Technology M&A 2024 Comparisons

When the COVID-19 pandemic started, the activity on the market of investments in technology companies temporarily slowed down, because of the sudden uncertainty on the market.

In the following period, after the initial nervousness had passed, investment activity in technology companies restarted again and investors began to invest heavily. This recovery occurred sometime in the second half of 2020.

Such approach was also supported by the rising inflation due to which investment activity in technology companies continued as investors sought to invest their funds and protect them from being devalued by the inflation rate.

The pace of the investments, however, began to slow down sometime in 2021, as the inflation driven investment period stopped.

The situation than worsened due to the war in Ukraine. Investors became rather careful. After a short period, however, investors sensed that the conflict would have only limited impact on the local Slovak market. Thus, there was a gradual and cautious improvement of the situation and an intensification of investment activities. This improvement has since persisted, but it has to be said that investment activity and the overall market for investment in technology companies is still not at the level it was before the war, or in the third to fourth quarter of 2020. This is especially true in the start-up sector, which still did not recover to its previous investment values and has witnessed a slight decline in the past 12 months.

Nevertheless, in the past 12 months the authors have seen a trend of increased interest in more stable and long-established local technology companies that focus on a specific segment, whereas many of these targets have characteristics of family firms. The firm attributes this mainly to two factors. First, these companies are often in the stage of generational change and, provided there are no viable successors within the owners’ families in these companies, the founders often decide to exit from the business. Secondly, founders nowadays contemplate whether to sell their stakes, while their companies are still in good condition, which could, considering the current affairs, deteriorate in the future.

On the other hand, there is strong investor appetite for such companies. The reasons for this investor interest are, in the authors’ view, as follows.

The first reason is the availability of such companies in the market. Previously, this was not the case as the original owners held their stakes since the establishment.

The second reason is that the companies often have a product that has proven itself over the years and there is a stable customer base interested in the product.

Another reason is that these companies are often in good shape – the companies often have had a stable level of profitability over the many recent years, while at the same time, given the (often) conservative management of the business by the original owners, the companies tend to have a low level of indebtedness.

The authors would like to focus on macroeconomic trends in the past 12 months that have had a significant impact on the Slovak market.

First of all, the outbreak of the war in Ukraine and its impact on the Slovak market meant a new challenge for many Slovak companies. Many companies had to adjust to the new regime and reorient part of their business due to the restrictions within Ukraine and sanctions imposed on Russia. For some companies this has meant finding new customers for their goods outside Russia. For other companies, this meant the need to find new sources of raw materials that were originally imported from Russia or Ukraine (in particular iron ore, coal, oil and natural gas). However, most companies were able to handle these challenges and are now operating as before, but with geographically differently localised suppliers or customers.

Second, the high rate of inflation affected everyone across the market and the high energy prices meant high costs for many companies. Some companies that are very energy-intensive have even had to reduce or stop production. These were several large companies, each employing hundreds or thousands of people.

Thirdly, due to the high inflation rate and high energy prices, there have been movements in the market. For some companies this has caused major problems, while for others it has helped and contributed to record net profits, which many Slovak companies recorded in FY2022.

Fourth, a major negative factor in the Slovak business environment over the past 12 months has been political turmoil. The Slovak government fell in December 2022, then a technocratic government ruled from May 2023 to September 2023, followed by a general election. The whole situation resulted in a high level of uncertainty and concern, which did not help the investors’ activities.

In addition to the negative impacts, it also had several positive effects, for example, a large number of skilled and educated Ukrainians had found safe haven in Slovakia and entered the Slovak labour market. A large number of Ukrainian companies have also started to operate here, which has certainly enriched the market.

In the Slovak Republic, the establishment of start-ups within the Slovak jurisdiction is a relatively common phenomenon. There are several reasons for this. Firstly, the Slovak Republic has a relatively good quality of higher education system and specifically, the Slovak University of Technology in Bratislava has a very good name in the region and its graduates have a very high rate of employment in high-quality international technology companies. Start-ups in Slovakia are often founded by graduates of this technical university. Another reason is the fact that a large number of young people from Slovakia study at prestigious foreign universities. These people then often return to Slovakia after finishing their studies and set up various innovative companies here, or work for innovative companies as employees.

As mentioned above, establishing start-ups in Slovakia is a relatively common practice. Most often they are founded in the form of a limited liability company. The reason for this is that a Slovak limited liability company is a type of company that is relatively easy to set up and its incorporation is also relatively quick and cheap.

The incorporation process of a new limited liability company can take one to three weeks, depending on the speed of the commercial register. For the limited liability company, the minimum registered capital requirement is EUR5,000.

