The COVID-19 pandemic has had a positive impact on the Polish M&A technology market, increasing interest in technology companies and proving that the technology companies were immune to the pandemic. The volume and value of the M&A deals in the tech sector in 2021 exceeded that of last year. In the first six months of 2021, the value of mergers and acquisitions in the tech sector exceeded all records.
Although the M&A deals in non-tech sectors still dominate on the Polish market, it is noticeable that the technology M&A market is maturing and becoming stronger, and the dealmaking in this sector is also becoming more structured than in the previous years. This trend is driven by the general tremendous growth of the Polish start-ups, with some of them reaching the unicorn status for the first time just recently, but also by the fact that many domestic venture capital funds that invested in tech start-up are slowly approaching the of their cycle, and are planning their exits, leading to a higher activity in this M&A sector.
In 2020‒21, there were several key trends in the technology investment and transaction market in Poland, which stand out:
Most Polish founders incorporate their start-ups in Poland. At a later stage, typically when a start-up expands its operations globally or raise late-stage or large investment rounds from foreign investors, they establish holding structures in foreign jurisdictions – usually by “flipping” their shares. The choice of jurisdiction depends largely on the industry in which a given startup operates, however, it seems that the USA or the UK are the preferred jurisdictions.
The time of incorporation of a company in Poland depends on the legal form and the method of its establishment. Incorporation of a limited liability company ‒ the most frequently chosen legal form of a newly established start-up in Poland ‒ usually takes up to 48 hours when template articles of association are filed using a dedicated online platform, between two and six weeks ‒ when the incorporation documents are filed with the NCR.
The minimum share capital for a limited liability company is PLN5,000, PLN100,000 for a joint-stock company, and PLN1 for a simple joint-stock company.
Polish tech entrepreneurs usually choose limited liability company for the initial incorporation, as being appropriate for a smaller number of shareholders and limiting the risk of their liability for the company's affairs. In July 2021 a simple joint-stock company was introduced to the Polish commercial companies’ code, as a new type of entity dedicated to start-ups. The main purpose of this new type of company is to reduce set-up costs, facilitate its incorporation, day-to-day operations, corporate governance, and future liquidation. For further details, see 8.1 Significant Court Decisions or Legal Developments.
Start-ups can also be incorporated as joint-stock companies, however, due to the relatively high minimum capital requirement and more complex corporate governance rules, and procedures under which the company operates, this form is more suitable for more developed companies – for further details see 2.6 Change of Corporate Form or Migration.
Early-stage financing in Poland typically comes from domestic or international seed Venture Capital funds. In recent years, there has been a noticeable increase of early-stage angel investing, which is provided by private investors – usually high net worth individuals (including former founders), angel co-investment funds or family offices.
Typically, early-stage transaction documentation consists of an investment agreement and a shareholders’ agreements, including financial model, set of representations and warranties and agreed articles of association of the start-up.
Venture capital funding in Poland is typically provided by Polish venture capital funds and, for the last few years, seed financing has been fairly easily available to Polish start-ups.
Most active Polish venture capital funds are backed by government-sponsored funds of funds or institutions, such as the Polish Development Fund (Polski Fundusz Rozwoju), National Center for Research and Development (Narodowe Centrum Badań i Rozwoju), or other public institutions.
In recent years there is also a noticeable raise of Corporate Venture Capital funds (CVC) established mainly by large Polish banks, state-owned companies or corporations, as well as early-stage angel investing supported by several angel co-investment funds.
Polish start-up and venture capital ecosystem, in line with the general CEE trend, also become an interesting market for foreign venture capital firms. The volume and value of investment rounds made by foreign VC investors is increasing year on year, and there are several foreign funds regularly investing in Polish start-ups.
Although most of the venture capital transactions in Poland are based on similar documentation, there is no well-developed and generally approved model of documentation, which would be widely used as a market standard, such as the US, NVCA or UK BVCA models of venture capital documentation.
As start-ups progress in their development or raise later-stage financing rounds, they may transform from limited liability company into a joint-stock company. For several formal and practical reasons, the joint-stock company is more suitable for companies with more complex shareholding structure, or willing to establish larger and more structured Employee Stock Option Plans, or which are contemplating listing on a stock exchange.
At a later stage of growth and development some start-ups, especially these willing to attract large foreign investors, are also increasingly changing the jurisdiction of the holding structure, or set up subsidiaries in foreign jurisdictions. For further details see 2.1 Establishing a New Company.
Statistically, the most frequent liquidity event for Polish technology start-ups still is a privately negotiated sale of company or assets. However, taking company public is becoming a viable alternative to an M&A route, and is expected to generate higher returns from the investors given the recent successful IPOs of Polish technology companies on the Warsaw Stock Exchange (WSE) such as Allegro, Huuuge Games and Shoper and the increased liquidity of the WSE in recent years.
When considering a liquidity event, investors generally choose one of the two processes at the outset, however, a dual-track process is not uncommon and is usually carried out by large companies and large institutional investors. New noteworthy trends can be identified, such as reverse acquisitions of listed companies, which is a faster and simplified procedure for introducing a company to the stock exchange without carrying out an IPO.
Most Polish technology companies still choose to list on the domestic stock exchange rather than on a foreign exchange. The preferred choice is either the WSE main market, or the New Connect – an alternative market of the WSE, which offers less strict formal requirements compared to WSE and is more suitable for smaller companies.
The foreign stock exchanges are not yet that popular among Polish technology companies, mainly due to their relatively small capitalisations. Only the largest Polish companies decide to do a listing on a foreign stock exchange. The most notable example is the EUR9.5 billion IPO of Polish based InPost S.A., which was listed on the Euronext Amsterdam Exchange in 2021.
If a Polish company decides to go public on a foreign stock exchange, the future sale process may be subject to certain regulations applicable to such stock exchange. If a company decides to list on the WSE, any future sale or merger will be subject to the regulations and matters described in 6. Acquisitions of Public (Exchange-Listed) Technology Companies.
