their market share and revenue rates. 

As a result of the combination of continued sluggish demand growth and persistent political uncertainty, many clients opted for renegotiating their fee arrangements or decided to stop their ongoing fixed-fee engagements, requesting more flexible billing and payment options.  Client resistance to fee payment/increases has pushed law firms to preserve their profitability either through expense and salary cuts or staff layoffs. 

With the exception of Greece – and perhaps Albania, which presented a stagnant market with restricted (or bottom) business activity and reduced growth potential – the rest of the CEE countries weathered the crisis relatively well, maintaining their market flexibility and slightly increasing credit growth towards pre-crisis levels. Romania has managed to boost investor sentiment and restore investor confidence, while business and corporate activity has begun to recover at a relatively solid pace across much of the region.

Despite the lackluster performance of CEE markets in 2015, Drakopoulos pulled through pursuing a twofold approach to target new business. Starting from Greece, where the older and more established firms were taking over most of the public sector and industry market, we turned our focus to foreign clients and markets, where we could stand as a regional firm rather than a “traditional” name. Our overall and regional strategy relatively balanced out any decrease in demand within the Greek territory, and secured a slightly positive revenue growth overall. In other words, our experience through the crisis of recent years confirms that regional law firms are, undoubtedly, the next big thing in the legal market.

One might well ask why a client should go for a regional law firm as long as all other options (local and global international law firms) are still available. Given that during the crisis period many global law firms decided to narrow down their exposure by leaving the region, the battle shifted between local and regional firms to acquire the remaining market share. Our regional experience has shown so far that it is quite difficult to obtain top quality service in these countries, coupled with responsiveness and reasonable prices. Foreign clients with a larger footprint in the CEE are extremely demanding, often seeking a sole service provider for the entire region that has a global, central understanding of their situation and needs and an explicit perception of how things in one country may affect things in another; in other words, they are in search of a regional law firm able to provide uniform service and consistent advice via a sustainable and flexible cost-allocation method. Unfortunately, local law firms – no matter how big and important they are in their respective jurisdiction – are unable to meet clients’ needs in the greater region, either due to lack of network resources and regional expertise, or due to the difficulty of coordinating work across CEE, grappling with communication/language/uniformity in service issues, and fee arrangement complexities.

In light of the above, the key point for Drakopoulos in order to revive the legal market in view of a more prosperous 2016 is to continue dealing with CEE as a uniform challenging and volatile market and making all adjustments required in terms of strategic focus, legal work procedures, and mentality, and thereby creating new ways of delivering legal services and building more sustainable models of law firm practices, avoiding a denial mode dictating that economies will soon go back to normal and legal services will automatically grow again.

Panagiotis Drakopoulos, Managing Partner, Drakopoulos

This article was originally published in the 2015 Special Year-End Issue of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

As lawyers it is our job to provide our clients with legal solutions that are most beneficial to their business. For M&A lawyers this generally means negotiating the best possible deal on the acquisition or sale of a business.

Effectively addressing the issues that arise in the course of complex transactions requires us to look beyond purely legal tools and mechanisms. Warranty and Indemnity (“W&I”) insurance is one of those non-legal tools that is increasingly being used to unlock particular issues on transactions. The use of W&I insurance has moved beyond merely resolving particular obstacles and is now increasingly used in a strategic way to maximize shareholder value when exiting or investing in a business. By flagging the opportunity of using the product at an early stage in a transaction, a lawyer can significantly contribute to bringing about a more beneficial outcome for all parties.

According to the CMS M&A Study, an annual survey of deal terms in European M&A transactions, there is a continued increase in the use of Warranty and Indemnity insurance. Across the continent W&I insurance is now either taken out or actively contemplated in nearly 10% of all private M&A transactions. In Central and Eastern Europe we are witnessing a marked increase in its use in deals in all sectors.

A W&I insurance policy insures either the buyer (a “buy-side policy”) or the seller (a “sell-side policy”) for loss suffered by the buyer due to a breach of a warranty or a claim under an indemnity, pursuant to the transaction agreement.