In addition to limited liability companies, it is also a practice to establish start-ups in the form of joint-stock companies, but this is much less common. The reason is mainly due to the higher administrative and legal complexity of setting up a company, as a joint-stock company has a more complex internal structure. Another reason is the higher cost. The minimum registered capital requirements for a joint stock company in Slovakia are EUR25,000.

The legal form of a company that is most commonly used in Slovakia to establish a start-up is a limited liability company. It is a type of company that has the following characteristics.

• Quick incorporation process – it takes approximately one to three weeks to incorporate a company, depending on the speed of the commercial register.
• Low initial costs – setting up a limited company is the least expensive. The minimum legally required registered capital of a company is EUR5,000.
• Simple corporate governance – internal relations are relatively easy to set up and in many areas it is possible to let the regulation of relations be governed by generally established statutory provisions under the commercial code. At the same time, however, it is possible to set up the internal processes of a limited liability company quite flexibly.
• Transparency – a limited liability company is a very transparent type of company, with publicly available information on its shareholders’ structure.

On the other hand, another type of company that is used to establish a start-up (although less frequently) is a joint-stock company. The specific characteristics of the joint-stock company include the following.

• Higher capital requirements – the minimum amount of the registered capital in a joint-stock company is EUR25,000
• Possibility of more complex adjustment of the internal structure – it is possible to structure the joint-stock company in a very complex way. This concerns, in particular, the internal bodies and their functioning (board of directors, supervisory board, general meeting, and facultative committees), internal control system (in particular through the supervisory board), as well as the possibility of issuing different types of shares for the shareholders.
• Lack of disclosure of information on shareholders – a joint stock company does not have a publicly accessible list of shareholders (unless there is only one, sole shareholder.

The source of early-stage financing differs from case to case. In many instances, the initial funding of start-ups comes primarily from the private resources of the founders. In addition, there are several VC funds in Slovakia that distribute certain amounts of money, however, these resources are rather limited and part of these amounts comes from public resources (eg, EU funds). Recently, few local VC funds have been quite active in the Central European ecosystem in recent years. There are also several wealthy entrepreneurs (mostly) from the technology sector who are actively operating here and diversifying their portfolio by investing in start-ups. These investors, in addition to financially assisting start-ups through investments, also often help founders with guidance and mentoring.

In addition, some start-ups in Slovakia also have investors who are, for example, family offices, wealthy individuals or even some established Slovak companies, although this is rather an exception.

The financing documentation is not very standardised yet and it may depend very much on the subjects involved (ie, whether the financing is provided by a private investor or a VC fund, etc). In cases of smaller investments, where the investor is also often an individual investor (angel investor), the documentation does not always follow a standardised form. On the contrary, for larger investments, where a larger number of investors are involved in the investment round, or the investors are of a larger and more sophisticated type, often experienced service providers and advisors also participate in the investment. In such cases, it is standard to use documentation for investments that is based on a similar type of documents used in jurisdictions that have a more developed start-up ecosystem. Such documentation is then often localised to the Slovak legal environment.

There are several initiatives in Slovakia that aim to standardise transaction documentation for the purpose of investing in start-ups. One of them was a recent initiative, the aim of which was to prepare a unified term sheet for start-ups. The initiative was backed by the Slovak Venture Capital & Private Equity Association, which is the most important and prestigious association on the Slovak PE and VC market. The initiative was joined by several renowned attorneys at law and tax advisors and resulted in the first standardised term sheet, which has since been used for many start-up investments in the Slovak ecosystem.

There are several VC funds active in Slovakia that are focusing on potential investments to start-ups. Part of the sources of these VC funds comes from private investors and part from public sources (eg, EU funds).

In the case of private VC funds, there are a number of smaller funds in Slovakia that can provide investment in the order of hundreds of thousands of euros at most. There are also several active VC funds from neighbouring countries for which Slovakia is attractive and whose presence on the market proves that the Slovak start-up ecosystem is growing, improving, and moving in the right direction.

Regarding the state-owned or semi-state investment companies, there are few such VC funds in Slovakia that are very active. The most significant portion of public money is flowing into the Slovak start-up ecosystem from Slovak Investment Holding, a subsidiary of a Slovak state-owned bank. Its presence in the ecosystem is very stimulating, as it is an element thanks to which Slovak start-up founders receive more money and, at the same time, Slovak public resources are used in an innovative and modern way.

There are several initiatives in Slovakia that aim to standardise transaction documentation for the purpose of investing in start-ups. Although the Slovak start-up ecosystem is young, a number of initiatives have emerged to standardise the documentation and processes for investing in start-ups. The great advantage of these initiatives is that they are attended by top-tier advisors from the fields of finance, law and tax, who have great experience and whose contribution is irreplaceable.

