Corporate M&A 2022

Last Updated April 21, 2022


Trends and Developments


Eversheds Sutherland Bitāns is one of the leading law firms in Latvia, providing quality, innovation and consistency in legal service delivery for more than 20 years in close co-operation with the global Eversheds Sutherland network of 74 offices in 35 countries. The firm's corporate, commercial and M&A team, led by the distinguished senior partner Māris Vainovskis, advises clients on a wide range of corporate and commercial matters, including inbound and outbound multi-jurisdictional M&A transactions. The firm has been acting for global, European and Latvian industry heavyweights and private equity funds throughout the last two decades. Recently, Eversheds Sutherland Bitāns advised Latvijas Mobilais Telefons (LMT), the leading Latvian telecommunications operator, on the acquisition of Santa Monica Networks (SMN), the elite data transmission and IT security solutions provider.

Overview of 2021 M&A Activity

The COVID-19 pandemic and its dramatic impact on economies and societies around the world remained high on the global agenda throughout 2021. Although continuous lockdowns and other restrictive measures, in tandem with the widespread vaccination campaign, failed to eradicate the virus, private equity firms (PEs), special purpose acquisition companies (SPACs) and corporates worldwide had already been looking far beyond the COVID-19 outbreak. Optimistic sentiment echoing growing confidence amongst the investors resulted in the global M&A activity hitting record volumes and values in 2021. The European M&A market, largely driven by shareholder activism and high levels of dry powder, closely followed the global trend to produce one of the best years in its recent history. Latvian M&A activity likewise continued its recovery with an impressive upward trend, which originated in the second half of 2020.

M&A dynamics in the first half of 2021 

A noticeable imbalance between supply and demand has been steadily growing across the Latvian M&A market towards the end of 2020. A strong interest from PEs and SPACs in acquiring corporate carve-outs with a potential for value creation as a standalone business continued into the first quarter of 2021. A prominent example of the divestment trend was the largest pan-Baltic 2021 disclosed M&A transaction, valued at EUR800 million on a debt-free and cash-free basis, for the sale of Fortum Oyj sustainable district heating business in the Baltics. Due to the rapidly accelerating valuations, divestiture is increasingly becoming a popular tactic used by the corporates to cash out, optimise asset portfolio and adjust strategy in the light of the COVID-19 impact.

Corporates operating in COVID-19 resilient industries, in particular, technology, media and telecoms (TMT), have been piling up cash and getting ready to bid against PEs and SPACs for the lucrative targets. A pressing need to enhance competitiveness and keep pace with the digital transformation and technological advancement was pushing the Latvian telecommunications heavyweights to diversify into adjacent industries. Thus, for instance, Latvijas Mobilais Telefons SIA, the leading Latvian telecommunications operator, has acquired for an undisclosed amount a 100% capital stake in Santa Monica Networks SIA, the elite data transmission and IT security solutions provider, in the second quarter of 2021. Lately, the telecommunications operators have been on an acquisition spree to bulk up in the face of growing competition from the technology and over-the-top (OTT) companies, which continue leveraging their expertise and cutting-edge technological solutions into the telecoms sector.

M&A dynamics in the second half of 2021

The anticipated growth in environmental, social and governance (ESG) conscious investment has manifested itself in the majority of PE-driven 2021 M&A transactions across the Baltic region. PEs expect positive reputational and financial returns from the strong ESG track records of the recently acquired targets in the mid-term perspective, which is perfectly aligned with their comparatively short exit horizon. Unsurprisingly, ESG considerations were at the heart of apparently the largest pan-Baltic 2021 undisclosed M&A transaction, with an estimated value of EUR1 billion, for the sale of an 80% capital stake in the largest European producer of sustainable wood pellets, Graanul Invest AS, in the third quarter of 2021. Despite practical hurdles in translating ESG metrics into estimates of the financial impact on the profitability of targets, ESG performance has evidently begun to play an important role in the valuation process.

