POLAND: An Introduction to Corporate/M&A: High-end Capability

In 2023, Poland’s M&A landscape was significantly influenced by a mix of economic factors. Rising inflation and interest rates, combined with ongoing economic uncertainty, presented multifaceted challenges. According to data on the analytics website Mergermarket, there was a marked decrease in deal values compared to the robust figures of 2022, although deal volumes experienced only a marginal decline. This dynamic necessitated a deeper assessment of sectoral shifts, geopolitical influences, and the evolving strategies of market participants.

Resilient Sectors 

Key sectors such as healthcare, IT, telecommunications, financial services, and renewable energy demonstrated notable resilience and growth. Particularly within the telecommunications sector, the consolidation of local internet service providers emerged as a significant trend. The resilience of these sectors was further underscored in 2023, with projections indicating a continued upward trajectory into 2024.

Deal Value and Volume 

Contrasting with the large-scale acquisitions characteristic of 2022, notably by PKN Orlen (fuel industry), 2023 saw a pivot towards smaller transactions. This shift was largely attributed to the base effect of PKN Orlen’s acquisitions in 2022, which represented a substantial portion of the total Polish M&A market that year. The trend towards smaller deals, alongside ongoing geopolitical uncertainties, shaped a distinct environment for dealmakers in 2023.

Despite persistent geopolitical uncertainties, there were signs of improving economic forecasts, decreasing inflation rates, and a gradual resurgence of risk appetites. These factors collectively fuelled optimism that 2024 would bring greater stability for M&A activities, potentially leading to a significant increase in both deal value and volume.

Activity of Private Equity Firms 

The activity of private equity firms in 2023 was characterised by fluctuations. Throughout the first three quarters, their presence was relatively subdued. However, the fourth quarter marked a resurgence, highlighted by significant transactions such as Oaktree Capital and Cornerstone’s disposal of Avenga to KKCG, Abris’s disposal of Velvet CARE to Partners Group, and Resource Partners’ disposal of Torf Corporation to Bielenda Natural Cosmetics, a portfolio company of Innova Capital.

Furthermore, the influx of foreign private equity firms establishing local operations in Warsaw – such as Jet Investment, Mutares, and Ufenau Capital Partners – or actively exploring the Polish market, signalled a growing interest. This renewed engagement set the stage for a potential substantial increase in transactions involving private equity firms in 2024.

Deal Dynamics 

The dynamics of deal negotiations in 2023 experienced significant shifts. The prevalence of competitive auctions, a common feature in seller-initiated transactions, declined. Economic conditions prompted a shift from traditional bidding processes to bilateral negotiations. Despite many transactions being conducted virtually, the overall duration from initiation to closing was longer compared to previous years. The preference for closing accounts over locked-box pricing mechanisms in 2023 was another notable trend. A reversal of the above trends is expected as stability increases in 2024.

Growth of Family Foundations 

The enactment of the Family Foundation Act on 22 May 2023 was a transformative development in the legal landscape. This new legal structure, inspired by frameworks in countries such as the Netherlands, Austria, Germany, Malta and Liechtenstein, is aimed at providing an optimal solution for managing family assets and facilitating succession planning. The tax rules associated with family foundations, particularly exemptions from income tax for contributions to a foundation and for benefits provided to the founder and the immediate family members, has enhanced their appeal. Consequently, family foundations have rapidly gained prominence in Polish M&A transactions, with expectations of their continued prominence in the coming years.

W&I Insurance 

The increasing importance of warranty and indemnity (W&I) insurance in the M&A landscape marked another significant trend. Initially used in major international transactions, W&I insurance found its way into mid-size deals, with even founders and private equity majority stake sellers adopting insurance policies for assurance. The shift towards a dual-liability regime in M&A contracts, where liability for insured warranties was capped separately from uninsured warranties, indicates a nuanced approach to deal structuring. In addition, there has been a visible improvement in the financial conditions and coverage offered by insurers in W&I insurance, driven by stronger competition for a smaller number of transactions.

Global Shift Towards Renewable Energy 

The global energy sector’s pivot towards renewable energy sources was driven by higher and volatile energy costs and an intensified focus on environmental, social and governance (ESG) criteria. The energy crisis of 2022, exacerbated by the Russia-Ukraine conflict and its impact on natural gas supplies, highlighted the competitive advantage of secured renewable energy volumes. This led to increased interest from various market players, including those not traditionally connected to the energy sector, in investing in projects or joint ventures in renewable energy, such as small photovoltaic projects or wind farms. This trend represented a broader shift towards diversification and sustainability in energy portfolios.

Regulatory Changes in Poland 

On 30 May 2022, Poland’s public tender offer regime underwent a significant overhaul. The new laws replaced the previous two tender offer thresholds with a single 50% threshold, one of the highest in the EU. This change streamlined the takeover process, aligning it with the voting majority required for key resolutions at general meetings of public companies. The regulatory changes extended to voluntary tender offers, which were previously unregulated. Under the new regime, crossing the 50% threshold through a compliant tender offer eliminates the need for a mandatory tender offer. Additionally, the price paid in an indirect acquisition became explicitly relevant in determining the minimum tender offer price, establishing a clear legal basis for existing practices.

The temporary COVID-19 foreign direct investment (FDI) screening regime, established through an amendment to the Act of 24 July 2015, on control over certain investments, introduced supervision of investments involving the acquisition of significant interests in Polish undertakings. This regime applied to non-EU, non-EEA, and non-OECD investors, categorising public companies in Poland as protected entities regardless of their business scope. Transactions under this regime required notification to the president of the Polish Office of Competition and Consumer Protection. Failure to comply could render a transaction void and carry criminal sanctions for individuals. Initially intended to expire on 24 July 2022, the regime was extended, highlighting the importance of regulatory compliance in M&A transactions.

To Sum Up 

Overall, the Polish M&A landscape in 2023 was shaped by a combination of economic challenges, sectoral resilience, legal developments, and evolving negotiation dynamics. The activity in the private equity sector, the legal framework changes, and the shifts in deal structuring and negotiation tactics paint a complex but promising picture for the future of M&A activity in Poland.