In the Polish M&A market, most of the negotiated sale liquidity events of privately held venture capital backed technology companies (exits) are carried out in bilateral negotiations. However, the auction processes are not uncommon, and in fact exits are usually commenced as competitive auctions, where several potential buyers are invited to submit their offers and even conduct a limited due diligence. It is quite customary that one selected bidder is then granted exclusivity to continue bilateral negotiations.
Typically, the sale transactions of privately held Polish technology companies with several VC investors are structured as a sale of all shares in the company. The exit transaction may also be partial, but when it happens it is usually the founders that retain some minority stake. Nevertheless, it is uncommon for the VC investors to stay in the company after the liquidity event in the form of a sale of a majority stake (change of control), and the decision whether to sell or stay in the company by the VC investors depends not only on the future profit, but also on the decision-making process in the acquired company, or the VC funds’ lifespan.
It is very common that privately negotiated acquisitions of technology companies contain earn-out provisions for the founders, usually for one of two years following the liquidity event.
The majority of the Polish M&A transactions are all cash considerations, and all stock-for-stock transactions are uncommon. Several transactions on the Polish market are structured as a combination of cash and stock, however the stock component usually constitutes a smaller part of the entire purchase price. In all such cases, the buyer’s stock is usually liquid, or there is a liquidity route implemented. Also, the stock component is received by the founders rather than VCs or other financial investors.
It also happens that the stock (of a buyer in case of an industry purchaser, or of the acquired company in case a financial purchaser) is offered of as part of the future management incentive plans for the founders or mangers that remain within the company after the liquidity event.
In general, in Polish private M&A transactions, the buyers expect all sellers to provide customary representation and warranties, and to be liable for breach thereof. Typically, the founders are expected to stand behind all representations and warranties and certain indemnities after closing, whereas VCs may wish to stand behind representation and warranties relating only to title to shares, or their authority and capacity.
Although the warranty and indemnity insurances are becoming increasingly popular in Polish M&A transactions, especially in the large ones, escrows remain the most popular form of securing buyers’ claims under representations and warranties or indemnities. It is also not uncommon for small size deals to have holdbacks, but this form of security it not popular in mid to large size transaction.
Spin-offs in Poland may arise out of projects created at technology or medical universities, as well as other research institutions, but also from existing corporate entities – usually IT companies and “software houses”.
It is also noticeable that in recent years several Polish IT companies developed a reputation of venture builders, being able to regularly create completely new projects and companies.
The key drivers for considering a business spin-off include the need to provide liquidity for some key assets, enabling tax and cost optimisation of the business structure, or raising financing by separating valuable assets from the operational risks associated with other operating activities of the core business, but also achieving flexibility in management.
Spin-offs can be tax-free provided that both the assets carved out and remaining in the surviving company constitute the organised parts of the enterprise (OPE). The OPE is a business unit that is capable – before the spin-off takes place – of acting as an independent and fully-fledged enterprise from organisational, financial and functional perspectives.
The other condition is that the spin-off is carried out for valid business reasons, so it is not deemed that the main objective (or one of the main objectives) of the operation was to avoid or evade taxation.
A spin-off combined with a merger is possible, however, Polish law does not provide specific or separate mechanisms for such transaction. Both transactions must be done according to the legal regulations relevant to the type of transaction. It is also advisable to get a tax ruling for such a structure.
Depending on the method, a business spin-off can be carried out within one to six months. It is usually advised that a binding tax ruling is obtained prior to the spin-off, although it is not formally required by the Polish tax law. Some of the conditions of tax neutrality of the spin-off cannot be confirmed in the tax ruling, ie, the business substance of the spin-off, because they are covered by anti-abuse provisions and, thus, are excluded from the scope of the biding ruling procedure (there is procedure based on the anti-abusive tax provisions which aims at confirming that the given situation is not covered by the anti-abuse tax law).
The COVID-19 laws extended the timeframe for the binding rulings procedure from three to six months. However, in most cases, this procedure takes less than three months. The opinion covering the anti-abusive issues takes up to six months to be issued.
Stakebuilding is permissible under Polish law and possible up to 32% of voting rights in the target company prior to making a tender offer, however, due to the reporting and disclosure obligations of the bidder and the target company (described below), as well as the minimum price requirement (as further described in 6.4 Consideration; Minimum Price) applicable to the stakebuilder, acquiring large blocks of shares prior to the bid is not customary.
In terms of the reporting thresholds, pursuant to the Polish takeover law, any person must notify the Polish Financial Supervision Authority (PFSA) and the target company as soon as such person’s direct or indirect shareholding reaches, exceeds or falls below 5%, 10%, 15%, 20%, 25%, 33%, 33⅓%, 50%, 75%, or 90% of the total number of votes in a public company, and the company must disclose that fact to the public, the PFSA and the WSE.
The obligation to make the notification also arises in the event of a change of the previously held shares above10% of the total number of votes by at least 2% of the total number of votes in a public company whose shares are trading on the official listing market, or 5% of the total number of votes if shares are admitted to trading on a regulated market other than official listing market, or introduced to an alternative trading system. In addition, the notification should be submitted in the event of a change in the so-far held shares of over 33% of the total number of votes by at least 1% of the total number of votes.
Unless the buyer is obliged to launch a tender offer (see 6.2 Mandatory Offer), it does not need to state the purpose of the acquisition of the stake, nor its plans or intentions with respect to the company prior to acquiring company’s shares.
A stakeholder is obliged to launch a mandatory tender offer if it reaches or exceeds 33% or 66% of the total number of votes in a public company, as a result of direct or indirect acquisitions of shares. In case of the first threshold, the stakeholder can exceed it only in a tender offer for 66%, or 100% of the total votes in the company. The second threshold may only be exceeded as a result of a tender offer for all (100%) of the remaining shares in the company.