The COVID-19 crisis has also accelerated generational shifts within family businesses as current owners turned to younger family members for proactive leadership during the challenging times. Unfortunately, a lack of effective governance, coupled with disagreement among heirs on the future of the family business, often ends in favour of a strategic investor. For instance, a long-lasting battle between the heirs of the majority shareholder of one of the largest pharmaceutical holding companies in the Baltic region came to an end, following acquisition by AB City AS of a 69.15% capital stake in Olainfarm AS, for a total amount exceeding EUR90 million via buyout and delisting virtually completed by the end of the fourth quarter of 2021. Nonetheless, most of the recent transactions involving family businesses have been primarily concerned with the small and medium-sized enterprises being targeted by Nordic and Baltic companies in an attempt to accommodate capacity shortage and facilitate regional expansion through consolidation of financially sound local competitors. 

Due Diligence Trends

The COVID-19 pandemic has also noticeably accelerated technological transformation by digitalising most of the M&A activity, including the due diligence process. Virtual data rooms with limited functionality of online documentation repository have been substituted with deal management platforms enabling interaction with the client throughout all cycles of the transaction by utilising a broad spectrum of automation technologies, such as data analytics, machine learning and artificial intelligence. The evolving complexity of due diligence procedures compels M&A practitioners to rely on disruptive technologies to boost overall productivity and reach efficiency at critical points of the deal, when time is of the essence. The due diligence schedules have become more condensed in response to the growing pressure on dealmakers to close as expediently as possible. At the same time, the scope of due diligence processes has expanded to accommodate novel regulatory and compliance requirements associated with the ESG, foreign direct investment (FDI), data privacy and cybersecurity frameworks.

ESG considerations

An intensifying focus by financial and strategic investors on mitigating climate change has already elevated the “E” denominator from a tie breaker to a deal breaker. However, ESG should not be mistakenly perceived as a purely environmental-centric approach to strategic analysis and decision-making processes. Its social and governance dimensions have also been stepping up in such areas as fiduciary duties of directors, labour standards, workplace diversity, business ethics and consumer protection, as well as data privacy. All these areas now require additional scrutiny through the prism of ESG compliance to assess related risks. Thus, for instance, the findings of ESG due diligence may have immediate effects on the valuation of the target company. Due to the lack of standardised reporting metrics and industry-specific performance indicators, ESG-based evaluations tend to remain inconsistent and pose practical challenges. Nevertheless, a growing number of acquirors are prepared to pay hefty premiums for targets with solid ESG profiles to meet their own sustainability goals.

FDI considerations

A rising interest on the part of PEs and corporates in targets operating across sectors critical to Latvian national security has been pushing investment control regulation to the top of the due diligence list. Although primarily focused on the target, the due diligence team will not neglect to address the identity of the investor or group of investors involved in the M&A transaction. Whenever an investor is based in a country considered by the Latvian state as unfriendly, its origin may have negative implications on the outcome of the screening procedure due to geopolitical considerations. Moreover, strategic investors tend to bid for targets with pan-Baltic reach, which triggers a review of three different FDI regimes within the framework of a single transaction. Due to the lack of a one-stop filing procedure for multi-jurisdictional FDI transactions within the EU, such cases have already faced challenges in the context of the co-operation mechanism established under Regulation (EU) 2019/452. Hence, the relevant substantive and procedural risks shall customarily be red flagged at the earliest possible phase of the due diligence process to provide a clear picture of the multi-jurisdictional FDI regulatory landscape.

Cybersecurity considerations

A rapid growth in data driven business and high demand for data privacy and connectivity has changed the way cybersecurity is approached by M&A practitioners. Cyber incidents may cause any business operating in data-heavy sectors to suffer economic losses, external and internal costs, regulatory fines and reputational damage. Thus, an emphasis on data protection and cyber due diligence has already become imperative for M&A transactions all the way down to mid-cap level. Nowadays, cyber due diligence covers a broad range of actual and potential risks, such as previously undetected and ongoing cyber breaches and attacks, data exposure incidents, cyber vulnerabilities of the system, heavy third-party reliance and inadequate physical infrastructure security, as well as weak corporate governance and poor General Data Protection Regulation (GDPR) compliance. Obviously, the scope of cyber due diligence is hinged on the risk profile of a particular target and the extent of the contemplated integration of the target into the business of the acquiror. It is safe to say, however, that cyber due diligence is no longer a box-ticking exercise for the majority of M&A practitioners, as high-level enquiry rarely suffices to properly address cybersecurity risks.