Traditionally W&I insurance is used to provide assurance to the insured party about the unknown risks in a particular M&A transaction, such as tax or unpaid pension contributions. However, increasingly it is used in a more strategic way by bidders to enhance their bid and by sellers to achieve a “clean exit” which would otherwise be hard to negotiate. 

Basically W&I insurance bridges the gap between the contractual protection that a seller is willing to give and the protection that a buyer requires. It provides cover for unexpected and unknown issues arising in connection with a transaction, which would otherwise need to be dealt with in the standard contractual warranty and indemnity provisions in the SPA. In other words, it can be used to get a transaction back on track in a situation where neither party is willing to give ground on their negotiation position. 

Buy-side drivers for taking out a W&I insurance include the additional comfort provided when doing deals in unfamiliar jurisdictions where they are uncomfortable with the enforceability of the contractual protection. Despite the development of the legal systems in CEE we still see, particularly first-time, investors in the region who do not feel comfortable with having legal assurances only. The policy can also provide comfort as to credit risk where there are doubts as to the solvency of the seller, as it allows the buyer to claim in respect of its losses directly from the insurer.

The true strategic value of the insurance is most apparent in competitive auction processes. The benefit of taking out insurance in a competitive auction process is twofold. By the seller insisting that bidders take out a policy, they can achieve an often desired no-recourse sale. This is preferred by sellers of family businesses that truly want to start enjoying their well-earned retirement, but also by private equity funds that are exiting and distributing sale proceeds to shareholders or to wind up a fund.

On the other side, potential buyers in auction processes can use the insurance to differentiate and enhance the attractiveness of their bids. Incorporating the insurance into a bid and thereby significantly reducing the liability of the seller might be a more attractive offer than the direct gain of the highest bid.

W&I insurance is being used more and in more innovative ways, and it has developed from providing solutions to deal with road-blocks to a strategic tool that can effectively be used in deal negotiations. It can be used in any transaction – the product can fit unobtrusively into the transaction mechanics and, these days, fits seamlessly into the transaction timetable. For an M&A lawyer not to discuss taking out the insurance (or insisting that the other side does) seems to be a missed opportunity to show your client that you have looked beyond solutions available in the legal realm to get the best deal.

Helen Rodwell, Managing Partner, CMS Prague

This article was originally published in the 2015 Special Year-End Issue of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Long the darling of emerging markets investors, in 2015 Turkey was buffeted by a series of events – the deterioration of the situation in Syria and resultant refugee crisis in Turkey, political uncertainty due to inconclusive parliamentary elections and the failure to form a coalition government, and the downing of a Russian fighter jet near the Syrian border and ensuing Russian sanctions – all of which produced a steady stream of negative press coverage, darkening the mood a bit about investing in Turkey.

While the Turkish markets, in particular the currency and capital markets, are sensitive to these types of shocks, political uncertainty seems to have had the greatest immediate impact on business and investment. Investors, both foreign and local, tend to postpone investment decisions until after elections. With four major elections in the last three years, including two rounds this year, business suffered from “election fatigue.” The conclusive resolution of the parliamentary elections last month, however, has given investors the comfort to move forward, with transactions suspended in July coming back to life. In fact, the fundamentals which attracted investors to Turkey in the first place still exist.

The election results have also helped stabilize the Turkish lira. Following a year of volatility, the currency markets reacted immediately and positively, with the US dollar exchange rate improving after spiking to over 3.0 lira to the dollar between the last two rounds of parliamentary elections. While still under some pressure due to the chronic, but now decreasing, current account deficit, the lira seems for now to be reasonably steady.

The current account deficit is a prime focus of Turkish economic policy. As energy imports constitute a significant portion of Turkish imports, and energy prices are expected to remain at record lows until at least 2017, Turkey has an opportunity to significantly reduce the current account deficit and relieve pressure on the currency. 

Overall, the economy is expected to continue to grow at around 3% per year, slower than the rates seen four years ago, but reasonably strong in a world where most emerging markets have cooled considerably. Looking forward to 2016, therefore, there is optimism about Turkey’s economy, tempered with a dose of caution.