One activity that aimed for preparation of a unified term sheet for start-ups was backed by the Slovak Venture Capital & Private Equity Association (see 2.3 Early-Stage Financing).

In the initial phases of a business, founders most often choose for their start-up the form of a limited liability company. This type of company is characterised by quick and simple incorporation, simple corporate governance processes and low initial capital requirements.

Over time, however, with the gradual expansion and growth of the company, there may be a need for a more structured company, especially in terms of setting up internal processes, control mechanisms, and opening the company to investors. For this reason, the founders may decide to change the legal form of their company from a limited liability company to a joint-stock company

A joint-stock company is a more suitable legal form for larger companies. Compared to a limited liability company, it is slightly more complex to set up and operate and also has higher capital requirements. This type of company also has many advantages, which start-up founders often evaluate as suitable for their business and company growth. One of the advantages is a better possibility to set up internal processes and internal corporate bodies. A significant advantage is the mandatory establishment of a supervisory board, which controls the functioning of the company for the shareholders. Another advantage, especially in the financing of a start-up, is the possibility of better distribution of the shareholder structure of the company, the individual types of shares and the rights associated with different types of shares. An advantage may also be that the list of shareholders of a joint-stock company is not publicly available.

In the environment of the Slovak Republic and the Slovak start-up ecosystem, there are several types of liquidity events that tend to be used.

The most common type of liquidity event is the entry of an investor into a company. This is a traditional and conservative type of liquidity event, which is often used in Slovakia. Regarding the types of investors who usually enter companies, the possibilities are quite varied. There are private equity funds that are quite active in Slovakia (several local PE funds, as well as several funds from neighbouring countries, especially from the Czech Republic and Poland). Another common type of investor is local business groups, which could be defined as large local business conglomerates bringing together dozens of companies. Another frequent type of investor is competitors of the target company (ie, investment on horizontal axis).

Another possibility is entry of a silent partner. The institute of a silent partner is a legal construct, on the basis of which the silent partner has access to a certain part of the economic benefit of the target company in exchange for a certain investment.

In the case of technology companies or, for example, engineering companies, it is also possible to structure a liquidity event as the sale of part of the know-how or the granting of a licence for a certain product that the company has. In return, the company receives money from investors, which is then used for further business development. This type of liquidity event is then often combined with the creation of a joint-venture partnership, which takes the form of a stand-alone company. The investor contributes money to the JV company and the company/start-up contributes the know-how/product/technology to the JV company.

In respect of IPO, it is not a very frequent type of liquidity event in the Slovak capital market and legislative environment. First of all, it is based on the conservative attitude of Slovak entrepreneurs, for whom this type of liquidity event is often something new and alien. At the same time, however, the Slovak stock exchange does not have a very high liquidity and, unfortunately, it is currently underperforming compared to the stock exchanges from neighbouring countries in terms of popularity among investors and entrepreneurs. In relation to IPOs, however, there are several interesting companies in Slovakia that have opted for this form of liquidity event and implemented it on some of the stock exchanges in neighbouring countries.

Although several dozen companies are listed on the Slovak stock exchange in Bratislava, the Slovak stock exchange has unfortunately relatively low trading volumes, which makes it not very popular among investors and companies looking for a liquidity event. However, it must be said that the competitiveness of the Slovak stock exchange is gradually improving, and a number of measures are being taken to make it more attractive.

However, from the point of view of companies that decide to do a listing on a stock exchange, the most common practice is to subscribe for shares on one of the foreign stock exchanges in neighbouring countries. The most popular stock exchange among Slovak companies is probably the Prague Stock Exchange in the Czech Republic.

To illustrate that the Slovak business and legal environment for the subscription of shares of Slovak companies on the stock exchange is continuously improving, an example is the creation of a SPAC investment company by a Czechoslovak investment bank, the subscription of its shares on the Prague Stock Exchange and the subsequent investment through this vehicle in a Slovak e-commerce company. Another shining example is the currently planned listing of shares of one Slovak high-tech company on the Slovak stock exchange in Bratislava, while this company also recently subscribed its shares on the stock exchange in neighbouring Prague, where it caused a sensation and became one of the most successful titles. This only proves the potential of the Slovak capital market and investor environment.

From the point of view of the Slovak law, there is no restriction that would limit the feasibility of a future sale due to the listing of shares for trading on a foreign stock exchange. Overall, the capital market within the EU member states is highly harmonised, which should minimise any restrictions on the applicability of a future sale in the event of a listing of the company’s shares on a stock exchange in a foreign jurisdiction. However, this only applies to companies whose shares are traded within an EU member state.