Share Purchase Agreement

The majority of corporates worldwide found themselves under pressure to revise corporate values, culture and strategy in the aftermath of the COVID-19 pandemic. A pressing need to become more resilient, flexible and sustainable revived carve-out activities aiming at withdrawal from the non-core businesses, unsustainable industries and less profitable market segments. Besides unlocking the true value of the carve-out business, divestiture allows the parent company to focus on the core business, raise expansion capital and increase liquidity, as well as optimise asset portfolio. The complexity of the carve-out transaction largely depends on the level of entanglement between the carve-out business and its parent company. Thus, in order to maximise value and maintain momentum, the sellers often repackage carve-outs and restructure relationships with third parties to ensure the smooth untangling of the carve-out business from the parent company. The lack of a solid operating structure may lead to cherry picking by the acquiror and results in a significant value leakage. Advanced and detailed planning of the carve-out activities, including pre-closing restructuring, is the key to successful completion of the carve-out transaction.

The carve-out transactions require particular attention to the joint assets and resources used by the carve-out business and its parent company, such as employees, intellectual property, IT systems and solutions, commercial premises and manufacturing facilities. As a rule of thumb, it is unusual for the acquiror to obtain all assets and resources engaged in the operation of the carve-out business. Therefore, parties often supplement a share purchase agreement (SPA) with a transition service agreement (TSA), which ensures availability of the assets and resources of the parent company to the carve-out business during the transition period. The sufficiency of assets representation provides further assurances to the acquiror on the full operability of the carve-out business. However, its stand-alone capacity largely depends on the senior management team responsible for running the business following divestiture. Unsurprisingly, retainment of the key personnel by the carve-out business and its active engagement in the earliest possible phase of the transaction constitute some of the main priorities for the acquiror. Although sufficiency of assets and stand-alone capacity ensure the operational continuity of the carve-out business, the acquiror should not underestimate the replacement costs related to the complete autonomisation of the carve-out business or its subsequent integration into the corporate structure of the acquiror.

Recent Local Legislative Developments

The Latvian investment control regulation remains one of the most business-friendly regimes across the EU with a comparatively straightforward legislative framework in force since 23 March 2017 as part of the National Security Law. Recently, it has been re-calibrated in the light of Regulation (EU) 2019/452 establishing the framework of rules for the screening of foreign direct investments within the EU. The National Security Law (as amended, in particular on 23 November 2020, 20 May 2021 and 8 December 2021) has been supplemented with the revised Regulations of the Cabinet of Ministers No 606 (as amended on 6 October 2020 and 4 February 2021) to complete the transposition of the aforementioned EU Regulation into Latvian legislation. The investment screening mechanism under the National Security Law is triggered whenever the acquisition target is a qualifying company or asset, irrespective of the nationality of the investor. If the target is qualified as a company of significance to national security or an asset of a target company is recognised as critical European or national infrastructure falling into a pre-defined category, the investor is required to seek approval by the Cabinet of Ministers of Latvia prior to closing the M&A transaction.

Company of significance to national security

Despite a noticeable FDI trend towards expanding the scope of sectoral coverage, so far the Latvian legislator has demonstrated a moderate approach by restricting the application of the investment screening mechanism to M&A transactions involving target companies operating in only a limited number of sectors of the national economy. The National Security Law defines a company being of "significance to national security" as one engaged in any of the following economic activities:

  • electronic communications, subject to meeting a specific threshold in terms of significant market power;
  • broadcasting mass media or audio-visual electronic mass media, subject to meeting a specific threshold in terms of national coverage;
  • heat or power generation above 50 MW of actual capacity;
  • heat transmission and distribution by a network exceeding 100 km in length;
  • licence-based power transmission or natural gas transmission, distribution and storage, including operation of liquefied natural gas installations interconnected with gas transmission networks;
  • agricultural or forest landholding of 4,000 ha or 10,000 ha respectively; and
  • licence-based trading in strategic items or manufacture of military equipment, subject to a valid strategic co-operation agreement with the Ministry of Defence of Latvia.