There are some exceptions to the above obligations as for example in case of an acquisition of shares from a company whose shares are introduced only to an alternative trading system, from an entity being part of the same capital group, in compulsory restructuring.
If a person exceeds the applicable threshold as a result of an indirect transaction, such person does not have to launch a mandatory tender offer if, within three months after exceeding the threshold, it sells shares of the target in a number to fall below the exceeded threshold.
Typically, shares of public companies on the Polish market are acquired in the tender offer processes, which require prior notification of a takeover bid for shares to the PFSA and WSE, and are carried out through the brokerage houses.
Mergers are also available, and are sometimes used for the acquisition of public companies, however, they are not often used as tender offers, mainly due to the associated formalities. The process requires adoption of the merger plan by both involved companies which must include the valuation of both companies, which should be then submitted to the registry court where it will be examined and reviewed by appointed auditor, and adoption of resolutions of the general meetings with a two-thirds majority of votes (unless the company's statutes provide for stricter conditions).
Public technology company acquisitions on the Polish stock market are more typically structured as cash transactions. Stock-for-stock transactions (and combinations thereof) are permissible under the Polish takeover law, however, in practice they are very rare.
There is a minimum price in a takeover bid which cannot be lower than the average market price for the shares of the target in the last six months preceding the announcement of the takeover bid in which the shares were traded on the main market – if the company shares were traded on the market shorter than this period, the average market value for that period is calculated.. Further, the price cannot be lower than the highest price agreed or paid by the stakebuilder (or its concert parties) for shares of the target during the twelve months prior to the publication of the offer.
In some cases, where it is not possible to determine the price according to the market value of the shares, eg, when bankruptcy or restructuring proceedings have been initiated, the price may not be lower than the fair value of the shares.
If the average market value of shares significantly deviates from their fair value, the target company may seek permission from the PFSA to propose that the price does not meet the criteria for the takeover offer.
In case of stock-for-stock tender offers for 100% of shares of the target, the bidder must also offer cash to the selling shareholders, which may choose the form of consideration.
A takeover offer may be unconditional or subject to certain conditions, the scope of which is restricted by law on tender offers. The most common conditions include obtaining a regulatory consent (such as merger control clearance) or achieving the minimum subscription level (which cannot be higher than 66%).
Shareholders wanting a public company to adopt a resolution on delisting are obligated to make a tender offer for sale of shares by all other shareholders – in such case, they tender offer may include a condition that the offer is made on the condition that the shareholders meeting adopted such resolution.
In addition, the bidder may introduce certain other conditions, such as requiring the target to adopt certain resolutions of the shareholders meeting of the supervisory board (eg, concerning the changes in the target’s corporate bodies), or entering into certain agreements with the target.
Negotiated takeover offers concerning public companies are made based on certain agreements executed between the bidder and the major shareholders of the target company in which the bidder undertakes to make a tender offer and the shareholders undertake to respond to the offer on the agreed terms. Certain other arrangements can be made, such as these relating to lockups, exclusivity, future investments of the bidder into the target, or relating to the management contracts. In such negotiated takeover offers, the responding shareholders may be required to give representations and warranties in the transaction documentation.
If a takeover bid occurs without the corresponding transaction documentation, it is not customary for a public company to give any representations and warranties.
A bid can be made subject to a minimum acceptance condition, however, any bid exceeding 66% of the total number of votes in a public company must be made for 100% of the shares, therefore it is not possible to set minimum acceptance conditions above the 66% threshold.
The minimum acceptance thresholds are not always in line with the thresholds at which full control in a joint-stock company is acquired. Pursuant to the Polish companies’ code, certain matters, such as change of the company’s statute, redemption of shares, decrease of its share capital, or approval of sale of its enterprise, require a qualified majority of three quarters of votes. Moreover, the statute may set higher thresholds for these, and other matters.
A shareholder whose holding, individually or jointly with group companies, reaches or exceeds 95% of the total votes in a public company has the right to demand that the remaining shareholders sell all their shares. The squeeze out procedure may be carried out only within three months of reaching or exceeding the 95% threshold and is subject to minimum price requirements, similar to those applicable to minimum tender offer. If the threshold is reached or exceeded as a result of a tender offer, the price in may not be lower than the tender offer price. A squeeze-out is announced and carried out by a brokerage house, and once announced, it may not be revoked. Prior to the announcement, the offeror must also provide security for the total squeeze-out price.
A tender offer is subject to “certain funds” rule and may be launched only if a collateral for not less than the total value of the tender offer is established. The collateral must be documented with a certificate issued by the bank or other financial institution providing such security.
A tender offer is announced and carried out through an entity conducting brokerage activities in the territory of Poland. The brokerage house is obliged, no later than 14 business days before the subscription acceptance date, to simultaneously notify the PFSA and the stock exchange of the intention to announce the tender offer.
Typically, negotiated deals may provide for certain deal protection measures that are usually negotiated with the selling shareholders. These may include break-up fees (contractual penalties), granting powers of attorney to respond to the takeover offer, blockades on the securities accounts of the selling shareholders, no-shop or exclusivity provisions obliging the selling shareholders no to respond to counter-tenders. The common practice (which has increased significantly in connection with the COVID-19 pandemic) is the introduction of material adverse clauses (MAC or MAE) or negative covenants in the interim period.
In unsolicited deals, which are rare in Poland, such measures are usually not implemented.
In the case of public companies, the law provides that certain matters require special majority of votes. Therefore, as long as the shareholder holds such majority, it has control over the company without the need to own 100% of shares.
It is common that negotiated takeovers of public companies contain irrevocable commitments from the principal shareholders of the target to support the transaction.
These commitments may provide for obligation of the major shareholder(s) to support and respond to the tender offer on the agreed terms, including, to undertake efforts to cause the management board of the target to issue and submit a positive opinion on the tender. Although the shareholders would typically seek an opt-out option in case a better counter tender offer is made, the bidder may expect the principal shareholder(s) not to withdraw subscription order places as an acceptance of the bidder’s tender even in case there is a counter tender, or not to accept any such counter tender or negotiate any other sale transaction (exclusivity).