Specifically, it should also be noted that there is even greater proximity and similarity between the Slovak and Czech legal systems, which is often a destination for Slovak companies to listing for shares on the stock exchange.

Both the auction and the direct bilateral negotiation with a chosen buyer are viable options in the Slovak jurisdiction, however, the direct bilateral negotiation is the more prevailing one. In such case, market research, intermediaries (eg, the financial or legal advisors) or various investment platforms represent a method to connect to the potential buyer with the potential sellers.

The most typical transaction structure in Slovakia is a direct sale of a privately held technology company, even if it has a number of VC investors. It is quite customary that the owners of a technology company would enter into shareholders’ agreements outlining liquidity events, together with various tag-along, drag-along, and call/put option rights. Those may often be triggered when a sale is initiated.

Should there be a large amount of smaller VC investors, it is customary that an investment vehicle is formed one layer above the technology company to make the direct sale a little less complicated. Such VC investors then have limited rights in blocking the sale through such investment vehicle.

There are cases where VC investors have a choice to continue to stay as shareholders, but these are less frequent, and well-structured investment rounds usually aim to achieve complete sale.

In the Slovak jurisdiction, the sale of a company (or part of it) for a consideration in the form of cash is still a prevailing phenomenon. However, in recent times, several sales of start-ups have been made in Slovakia, in which large foreign technology companies have been on the buyers’ side. In these cases, the authors have information that part of the consideration was paid in the form of shares of the buyer.

From the perspective of Slovak law, there are no restrictions that should limit a possible stock-for-stock transaction. It is therefore to be expected that, as in foreign jurisdictions, this form of consideration will become more common and more acceptable by sellers.

It is not uncommon that the position of founders and VC investors differs when it comes to indemnification in respect of representations and warranties. VC investors are naturally trying to limit the indemnification to a much greater extent are able to do so to a certain degree.

Within the Slovak legal environment and in Slovak transactional practice, transactional representations and warranties are a standard part of the transaction documentation. The traditional mechanism is indemnification combined with purchase price discount (due to technicality of Slovak laws).

Escrow or holdback are not really customary in Slovakia to the extent that can be seen in other bigger jurisdictions. W&I insurance is active in the Slovak market but usually for only the bigger ticket deals (which are not that frequent).

Until the end of February 2024, it can be said that spin-offs may take place in Slovakia, but their form was different than is common in western jurisdictions. There was no legislative basis for spin-offs in Slovakia in the sense in which the institution is understood abroad. Until February 2024, it will be practically possible to make a spin-off through a division of the company, where the original entity disappears, or through the sale or contribution of (part of) the company to a subsidiary company, which is then transferred. However, spin-offs in this form were commonly used, for example, when an investor wanted to enter a particular part of the business or wanted to go public with a particular part of the company.

With effect from March 2024, a new act on company transformations will come into effect, which will clarify the various forms of company transformations. Under this new act, it will be possible to use in practice in particular the following forms of company division.

• Splitting by merger – a procedure in which the company being split ceases to exist and its assets are transferred to other existing companies, which thereby become the legal successors of the disappearing company.
• Splitting by fusion – a procedure in which the company being split is dissolved and its assets are transferred to newly established companies which, by their formation, become the legal successors of the dissolving company.
• Spin-off by merger – a procedure whereby the company being divided is not dissolved and part of the assets of the company specified in the conversion project is transferred to one or more existing companies.
• Spin-off by fusion – a procedure whereby the company being divided is not dissolved and the part of the company’s assets specified in the conversion project is transferred to one or more newly created companies.

Tax rules for this new legislation are being formed and the rules and requirements can be expected before the new laws enter into effect.

Under the Slovak law, the business combination cannot follow immediately after the spin-off, as Slovak law contains deadlines that must be met in the case of a business combination. For the avoidance of doubt, these deadlines apply both under the original legislation in force until the end of February 2024 and under the new legislation on company transformations in force since March 2024.

Under the relevant provisions of the law, one of the formal steps that must take place prior to a business combination is the obligation to notify the tax administrator. Such notification must be delivered by each of the dissolving companies not later than 60 days before the general meeting at which the draft business combination agreement is to be approved.

In the light of the above, it follows that the business combination cannot follow immediately after the spin-off as Slovak law makes it conditional on certain other formal steps, for which the law sets certain time limits. In addition to the above deadline, the whole process between the spin-off and the business combination will be prolonged by several formal steps (eg, the filing of an application for registration of the business combination in the commercial register).