Whenever the target company is qualified as being of significance to national security, a pre-closing approval will be required from the Cabinet of Ministers in respect of the following: (i) acquisition resulting in the investor, individually or together with others, acquiring a qualified holding or decisive influence over the target company, or (ii) transfer of undertaking giving rise to the investor acquiring a carve-out business, including relevant assets, previously used by the parent company to carry out economic activities of the type and magnitude sufficient for such entity to be qualified individually as a company of significance to national security. In addition, the Cabinet of Ministers screens indirect investments by approving the shareholder structure of the qualified companies following changes at the level of ultimate beneficial ownership of such shareholders and at the level of entities holding shares indirectly. Thus, the Latvian legislator strikes a balance between comprehensive oversight and restricted sectoral coverage. However, it may soon need to revisit the definition of a company of significance to national security to embrace, among others, the protection of the information technology (IT) and information communications technology (ICT) sectors of the national economy to accommodate the concerns about evolving cybercrimes and hybrid threats to national security.

Critical European or national infrastructure

The Latvian legislator has already expanded the notion of critical infrastructure to cover essential services, such as supply of critical inputs, emergency medical care, epidemiological safety, and supply of medicines and medical products. The National Security Law defines critical infrastructure as assets, systems or parts thereof and services which, if destroyed or disrupted, would result in a significant adverse effect on the ability of the state to perform essential public functions and protect the health, safety and economic and social well-being of the public. Currently, three types of critical infrastructure are subject to the investment screening requirement:

  • especially important critical infrastructure (category A critical infrastructure) which, if destroyed or disrupted, would significantly threaten public administration and national security;
  • important critical infrastructure (category B critical infrastructure) which, if destroyed or disrupted, would inhibit public administration and threaten public and national security; and
  • critical infrastructure which, if destroyed or disrupted, would significantly affect at least two member states of the EU, ie, European critical infrastructure.

Whenever an asset is qualified as a European or national category A or B critical infrastructure, the approval of the Cabinet of Ministers will be required prior to the transfer of title or right of possession of the asset to the investor, including by way of acquisition of the asset through a share purchase transaction. The notion of critical infrastructure has been interpreted broadly to provide supervisory authorities with sufficient leeway when dealing with national security concerns affecting sectors of the national economy that would otherwise fall outside the scope of investment control. Thus, for instance, inclusion of data centres in the list of critical infrastructure would compel the application of the investment screening mechanism to areas that are critical to national security such as data control, data access and data storage. Due to a significant degree of discretion enjoyed by the supervisory authorities in compiling lists of critical infrastructure, it is reasonable to expect that the number of M&A transactions subject to review and approval under the National Security Law will gradually rise.

Overview of 2022 M&A Trends

The TMT sector has been massively capitalising on the digitalisation trends accelerated by the COVID-19 pandemic. Its extraordinary resilience and strong performance throughout 2021 made TMT a sure bet for M&A dealmakers around the world. Thus, for instance, Printify Inc., a leading Latvian print-on-demand start-up, has closed its Series A funding round led by Index Ventures (UK) LLP with a EUR38 million jackpot. Although financial and strategic investors are eyeing the Baltic start-up ecosystem as never before, the competition for funding will remain fierce in 2022. While start-up seed and series fundraising momentum is heading strong into 2022, non-dilutive funding, in particular revenue-based financing (RBF), is gaining popularity among entrepreneurs eager to keep equity in their own hands. Corporates will be looking for start-ups driving the wave of innovation in such industries as AI, the internet of things (IoT), robotics, cloud-based software as a service (SaaS), big data and data analytics. However, the frontrunners of the 2022 global tech scene will remain cleantech start-ups utilising innovative technologies to achieve sustainable development.