A takeover offer must be published via an entity conducting a brokerage activity in Poland, which is required to simultaneously notify both the PFSA and the target company of the intention to announce the takeover offer, no later than 14 business days before the day when the acceptance of subscription orders commences. Not later than three working days prior to the first day of accepting the subscription, the PFSA has the right to request the bidder to introduce certain modifications in the tender offer, or to provide clarifications concerning the bid, within a deadline set out by the PSFA, which cannot be shorter than two days. In such case, accepting of the subscription under the tender office cannot be commenced until the bidder complies with PFSA’s requests. In some limited cases, the bidder may request the PFSA to approve the offer price proposed in the bid, which cannot be determined in a manner described in 6.4 Consideration; Minimum Price.
Duration of the tender period varies depending on type of takeover. For a voluntary tender offer or tender offers that will result in crossing of 33% threshold, the period is between 14 and 70 days. For tender offers that will cross the 66% threshold, the period is between 30 and 70 days (which may be extended, in certain circumstances, to 120 days).
If a merger control clearance is needed from the Polish Office of Competition and Consumer Protection (OCCP) (see 7.5 Antitrust Regulations), this period can be extended for the time necessary to obtain the clearance, but not more than 120 days.
There is a general freedom of economic activity in Poland, however, start-ups conducing certain regulated activities may be required to obtain appropriate permits from regulatory bodies.
In particular, this applies to start-ups offering financial services (fintechs) such as payment services companies, which must obtain licences, or insurance brokers, which are subject to registration and supervision by the PFSA.
Obtaining a licence or permit takes at least 30 days but can often take up to three months.
The primary securities market regulators for M&A transactions in Poland is the PFSA and the Polish Office of Competition and Consumer Protection (OCCP).
The PFSA is a financial regulatory authority in Poland that oversights banking, capital markets, insurance, pension scheme and electronic money institutions. The PFSA must be notified about the intended transactions on the regulated market, as described in 6.1 Stakebuilding and 6.13 Securities Regulator's or Stock Exchange Process.
The OCCP is responsible for merger clearances, see 7.5 Antitrust Regulations and for foreign investment control, see 7.3 Restrictions on Foreign Investments and 7.5 Antitrust Regulations.
In response to the economic effects of the COVID-19 pandemic, certain temporary laws were introduced in Poland which extended the regulatory scope of control over certain M&A transactions by the OCCP.
Among others, these new restrictions apply to the M&A transaction concerning acquisition by a person from outside of the EEA of more than 20% of shares in all public companies and all technology companies that develop or modify software in certain key areas for areas for the economy (eg, energy, pharmaceutical, financial services, transportation, data processing or insurance) – if the revenue of these entities from sales and services exceeded in Poland in any of the two financial years preceding the notification the equivalent of EUR10 million. The above restrictions will remain in force until 24 July 2022.
Additionally, permission, granted by Minister of the Interior and Administration may be required in the case of acquiring by a foreign entity (or by a Polish entity controlled by a foreign entity) of shares in a Polish company that owns a real estate. This restriction, subject to some minor exceptions, does not apply to foreign entities from the EEA, nor does it apply to Polish law-governed investment funds or to investing in public companies listed on the WSE.
Certain stricter rules apply also to targets that hold agricultural and forest land, and a transaction in breach of the applicable rules will be invalid. Although in the context of technology M&A deals, it is unlikely that start-ups will hold such land, however, this should be verified in the course of a due diligence review.
Except as set out in 7.3 Restriction on Foreign Investment, there is no national security review of acquisition of Polish start-ups, which rather applies oversights transactions concerning a limited number of specific companies operating in businesses strategic for Poland.
The Polish merger control regulations require notification of a concentration to the OCCP of all transactions involving acquisition of control of a target, if the combined turnover of the entities participating in the transaction in the financial year preceding the year of the transaction exceeds the equivalent of EUR1 billion worldwide; or the equivalent of EUR50 million on the territory of Poland.
The notification obligations are required in the case of merger of independent businesses, taking over one or more entrepreneurs, whether directly or indirectly (on public and private markets), establishing a joint undertaking by entrepreneurs; or acquisition of part of the property of another entrepreneur (all or part of the enterprise).
The notification is not required if the turnover on the territory of Poland of the target or the assets to be acquired did not exceed the equivalent of EUR10 million in either of the two financial years preceding the transaction.
Larger transactions might require notification to the European Commission, in accordance with European Union merger rules
In case of simple transactions, the OCCP has one month to respond to the notification, and in case of more complex cases the period might be extended by four months.
In practice, the most common labour law issues concerning merger of the companies (either by takeover or incorporation of a new company) is the transfer of the workplace to a new employer. In such case, the employees need to be notified in writing no later than 30 days prior to the expected date of the planed transfer. In the event of a transfer of the workplace the new employer becomes, by operation of law, a party to the existing employment relationships. For obligations arising before the transfer of part of the workplace to another employer, the previous and new employer are jointly and severally liable.
This issue does not arise in case of acquisition of shares of the target – such transaction does not qualify as a transfer of a workplace or its part to another employer.
If a company that is subject to merger or acquisition has an employees' council established (permissible in companies employing more than 50 employees), it is obliged (as an employer) to inform and consult with the council the impact of the transaction on the company and the employees. However, the council’s opinion or advise on that matter is not binding.
There are no restrictions on the purchase price in Poland and in case of the private transaction, the parties are free to choose the currency in which the price is set.
There were several important legal developments in Poland in the recent three years that impact technology companies and M&A.
