Market overview Austria 2021
At the end of February 2020, the first COVID-19 case was reported in the Austrian winter sports region of Tyrol. 377 days, three unprecedented lockdowns, and almost 500,000 infected people later, the Austrian economic environment has changed significantly. In the following overview, we will provide a brief summary of current trends and activities in the Austrian transaction market, touch upon the evolving digitalisation in the corporate law sector, and outline some recent legal and regulatory developments concerning M&A and investments in Austria.
COVID-19 has not only infected people but also adversely affected the local mergers & acquisitions market. From the beginning of the pandemic, a stagnation of transactions set in and the market currently still acts in a defensive way. This can be explained by the fact that the focus of companies due to the pandemic has changed from strategic growth or portfolio optimisation plans to stabilising their own business and securing liquidity. According to a recent study, in the first three quarters of 2020 there was a 21% decline in transactions, but the market has slowly recovered in the fourth quarter of last year. While companies continue to gain strength and liquidity there is also an increased focus on growth again and companies have returned to a more aggressive M&A strategy. The majority of large companies expect to recover quickly from the effects of the pandemic and to soon return to the same status as before the outbreak of the pandemic. 46% of all Austrian entrepreneurs even expect to achieve the same turnover in 2021 as they did before the outbreak of the pandemic. Another renewal is that companies in the meantime shifted their focus onto evolving trends, like digitalisation, ESG and customer retention. It can be assumed that this upswing in digitalisation will in any case be maintained after the pandemic. Another very interesting discovery from the pandemic, as revealed by the EY M&A Index for Austria regarding 2020, is also worth highlighting: interestingly, the vast majority of transactions in 2020 were domestic deals and comprised of strategic as well as distressed transactions led by companies from the industrial sector and followed by companies from the technology sector. This is surprising because recently there was a trend of internationalisation in the Austrian market, and in the course of the pandemic a reduction of outbound deals, i.e. between Austrian buyers and foreign sellers, and inbound deals, between foreign buyers and Austrian sellers, is noticeable.
Also, with regard to Austrian corporate law, the pandemic brought a massive digitalisation boost and the applicability of the Austrian Corporate COVID-19 Act has been extended by one year until the end of 2021. In this respect, the legislator has responded to the needs and demands of the market and enacted a legal framework governing new opportunities to hold (audiovisual) virtual meetings allowing people to participate, speak and vote without being physically present. This is currently possible at supervisory board or shareholder meetings of a stock company or a limited liability company. In case of a larger group of participants, as it is often the case at shareholder meetings, a greater preparatory effort is required. Especially in the case of virtual shareholder meetings, it is important to ensure that all shareholders have the same opportunity to exercise their shareholder rights, i.e. that they can actually exercise their voting, motion, question, and objection rights, in order to ensure legal certainty of passed shareholder resolutions. Voting rights may be exercised in person or by an authorised proxy by means of acoustic or optical signals and, if there is any doubt as to the identity of a participant, appropriate measures shall be taken to verify the identity, e.g. the person concerned may hold his/her ID in front of the camera. In addition, the Austria legislator amended the notarial code and thereby has provided for a new legal framework enabling shareholders (i) to establish a limited liability company in a virtual meeting with an Austrian notary public, (ii) to pass shareholder resolutions, which require notarial recording (as it is the case with share capital increases in a limited liability company required for PE/VC-backed financing rounds), in a virtual meeting, or (iii) to sign notarial deeds, e.g. for the transfer of shares in a limited liability company, virtually.
Another new regulation is the Investment Control Act, which entered into force on 25 July 2020 and amended the Foreign Trade and Payments Act 2011, requiring the prior approval of a governmental authority for transactions involving Austrian companies active in sensitive sectors. This Investment Control Act implemented the FDI Screening Regulation (EU 2019/452) in Austria and foresees even stricter substantive control provisions than the FDI Screening Regulation. For example, the requirements for the application for approval are more extensive since also the target companies are obliged to report if the acquiring person/entity does not submit an application for approval to the governmental authority in Austria. Furthermore, the application must be submitted immediately after signing the transaction agreements and the procedural deadlines are extended as well as the deadline for in-depth examination, which is now two months. As regards the sectors affected, the new Investment Control Act requires that the Austrian target company is either active in a "particularly sensitive area" or in an "other area" (as set out below). One example is pandemic-initiated research and development in the field of medicines, vaccines, medical devices, and personal protective equipment. The “other areas” covered are fields which could affect security or public order, crisis and public welfare. Since the Act also includes areas which were previously not subject to specific authorisation, it creates a tougher control regime in the area of foreign direct investment in Austria.