The process of spin-off of a company takes, as standard, several months under the conditions of the Slovak Republic. In practice, in the case of smaller companies it can take up to three months, while for larger companies the whole process of a spin-off can take up to six months. The process is quite complicated and involves, in addition to formal documentation obligations, for example, the obligation to settle the relations of the dissolving entities with creditors.

The process in relation to the tax authority involves, in most cases, only notification obligations, and there is no need to seek the tax authority’s consent. However, partly related to this issue is the obligation for the companies involved in the spin-off to ensure the preparation of an auditor’s report, which is required.

From the point of view of currently effective legislation, the reporting threshold for an acquisition of an interest in a public company is 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75% in the case of an acquisition of shares to which voting rights are attached. The obligation to notify the issuer is no later than four trading days.

In order to have a comprehensive picture, however, it should be noted that there is currently no trading of company shares on the local stock exchange in Slovakia in high volumes. The situation is continuously improving and investors and companies are gradually recognising the advantages of the local stock exchange.

Under Slovak legislation, a person who, alone or together with persons acting in concert with him/her, reaches or exceeds the threshold shareholding of 33% in a publicly traded target company, is obliged to make a takeover bid for all the shares of that company. Threshold shareholding means a holding of at least 33% of the voting rights attached to the shares.

Despite the low volume of shares traded on the Slovak stock exchange and also the small number of titles traded on the stock exchange, a typical transaction structure for an acquisition of a public company in Slovakia would look something like the following.

• In the first place, the acquirer would aim to get a sufficiently large position in the target company to be able to place its nominees in the company’s bodies.
• The acquirer (either alone or together with other shareholders) would make an offer to take over the shares of the company.
• If the acquirer (or persons acting in concert with it) had a stake of at least 33%, it would have to make a mandatory takeover bid.
• Subsequently, if the acquirer succeeded in acquiring at least 95% of the target company, the whole takeover process could be concluded by squeeze-out in order to take control of the entire company.

In the Slovak jurisdiction, the acquisition of a company (or part of it) in the technology industry for a consideration in the form of cash is still a prevailing phenomenon. Sales of companies with stock-for-stock consideration are not common in Slovakia, although their popularity among entrepreneurs is gradually growing.

On the other hand, in the case of a business combination, the situation is reversed. Generally, in business combinations (eg, in the form of a merger) it is assumed that all shareholders of the ceasing company become shareholders of the surviving company – achieving stock-for-stock transaction.

However, the Slovak law allows either the shareholders of the ceasing company or the shareholders of the surviving company to decide that they are not interested in remaining shareholders of the surviving company after the merger has been carried out. In such a case, the law provides for specific procedures which determine the value of consideration to be paid to shareholders who “opt out”.

Under the procedure, first of all, shareholders who do not agree to the business combination and who are interested in cash payment of their shareholding must actively make their disagreement with remaining in the surviving company. Such shareholders then have the right to require the surviving company to purchase their shares from them for an appropriate cash consideration.

The value of the appropriate cash consideration must not be less than:

• the highest consideration given to individual eligible shareholders for the same share;
• the value of the net assets per share determined according to the last annual accounts prepared before the preparation of the business combination agreement, increased by the value of the intangible assets not shown in the balance sheet as valued by an independent expert; and
• the average share price of the companies involved in the merger, whose shares are traded on a stock exchange during the 12 months preceding the filing of the business combination agreement in the register of deeds.

The Slovak Securities Act precisely sets out the conditions and formalities of an offer to take over the shares of a publicly traded company but they are rather formal. As the stock market (and thus takeover offers) is not very active, there is not enough precedent for regulatory restrictions.

In the Slovak jurisdiction it is common that in connection with a takeover offer a specific transaction agreement is concluded. The Slovak Securities Act expressly provides that a takeover bid is formally, from the point of view of the law, considered to be a public proposal for the conclusion of an agreement. However, due to low stock exchange activity on the Slovak market, there is no established precedent that would standardise the terms and conditions of such an agreement.

There are several factors and conditions that play a role in the acceptance of a takeover offer. These conditions include, for example, whether, in the case of a takeover bid that was conditional on the acquisition of a certain minimum number of shares, this condition was met and, therefore, whether the necessary number of shares was acquired.

One of the conditions which must be fulfilled is compliance with the time limits laid down. The validity of the offer must be a minimum of 30 and a maximum of 70 days and any announcement of the conclusion of a share purchase agreement/agreement on exchange of shares for other securities may be made only after the expiry of this period of validity of the offer.

A shareholder may exercise a squeeze-out if it is the holder of shares whose aggregate nominal value represents at least 95% of the target company’s registered capital, to which voting rights are attached and with which at least 95% of the voting rights in the target company are at the same time attached.