On 1 March 2021, shares of all joint-stock companies (including the private companies), limited joint-stock partnerships and simple joint-stock companies were dematerialised. The dematerialisation is expected to increase the security of trading in shares of non-public companies and reduce the risk of money laundering. Until 1 March 2021, a written declaration was sufficient to transfer ownership of shares in a non-public company (made either on the share document or in a separate document ‒ sales agreement), and to transfer their possession to the buyer. In the case of bearer shares, it was enough just to hand over the share document. According to the new law, the ownership of shares will be transferred upon entry in the register of shareholders run by a brokerage house that has the obligation to verify the transfer documents and conduct KYC of the acquirer. The new registration mechanics and procedures need to be taken into consideration in the context of private M&A closings.
On 1 July 2021, a new type of simple joint-stock company was introduced, with an aim to simplify the day-to-day operations of early-stage start-ups. Among other things, as described in 2.2 Type of Entity, the founders of a simple joint-stock company may choose the way the company is managed, by deciding if it should have a one-tier board of directors, or a dualistic model ‒ with supervisory board and management board, as in all other capital companies in Poland. It also introduced a new type of preferred shares – the founders’ shares, which have special voting rights, protecting the founders from dilution.
A public company may disclose various information to the bidders during the due diligence to the extent that it ensures appropriate level of protection of its confidential information (trade and enterprise secrets) and certain other information, which according to different regulations cannot be disclosed to third parties (such as professional secrets, banking secrets, or personal data). In disclosing such information during the due diligence, the company must comply with provision regulating such scope and extent of the disclosure.
The law provides that shareholders shall be treated equally in the same circumstances, therefore all bidders should have the same access to information in the same circumnutates. If the circumstances are different, the company may decide to disclose different scope of information.
The GDPR rules and restrictions apply also to target companies being subject to a due diligence, therefore the scope of personal information disclosed in the process must be strictly controlled and complied with the GDPR regulations.
In case of M&A transactions on the private market, the bid (offer), negotiations of the deal, as well as signing of any preliminary transaction documents does not generally need to be made public and are usually kept confidential. However, in case of transactions that are subject to the merger control clearance, as described in 7.5 Antitrust Regulations, submissions of notification by the bidder to the OCCP will be promptly disclosed on the publicly available OCCP website. Also, certain post-closing disclosure requirements apply to private deal, see 10.4 Disclosure of Transaction Documents.
A public tender offer will be made public immediately, and as such, public M&A deals are subject to MAR regulations and disclosure obligations with respect to acquisition of shares in exceeding certain thresholds, as described in 6.1 Stakebuilding. Also, the target company must disclose signing and closing of any such deal in the current report on the company’s website.
However, the company makes an internal assessment whether information about a given stage of the negotiations and the manner of its conduct meets the criteria of inside information and whether it should be made public and/or if a disclosure should be withheld and/or delayed. In that respect, typically, commencement of negotiations of a deal is disclosed as "consideration of strategic options".
The Polish takeover law provides that shares offered in a stock-for-stock takeover offer must be dematerialised, however, the law does not require that such shares must be listed on a regulated or an alternative market. The shares offered in a stock-for-stock bid are also not subject to the prospectus requirements.
Polish law does not require bidders to produce financial statements in their disclosure documents in a cash or stock-for-stock transaction either on a private market, or in a tender offer. It is also not common for the seller to request such disclosure from the bidder. Nevertheless, the Polish companies are obliged to annually file their approved financial statements to the registry court and such statement are publicly available in the NCR (since 2018 also online).
In general, in private share sale deals parties do not disclose to public the transaction documents. However, the buyer is obliged to inform the target company on becoming a shareholder, and the target company needs to file to the NCR information on the change of its shareholding structure. The NCR may require the company to disclose the underlying documents, evidencing the transfer of shares. In such case, extracts of documents are usually submitted to the NCR so that business information (such as price, payment terms, etc) do not become publicly available.
In the case of joint-stock companies, limited joint-stock partnerships and simple joint-stock companies, the transfer of shares to a purchaser is effective upon its registration by the brokerage house in the register of shareholders of the company. The company or the buyer must provide the brokerage house with all documents confirming the transfer of shares, and in some cases ancillary documents necessary to run the KYC procedure of a new shareholder. Additionally, in case of a merger, a merger plan for capital companies requires submission to the NCR.
In addition, as mentioned in 7.5 Antitrust Regulations, certain information and documents must be provided to OCCP. According to Polish law, the OCCP conducting the merger proceedings, may grant consent or prohibit the merger. In matters raising doubts as to the impact on competition, the law provides for the possibility of issuing a conditional consent, which allows the transaction to be made, at the same time imposing certain obligations on parties. Therefore, additional documents may be necessary to be submitted to the President of the OCCP.
In general, the management board of a Polish company manages the company and represents it towards third parties. In the context of an M&A transaction, the scope of principal duties of the management board will largely the depend on the type of the deal.
In the M&A transactions on the public market, the management board of the target is obliged to issue and disclose to the public and the PFSA its opinion on the tender offer including, among others, the boards’ opinion on the fairness of the price, the strategic plans of the bidder towards the target company and its employees or its interests. It also obliged to make relevant disclosures of inside information and in connection with the announced tender offer. It may also obtain the fairness opinion as further described in 11.4 Independent Outside Advice.
In a spin-off or a business combination (merger), the management board’s principal obligation it to prepare the spin-off or merger plan, arrange the participating companies’ valuations, make relevant notifications to the shareholders and filings to the registry court.
In case of a private acquisition, the management board’s obligations are not regulated by law, and the scope of their duties in the process will depend on the type and complexity of the transaction, as wells as on the engagement of the board members in the process by the sellers, but also on their post-closing engagement within the target company.
The management board’s duties are owed to the company, and the company’s interest shall be viewed as independent from that of the company’s shareholder(s) and/or affiliates.
The management board is not obliged to form any special or ad hoc committee for the purpose of an M&A transaction or in the case of a conflict of interest, and such practice is not common on the market. However, advice or consent may be obtained from the supervisory board (if established in the company), or from any of the supervisory board’s committees, which are usually formed in public companies. In some cases of conflict of interest, the supervisory board must also take an active role as it must represent the company in all agreements or disputes with management board members.