The widespread support for the European Green Deal objectives among investors, shareholders and consumer activists has been changing the landscape of the energy, mining and utilities (EMU) sector across the Baltic region. The energy transition will remain the primary driving force behind M&A activity in the EMU sector over the coming years. Local renewable energy developers have been much sought-after by regional strategic investors keen to secure reliable green project pipelines. For instance, Utilitas OÜ, one of the fastest-growing Estonian renewable energy generation and distribution companies, has acquired for an undisclosed amount a 100% capital stake in TCK SIA, Tārgale wind park development company. Although energy generation will remain the primary focus of the industry, the scarcity of energy transmission and distribution and storage infrastructure open up new investment opportunities. A strong renewable energy profile for the country, its ambitious climate change targets and significant potential for renewables development have mostly been overlooked by the international investors until recently. The growing interest of globally operating PEs and corporates in integrating small regional energy markets into a worldwide net of renewable energy projects will keep the national EMU sector in the spotlight for years to come.

The state aid support measures have been effective enough to prevent an avalanche of distressed M&A activity in the immediate aftermath of the COVID-19 outbreak. The majority of small local businesses went bankrupt without being noticed by the M&A deal makers. However, the upcoming deadline for the repayment of working capital loans and tax deferrals received under the state aid support mechanisms is now close on the heels of bigger market players. Despite the continuously rolling waves of infection, PEs and corporates are becoming increasingly confident in acquiring businesses directly affected by the COVID-19 pandemic, in particular targeting survivors of the hospitality, travel and leisure (HTL) sector. Thus, for instance, Apollo Group OÜ, the largest Estonian entertainment company, has acquired for an undisclosed amount a 51% capital stake in the joint stock company LIDO, the owner of the famous chain of restaurants and food shops. The unwinding of financial aid will irrevocably lead to a noticeable increase in distressed deals and restructurings, much awaited by the highly capitalised PEs and corporates ready to make strategic acquisitions at a price below the market value.

Concluding Remarks 

The recent increase in energy prices and inflation rates has not affected Eurozone post-pandemic "sugar high" growth, as most of the COVID-19 restrictions on in-person services have been lifted, supply bottlenecks have been showing signs of easing and labour markets have been improving consistently. However, these market tendencies should not be mistakenly perceived as a long-term positive trend. The geopolitical crisis evolving around Ukraine will amplify previously underestimated supply chain disruptions, which may result in a significant shortage of key commodities in pan-European production and supply chains. The negative implications of the supply chain disruptions may be further aggravated by the recently announced new wave of economic sanctions against Russia. The European market is likely to face an unprecedented commodity price shock, forcing businesses to pass price rises over to the consumers to keep their profit margins intact. The price hike will inevitably slow down the steadily recovering consumer demand. An accommodative monetary policy coupled with additional stimuli will unlikely be enough to avoid a hard landing of the EU economy into recession. Obviously, such dramatic changes in the market conditions will have direct implications for global M&A activity. The capital outflows from the EU have already become evident. However, the real impact of such an unprecedented financial exodus on European and Latvian M&A activity is yet to be revealed.

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Trends and Development


Eversheds Sutherland Bitāns is one of the leading law firms in Latvia, providing quality, innovation and consistency in legal service delivery for more than 20 years in close co-operation with the global Eversheds Sutherland network of 74 offices in 35 countries. The firm's corporate, commercial and M&A team, led by the distinguished senior partner Māris Vainovskis, advises clients on a wide range of corporate and commercial matters, including inbound and outbound multi-jurisdictional M&A transactions. The firm has been acting for global, European and Latvian industry heavyweights and private equity funds throughout the last two decades. Recently, Eversheds Sutherland Bitāns advised Latvijas Mobilais Telefons (LMT), the leading Latvian telecommunications operator, on the acquisition of Santa Monica Networks (SMN), the elite data transmission and IT security solutions provider.

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