In the event that the above threshold is met, the subsequent squeeze-out procedures and conditions in Slovakia are as follows.

• First of all, the offeror is obliged to notify its intention to exercise a squeeze-out to the National Bank of Slovakia and the company’s BoD.
• The acquirer must obtain the consent of the National Bank of Slovakia to exercise the squeeze-out.
• Subsequently, the offeror requests the target company’s BoD to convene a general meeting, whereby the general meeting must be held within 30 days.
• If at least 95% of the target company’s votes are in favour of the squeeze-out, the squeeze-out is approved.
• The company’s BoD shall then submit a proposal for registration in the commercial register no later than 30 days after the adoption of the decision of the general meeting.

The offeror is obliged to notify all remaining shareholders of the company and all creditors no later than ten days after the adoption of the decision of the general meeting.

The shares of the target company shall be transferred to the offeror after 30 days from the entry of the decision to approve the squeeze out in the commercial register. This legal fact is subsequently registered in the Central Securities Depository.

With regards to the consideration for shares acquired by way of squeeze-out, it may be in the form of cash, stock-for-stock or combined. The law provides for several methods of determining the price of shares, but in general it is possible to say that the most common is the determination of the value by an expert. It is also important to note that during the squeeze-out process, the funds intended for repayment of minority shareholders are deposited in a bank, central depository or securities dealer.

In the case of a standard takeover bid, the offeror is obliged to include directly in the offer details of the sources and method of financing the takeover bid and details of any anticipated indebtedness of the offeror. In the case of a squeeze-out, the legal regulation is even stricter. During the squeeze-out process, the funds intended for repayment of minority shareholders must be deposited in a bank, central depository or securities dealer.

Within the Slovak market there are no standard protective measures. The most common measure is the right to withdraw from the takeover offer after its acceptance. However, withdrawal can only be made during the offer period. Apart from this measure, which is provided for directly by law, no other measure is standard. Since the law does not prescribe any such measure, it is possible to agree on them (although, this is not yet common in practice).

Slovak law does not explicitly regulate any special governance rights which in case of impossibility to acquire 100% of the company belong to the bidder. Relationships will therefore be governed by classic corporate governance rules and, thus, it will all depend on the setting of internal corporate documents of the target, on the occupation of the supervisory board and the BoD by nominees of the bidder.

Relatively common practice is the entering into certain agreements and obligations between the principal shareholder and other shareholders, which each have the nature of a standard contractual relationship. On the other hand, for example, the Slovak Securities Act provides that if the principal shareholder (or together with persons acting in concert) acquires more than 33% of the shares of the target, they are expressly obliged to make an offer to take over the entire company.

In the event of a rival offer (which may have better terms), the target’s shareholders can decide which offer they will accept. Shareholders who have accepted the original offer may, until the expiry of the validity period of the original offer, revoke their acceptance of the original offer and withdraw from the contract concluded on the basis of the offer without penalty.

The regulator, which is the National Bank of Slovakia, enters the takeover bid process in a substantial way. The regulator acts in the process mainly as follows.

• The takeover offer must be submitted to the regulator.
• The regulator evaluates the offer, and checks whether it meets the legal requirements. In case of any errors, it can be returned within five business days for further completion. The deadline for correcting the offer may be a maximum of 15 business days.
• The offer must be approved by the regulator before its delivery to the target.
• The regulator also selects the expert who determines the value of the appropriate consideration.

From the point of view of the regulation of the securities market, the regulator is the National Bank of Slovakia, which assesses the takeover bid from the point of view of compliance with the conditions laid down in the Securities Act and from the point of view of the adequacy of the consideration for the shares.

Another aspect is the assessment of the takeover from the point of view of the protection of competition on the market. This is a condition not only under Slovak law, but also under EU law. It is a completely stand-alone administrative procedure in which the Slovak Antimonopoly Office acts as a regulator (or the European Commission, in the case of larger transactions with an impact on the entire EU market).

The approval of the Antimonopoly Office must be requested if the turnover criteria are met. Moreover, it is not possible to exercise the rights from the transaction before obtaining the approval.

The Antimonopoly Office must decide on the possible approval of the transaction within 25 business days. In the case of more complex transactions, the deadline may be extended by an additional 90 business days.

In general, the launch of a new start-up does not require any special permits apart from the classical formal processes such as registration in the commercial register, obtaining the appropriate business licences, some acts towards the tax office, and Social Insurance Company.