The management board is not always expected to be actively involved in negotiations of the proposed transaction and the board’s role will depend on the type of transaction.
In the context of public tender offers, the bidder and the principal shareholders may engage the board in negotiations, especially if they expect the board to issue a positive opinion, see 11.1 Principle Directors' Duties.
In most cases, the management board’s decisions relating to the M&A transaction are usually subject to their approval either on a supervisory board level or at a shareholders' level.
The shareholder litigation challenging the boards’ decision to recommend an M&A transaction is rare, however, there are several cases where the minority shareholders commenced litigation in certain tender offer or squeeze out cases.
An independent outside advice from various advisers is customarily obtained in most takeovers and business combinations (mergers and acquisitions) on public and private market. The scope of the advice depends on the type, complexity, or value of the deal, and also on the party seeking the advice. However, in general, the parties to the transaction usually engage corporate, financial, tax, or legal advisors to provide comprehensive assistance in different stages of the transaction process.
In case of a tender offer, the management board of the target company is obliged to issue, deliver to the PFSA, and disclose to the public its opinion on the terms of the planned takeover. In that context, the management board may seek to obtain a fairness opinion from the independent outside financial advisor, which may support the management board in giving a positive or negative recommendation. A fairness opinion may also be obtained in a privately negotiated M&A transaction.
Year in Review
2021 is a record-breaking year for the global M&A market. Estimated value of the global M&A market may reach a tremendous amount of USD6 trillion. Poland contributes to the global result. The Polish M&A market is thriving.
In the first quarter of 2021, about 30% more M&A deals were recorded on the Polish market, than in the corresponding period of 2020. In the second quarter, year-to-year volume increase was as much as 60%. In the third quarter, the volume of deals decreased slightly, compared to the first two quarters of 2021. However, it’s only a short break during the holiday season and not a signal of a change in trend. In the last quarter of a year the market is always very active and 2021 is no different.
In line with the global trend, tech M&A dominate the Polish M&A market in 2021. In the first quarter of 2021, 16% of all targets were companies from the technology sector. In the second quarter, the percentage increased to 29%, and increased even more in the third quarter, amounting to as much as 31%. Second place was taken by the FMCG sector (13% of all targets in the first and second quarter), which makes the technology market result even more impressive.
The data cited above show the growing importance of digital and online services, which reflects the current needs of the business.
The pandemic has forced a change and modernisation of the business models and operations for many enterprises, primarily through the implementation of digital solutions. Some companies decide to acquire resources necessary for technological transformation (IPR, know-how, employees) through Tech M&A, instead of developing them on their own. It is simpler, less complicated, and less time-consuming. An efficiently executed merger or acquisition will also be most likely cheaper, than performing R&D from scratch.
Frequent reasons for transactions are digitisation (inside and outside the organisation), offer expansion, strengthening supply chains, or increasing market share.
There is also a consolidation trend present in the TMT market. Strong players try to seize opportunities, including those given by COVID-19: younger and less stable companies weakened by the pandemic.
Low interest rates and fear of inflation are inclining companies with cash reserves to "go shopping", in order to achieve protection and multiply their capital through industry-led horizontal and vertical acquisitions.
Poland – a Place to Be
Poland has a large pool of internationally recognised IT talents and in annual industry reports Polish programmers are ranked in the top 5. The large availability of qualified personnel encourages technological giants to open their branches in Poland. Corporations that have opened R&D branches in Poland are, among others, Microsoft, Intel, Google, Amazon, and Uber.
The Polish start-up scene is also developing rapidly. Acceleration programs, that help young entrepreneurs to spread their wings, are very popular. The best investment results have recently been achieved by DocPlanner (circa EUR 77 million), Brainly (circa EUR27 million), Booksy (circa EUR25.5 million), and Uncapped (circa EUR67 million). The market has a huge potential and is more often attracting the attention of foreign investors. Whilst not exactly an M&A, the January IPO of In-Post with valuation at EUR9.5 billion should not be forgotten (https://www.reuters.com/article/us-inpost-ipo-idUSKBN29W0TF).
Programmers from countries further east, such as Belarus and Ukraine, are also coming to Poland as here they can earn more and reach a higher living standard, and therefore the number of IT professionals in Poland increases by the day. Poland was always the place where the West and the East met. Now, this is taking place in the technology and innovative sectors.
Tech M&A Challenges
Intellectual Property Rights
Private investors and funds are driven to acquire intellectual property rights. In deals in which intellectual property rights (IPRs) are the value for money, the challenge is to determine which of the IPRs are covered (or can be covered) by intellectual property protection. There are several categories of intellectual property protection in the Polish legal system. The applicable regulations for protecting a given IPR depend on the object of protection.
The first category of such objects are inventions, that are suitable for industrial application. They are protected by patent regulations.
Another category are industrial designs. They are eligible to be entered into a special register if they are of an "individual character". That "individual character" of an industrial design is assessed from the perspective of an "informed user".
In Tech M&A deals it happens that the inventions used by the target entity are undergoing the process of patentability verification. The same applies to industrial designs that are undergoing the process of registration. In such situations, the investor may order a probability assessment of whether the protection will be granted or refused by the patent office. The findings of such an analysis can be included in the share purchase agreement (SPA). The investor may try to discount the uncertainty of obtaining protection in the transaction price. Such estimates are by their nature evaluative, which may lead to disputes between the deal parties. A more reliable action is to use a variable price in the SPA, depending on whether the future patent protection will be granted, or industrial design registered.
Keep in mind, that a failure to obtain a patent or to register an industrial design does not automatically mean that a given object of intellectual property is not subject to legal protection at all.
Another category of objects is trade marks (names, logos, symbols, slogans), that are protected by registration. In their case, the issue of registration ability is much simpler. Other effects of creative activities are subject to the general rules of copyright.