What does all this mean for the Turkish market for legal services? 

The November 2015 elections prompted an immediate uptick in M&A activity. In the private equity market, however, some investors have found exits more challenging. According to E&Y, private equity transactions fell by more than 40% in 2014 from the previous year, to just 43. The good news is that political stability after the November elections is expected to create a better climate for both M&A and private equity transactions in 2016, with the number of transactions increasing from 2015.

The capital markets sector is expected to remain fairly weak in 2016, with only a handful of important transactions. Istanbul’s BIST 30 index, consisting of Turkey’s blue chip stocks, is down 20 percent (even worse in dollar terms) from its near-record high in January 2015. The Turkish regulatory authorities have been methodically strengthening bank and securities regulation to protect the sector from external shocks and make Turkish capital markets more attractive. The full impact of these reforms, however, will likely be seen only in the medium-to-long term.

As the economy has slowed, one segment of the legal services market that has continued to grow is dispute resolution, both litigation and arbitration. By some estimates, Turkish corporates have more than USD 200 billion in foreign currency-denominated debt. The devaluation of the lira has put pressure on companies which have borrowed dollars or euros but earn the bulk of their revenue in lira. As the lira declines, this mismatch has the potential to result in more disputes involving Turkish parties, not only with lenders but also with joint venture partners and others. 

Given Turkey’s reliance on imported energy and its adverse effect on the country’s current account deficit, the Turkish government continues to encourage the development of renewable energy. Renewable energy should continue to be a growth industry. 

The demand for legal services in the ITC sector is also expected to grow. Turkey remains a key emerging market for most major tech companies due to the country’s large population of avid social media users. A difficult regulatory environment, lack of a comprehensive data protection law, and an aggressive tax policy, however, take off some of the shine. Nevertheless, most tech companies are committed to expansion in Turkey.

With many law enforcement agencies, especially in the US, UK, and EU, focused on enforcement of laws against bribery and corruption, the demand for legal advice on compliance with these types of laws as well as internal investigations of potential violations continues to grow. 

The Turkish legal market continues to adapt to changing business needs. The demand for representation in international disputes and advice in niche sectors such as ITC, compliance, and energy is growing at a greater pace than in traditional transactional practices. The strengthening US economy and likely increase in US interest rates are likely to reinforce this trend. Overall, as with the Turkish economy generally, the market for legal services is expected to grow more slowly than in the past but still presents opportunities for firms nimble enough to react to the changing demand.

Dan Matthews, Partner, Baker & McKenzie Istanbul

This article was originally published in the Special Year-End Issue of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The new Labour Law of the Federation of Bosnia and Herzegovina (the “Labour Law”) which introduced changes to the term of fixed term employment contracts, employee benefits, collective bargaining agreements and contracts with company managers, was declared unconstitutional by the Constitutional Court of the FBiH on 23 February.

The Labour law, which just came into force in the summer of 2015,was held to be invalid by the Federation’s top court because the rules of procedure governing the legislative process of the House of Peoples of the Parliament of the Federation were not followed when the law was passed by this level of government.  Specifically, the House of Peoples was given insufficient time to propose amendments or changes to the draft law, in light of pressure from the government to have the new law implemented quickly to meet certain targets as part of the EU Reform Agenda which Bosnia and Herzegovina is working towards.  The Constitutional Court ruled that the Labour Law must be returned to the House of Peoples of FBiH for proper adoption according to the applicable rules of procedure. The Labour Law will not be valid, as of the date the ruling of Constitutional Court is published in the Official Gazette of FBiH which should take place in the coming weeks.  

This poses a difficult situation for employers who have already amended their employment rulebooks and contracts for compliance with the Labour Law. In order to be fully compliant, we would recommend that employers who have already made such changes to revoke any new employment rulebooks and agreements adopted under the new law and replace them with their old employment rulebooks and agreements, while employers who have not yet adopted new employment rulebooks and agreements should maintain existing ones until the Labour Law is properly adopted by the House of Peoples.

By Nihad Sijercic, Attorney at Law, Karanovic & Nikolic