However, differences may arise in cases where the start-up is to be engaged in a regulated sector, such as the fintech sector (eg, provision of banking services, and securities trading), the pharmaceuticals and medical devices sector or the energy sector. In each of these cases, the regulator is a different authority. In the case of fintech, the regulator is the National Bank of Slovakia, in the case of pharmaceuticals and medical devices it is the State Institute for Drug Control and in the case of energy it is the Regulatory Office for Network Industries.

The duration of the licensing processes varies greatly depending on the type of licence or permit, the responsible authority, and so on. For illustration, however, the duration of the procedure for obtaining a licence for a start-up to provide investment services, for example, can take anywhere from six to 18 months under current legislation.

The regulator for the primary securities market is the National Bank of Slovakia.

For foreign investments from the non-EU member states in Slovakia, there is an obligation to obtain the approval of the Ministry of Economy of the Slovak Republic before making certain types of investments. The obligation to approve the implementation of the investment applies to critical investments, which are under the applicable legislation, for example, investments in the defence industry, investments in major infrastructure (airports, gas pipelines, and power plants) or publishers of periodical press. The investment can only be implemented after receiving the approval.

Moreover, from the competition law point of view, there is a standard obligation to obtain the approval of the Antimonopoly Office to carry out the transaction if the legal conditions are met. The decisive aspect is the achievement of turnover criteria, which are set as a combination of turnovers achieved by the participants of the transaction (for example, if the participants of the transaction have achieved a cumulative turnover in Slovakia of at least EUR46 million and, at the same time, at least two participants have achieved in Slovakia a turnover of at least EUR14 million each).

Also, in certain matters relating to the financial market it is necessary to obtain the consent of the National Bank of Slovakia. Investments related to a company doing business in one of the regulated markets (eg, investments in banks, insurance companies, and securities traders) are assessed by the National Bank of Slovakia. In such cases, the regulator also examines the source of funds used in the transaction.

Apart from the screening of investments under the FDI rules, there is no regime in Slovakia under which investments would be screened from a national security perspective.

A specific case may be the screening of investments that would, for example, relate to the acquisition of a shareholding in a technology company that supplies sensitive IT systems to the state. In such a case, the acquirer in question would have to be cleared by the National Security Agency and would have to have a security clearance.

Under the Slovak Act on Protection of Competition, if the following conditions are met, an obligation to notify the Antimonopoly Office of the Slovak Republic arises if:

• in case of any type of transaction, the combined aggregate turnover of the undertakings concerned amounts to at least EUR46 million in Slovakia, and the aggregate turnover of each of at least two undertakings concerned amounts to at least EUR14 million in Slovakia;
• in case of merger, the aggregate turnover of at least one of the undertakings concerned amounts to at least EUR14 million in Slovakia, and the worldwide aggregate turnover of another undertaking concerned amounts to at least EUR46 million; or
• in case of acquisition of control, the aggregate turnover of the undertaking, over which control is acquired, amounts to at least EUR14 million in Slovakia, and the worldwide aggregate turnover of another undertaking concerned amounts to at least EUR46 million.

Under the Labour Code, the employer is obliged to consult and inform employees about significant organisational changes and other important information concerning the employer.

Also, under the Commercial Code (as of March 2024 under the new Act on Company Transformations), there is an obligation to involve employees in the process of cross-border company transformations.

Moreover, under Slovak law, if the company has more than 50 employees, the company’s employees must be represented on the supervisory board and are entitled to 1/3 of the seats on the supervisory board.

Depending on the setup of internal employee relations at the workplace on the basis of a collective agreement, employees may also have additional rights and, at the same time, the employer may have additional obligations towards employees beyond the scope of the applicable legislation. There may also be certain obligations on the part of the employer based on collective bargaining with employee representatives. Typically, in larger companies it is customary to agree between employee representatives and the employer that the employees will directly participate in certain decisions, an obligation to maintain employment levels for a certain period or periodic salary increases of a certain amount.

Some of these commitments are in the form of non-binding advisory opinions (eg, consultations with employees according to the first paragraph). Others are binding (eg, relations agreed in a collective agreement).

Approval of the transaction by the National Bank of Slovakia may be required only in the case of transactions concerning regulated subjects, for example, banks and insurance companies, or it may partially concern transactions concerning companies which have a certain licence issued by the National Bank of Slovakia.

The most significant legislative changes in recent times concerning transactions (in general, not only technological transactions) are the newly adopted act on the screening of foreign investments (FDI act) and the act on the transformations of commercial companies.

The Act on transformations of commercial companies is a relatively fundamental matter in Slovak law and will be effective as of March 2024. The legal regulation of transformations will be removed from the Commercial Code, where it was originally located, and will be moved to a separate act. This will contain a unified and comprehensive legal regulation of the various ways of dissolution of entities with a legal successor; ie, mergers, splits for all legal forms of companies and co-operatives, as well as the legal regulation of spin-offs, and changes of legal form, including their cross-border variants.