In the Polish legal system, individual agreements with authors are of key importance for IPRs. Collective management of intellectual property rights on the company level, based on contracts with individual authors, is an important issue. Works, especially the most complex and valuable ones, are often created by teams employing many people. The constituent parts of the works, ie, the contributions of various authors, constitute a homogeneous work. Precise identification of a contribution of a given author or authors is usually impossible, or at least very difficult. As a consequence, detecting defective contracts with even a few authors may make it difficult or impossible to assess the ownership of intellectual property rights to the works in general.
This is a reason for employing experts specialising in Tech M&A to conduct the due diligence process. As part of due diligence, it is of crucial importance to detect negligence in the acquired company and handle it as a part of the transaction, so that it does not affect the business after closing.
Licences and software codes
Another challenge that requires an expert approach is the knowledgeable handling of licences and software source codes, especially in terms of open source. Quite recently, one of the funds (or in fact, their lawyers) demanded of a client of the authors' firm, whose company owns and develops cybersecurity software, a personal representation (along with indemnification) that there is no underlying opensource issue. The representation was to be made under the pain of personal financial liability reaching almost 100% of the deal value. IT should be added that the client, who was the founder and CEO of the company, did not write the software himself, and he was not going to personally gain a single euro from the transaction. All funds were to be allocated to the company for its development, described in detail in the investment agreement.
The deal was cancelled, and the described issue was a key dealbreaker. Anyone with programming experience knows that where the software developed by more than one programmer, there is a risk of open-source contamination. Described example shows how the lack of knowledge about dealing with the intellectual property rights in Tech M&A causes fear in the parties and harms a deal.
Some companies from the TMT industry, in particular those in the early stage of development, are characterised by (generally speaking) poor management of intellectual property rights. Technology enthusiasts are occupied with creating. Their management colleagues are busy dealing with team building, marketing, conferences, company growth, and – in general – putting out fires. Rights management takes a back seat. Investors shouldn’t expect complete order in the property rights in the acquired company. On the other hand, companies that are at first glance a bit disorderly may have hidden value and potential.
Considering the above, the ability to quickly and accurately select targets valuable in terms of intellectual property rights and development potential is of key importance for investors in the Tech M&A market.
Simplified Joint Stock Company
In 2021, a new type of commercial company was introduced in Poland, ie, a simplified joint stock company. In the justification of the act introducing the simple joint stock company, it was explained that introducing the said company is a response to social and business changes, with particular emphasis on the need to introduce a capital company into the Polish system, which would be an attractive form of running start-ups.
A noteworthy benefit of this new type of company is the possibility of selling and encumbering shares in a document form (form more liberal than a standard written form), eg, in an e-mail. This form of stock trading facilitates performing activities remotely, for example, investing with foreign entities or as part of crowdfunding campaigns.
In a simplified joint stock company, a Board of Directors may be established, a body of both management and supervisory role. On the Board of Directors, it is possible to appoint executive directors to conduct the company's affairs and non-executive directors to supervise the activities of executive directors. In other Polish capital companies, there is a classic division of management and supervisory boards. In these companies, investors wishing to have regular supervision over the company, without exercising management board duties on their own, must accept the necessity of having two boards.
A simplified joint stock company also keeps a register of shareholders and examines legal bases for the new shareholders to be entered into the register. A person entered into the register of shareholders is legally considered a shareholder.
Another convenience that may be interesting for foreign investors is the by default possibility of holding company meetings (and adopting resolutions) remotely. For other capital companies, it is possible only if the articles of association provide so.
Another new solution is the introduction of share capital, which can be paid in and withdrawn from the company without changing the articles of association (which in Poland requires a dragging procedure involving a notary public and registration in the court). Additionally, the shares in that company are not considered securities representing a fraction of the share capital of the company, therefore do not have a nominal value. Shares may be paid by contributions in kind (non-cash) and may be connected with certain rights, which allows for shaping a more flexible relationship between founders and investors.
Another noteworthy benefit is the simpleness of liquidating the simple joint stock company. The termination of the company's operations may be done by a traditional liquidation procedure or through the acquisition of all the company's assets by one acquiring shareholder, along with the obligation to pay off creditors and other shareholders.
The COVID-19 pandemic has disrupted the operation of supply chains. The "Rethinking supply chain resilience for a post-COVID-19 world" report by Capgemini shows that over 80% of the surveyed companies experienced a negative impact of the pandemic on their supply chains. As the main causes of disruptions companies indicate: delays in deliveries, logistical problems, and restrictions on international trade.
Such a state of affairs prompts companies to concentrate the supply chain within their own enterprise. In the Tech M&A field, acquisitions aiming at shortening the supply chain occur between equipment manufacturers and its distributors or companies providing services with such equipment.
One of the authors' clients decided to take advantage of his supplier's problems to take over his production lines. The target company struggled with disruptions in the continuity of supplies of components for electronic devices. It also had difficulties with delivering equipment to customers in foreign markets. The disruptions were so great that the company lost liquidity. Its acquisition was an opportunity for a local investor who, in addition to increasing control over the supply of equipment, was motivated by gaining an advantage over competitors in his core industry.
Production companies are not just the targets of acquisitions, but they also take over other companies. Some production companies have dealt well with the period of supply disruptions, and are strong enough to consider taking over other companies using their cash deposits. One of this firms' clients, a manufacturer of advanced electronic security systems for individuals, has been constantly looking for investment opportunities in Poland and abroad, for about two years now.
The position he has developed over the years, the continuity of supplies and cash reserves allow him to acquire companies distributing equipment that he produces. Having the equipment that distributors need allows him to leverage distributors to agree to partially barter transactions, ie, with the equipment he produces. The planned transaction will be an example of a "win-win situation". The client will increase and stabilise the market share, and as part of the settlement, he will "sell" the equipment to the company that he partially acquires.