With regards to court decisions in M&A matters, only a minimum of M&A disputes reach the court (they are usually resolved by agreement of the parties) and, thus, the decision-making practice is not yet well established and stable.

The depth of due diligence depends on a number of factors. For example, the time aspect (how long the due diligence can take), the sophistication of the company that is the subject of the transaction and also the sector in which the target operates. Companies in the due diligence process usually provide a certain package of information to all interested parties and additional information is provided only on the basis of specific requests from individual bidders.

In addition, for major transactions, it is standard practice to create a small clean team on the bidders’ side that will have access to the most sensitive documents and information, which are stored in a separate clean room. The reason for this practice is to restrict access of as many people as possible to business sensitive information about the target company which could then be used unfairly when making business decisions.

Standard data protection rules also apply to the due diligence process (eg, GDPR rules). There are no special rules for the due diligence process.

The offeror is obliged to notify the decision to make a takeover bid to the board of directors of the target company and the National Bank of Slovakia in writing without delay. The offeror shall publish the announcement of the takeover bid in a daily newspaper of national circulation.

The obligation to publish a prospectus does not apply to public offers of securities if the total value of each such offer in the European Union, calculated over a 12-month period, is less than EUR1 million. As this is a harmonised legal regulation within the capital market of the European Union, it is not decisive within the EU member countries on which stock exchange in which country the shares are listed.

In Slovakia, there is generally a legal obligation for every company to publish its official financial results every year on an official public website. In addition, for example in stock-for-stock transactions or for the purposes of determining the purchase price of a target company, interim financial statements are also commonly prepared.

Regarding the accounting standards, financial statements are usually prepared according to Slovak standards, but it is common that in addition to this, the financial statements of the company are also processed on the basis of GAAP or IFRS methodology (the latter is more common). The processing of financial results according to these international standards is used for internal purposes, for reporting purposes within business structures/groups or for reporting purposes to financing banks and entities.

In general, there is no obligation to disclose transaction documents.

However, transaction documents shall be submitted in case of registration of certain changes (eg, in case of transfer of ownership interest in a limited liability company, the agreement on transfer of ownership interest is a mandatory attachment to the application for registration of the change) to the commercial register.

It is also the case that if a state-owned company were to acquire a certain company, there would be an obligation to publish this contract in the Central Register of Contracts.

In the case of a business combination, the duties of the board of directors are not only to the shareholders, but also to all stakeholders. They also have duties towards, for example, employees, trade unions, creditors, and so on.

The duties could be divided into several categories.

• General duties – as in any matter related to the management of the company, the directors are obliged to act in an informed manner, with due professional care, and they have an obligation to refrain from competitive behaviour.
• Formal duties – directors are obliged to prepare documents for the business combination, prepare the business combination agreement, internal corporate documents, etc. They are also obliged to convene a general meeting to approve the business combination.
• Information obligations – the obligation to inform employees about upcoming organisational changes.
• Notification obligations – the obligation to notify creditors, authorities and other entities of upcoming changes.
• Registration obligations – the obligation to register changes in the commercial register.

Regarding the liability for damages, the directors are jointly and severally liable for the damage they have caused to the shareholders of the company involved in the business combination. It is possible for the company itself, shareholders or creditors to claim damages from the directors (depending on the application of the relevant legal requirements).

The market standard is not currently developing in such a way that the establishment of ad hoc committees would be a common practice. Such a phenomenon is not often seen on the Slovak market.

The board of directors is usually actively involved in negotiations, but since publicly traded companies are not very common in Slovakia, the common practice is that the board of directors acts on the basis of a strategy that has previously been approved by shareholders or the supervisory board. In the case of publicly traded companies in the local market, it is the case that the company has one majority shareholder who actually owns and controls the company, but for certain reasons it is listed on the stock exchange. In such cases, the managers usually have a close relationship with the shareholder and, therefore, they directly conduct active negotiations and actively cover the whole project.

Most projects and companies have consultants of various types. In addition to legal advice, many companies also have tax and financial advisors who help with setting up the structure of the project and its optimisation. Recently, the practice of complex transaction advisory is growing, on the basis of which the company receives a comprehensive service and the service provider will cover the entire transaction.

In relation to management consultants, which are common in western companies, this practice has so far penetrated most of the major companies only slightly. The largest management consulting firms in Slovakia do not even have a presence and their role in consulting is often substituted by smaller firms or other advisors.