Our observations show that market-share-driven takeovers are a trend in the e-commerce sector. Poland, with a population of 38 million, is a large market with a relatively huge market share of local entities. Polish companies are being acquired by foreign industry investors, intending to enter the Polish market. Even if the size of the acquired company is not enough for investors’ ambitions and his planned scale of operations, investors still make acquisitions of companies serving as hubs for their operations, with intention to develop them later.
Customer and prospect databases are important assets in market-share-driven takeovers in the e-commerce sector. When planning an acquisition of a company from that sector, one should remember to perform thorough due diligence in terms of the GDPR. The Polish Data Protection Office has imposed some multi-million penalties in the past. Aside from a financial penalty, one cannot risk the "falling apart" of a database due to legal deficiencies. The issues of personal data processing can be dealt with during the transaction, eliminating or at least minimising the investor’s acquired company’s risk.
In 2021 Polish VC sector is thriving. The beginning of the year was slower – the value of transactions in the first quarter of 2021 was comparable to the corresponding period from 2020 and amounted to approximately EUR54 million. The following quarters, however, brought satisfactory growth: in the second quarter of 2021, the number of transactions amounted to 118, and the value increased to approximately EUR185 million, which is about 4.5 times more than in the corresponding period of 2020. In the third quarter of 2021, in relation to the second quarter, a decrease of transaction value (approximately EUR130 million) was recorded, with an almost equal number of transactions (110).
Overall deals value is record-breaking in 2021. At the end of the third quarter, it was approximately EUR324 million, significantly exceeding the entire result for 2020 (approximately EUR274 million).
The Polish VC market is characterised by a relatively low "price" that investors have to pay for interesting start-ups. At the same time, it’s commonly accepted to grant investors broad additional rights related to shares in the company. Those additional rights can be of various nature. For example, they can be relevant during the development of the investment (supervisory competencies, control of the allocation of the invested funds), facilitate favourable exit from investment (tag-along, drag-along), or liquidation preferences.
For years, Polish start-ups have been supported with public funds, that are spent by private investment funds operating as public-private partnerships. Financial aid from public funds is distributed under certain conditions. One of the most important is the requirement to invest fund’s own money together with public funds. The most recent data, ie, for the third quarter of 2021, indicate that 61% of the capital came from public-private funds, and 39% from private funds.
An important trend on the Polish VC market this year is the mobilisation of state-owned companies. These companies view VC activity as an attractive form of investment. In addition to return on investment, state-owned companies treat start-ups as a source of innovation that they will be able to implement in their own enterprises. They also offer attractive non-financial support to start-ups, such as know-how exchange or the possibility of conducting pilot projects, that, if successful, can result in selling goods and services to large state-owned enterprises.
Polish state-owned companies active in the VC field worth mentioning are PKO BP (banking) and PGNiG (energy, gas company). Both capital groups established subunits intended to conduct VC activities and gather experience in that area. Both entities made remarkable transactions in 2021.
More state-owned commence activity in the VC sector. This firm is currently involved in a project of implementing regulations regarding VC operations in a leading capital group in the energy sector. The decision-making process in state-owned companies is highly conservative and rigid. Despite that, state-owned companies are currently willing to loosen internal regulations and corporate governance to enable their dedicated subunits to compete in the VC market. The challenge for those companies is to create a decision-making procedure, that is safe for decision-makers and, at the same time, enables efficient and unconventional operations on the VC market.
Polish e-commerce market in 2020 was worth approximately EUR17.4 billion, and, according to forecasts, is expected to grow by 12% annually. This means that in 2021 the projected value of the e-commerce market is approximately EUR19.5 billion. Online shopping has become very attractive to Polish consumers ‒ 14% of total retail sales are sold through online channels.
Along with the market growth, a large number of M&A transactions in 2021 is noticeable. For example, in the second quarter of 2021, out of the 24 acquired companies in the TMT sector, as many as one-third were companies from the e-commerce sector.
Telecommunications and media
What comes with no surprise, the largest Tech M&A transactions happening in the telecommunications and media market.
The largest transaction was the takeover of Polkomtel Infrastruktura from the Cyfrowy Polsat group by the Spanish Cellnex. The deal involves taking over Polkomtel's infrastructure (almost 7,000 telecommunications facilities, over 11,000 kilometers of optical fibre, and 37,000 radio carriers) and developing a 5G network covering the entire territory of Poland. The deal value was approx. EUR1.6 billion, and further circa EUR600 million over the next ten years. Cellnex stated that the deal will increase its backlog of contracted sales by EUR10 billion.
The second-largest transaction was the takeover of UPC Polska by Play Communications. UPC Polska is a telecommunications operator offering home access to television and internet. The deal value was approximately EUR1.5 billion. Play Communications is one of the leading Polish telecommunications operators, part of the French capital group Illiad. Thanks to the transaction, Play Communications will increase its user base to 17 million people, and will also accelerate the process of investing in optic fibre networks. This transaction is in line with the global trend of consolidating telecoms with companies providing at-home internet and television services.
The performance of telecommunications and media sector is also built by smaller deals, some of which include incorporating local firms (with access to infrastructure and consumers) into larger entities. During the last EU funding programme, the Smart Growth Operational Programme, some companies, including local ones, improved their infrastructure. This is another reason why they are an attractive acquisition target.
Polish gaming industry is an export commodity. The largest player, that needs no introduction, is of course CD Projekt RED (producer of, among others, The Witcher 3 and Cyberpunk 2077), which for some time was also the most expensive company on the Polish stock exchange.
Polish gaming industry also includes many other companies with interesting achievements and development promises, both in Poland and abroad. The sector stands out thanks to human resources and a good technological intellectual property environment. There are many world-renowned game developers in Poland, associated in smaller studios.
Polish gaming companies make noteworthy foreign acquisitions. CD Projekt RED took over the Canadian Digital Scapes studio. Another major company, Ten Square Games, acquired Rortos, an Italian developer of flight simulators for EUR45 million.
Go for It
Polish TMT companies, at various stages of development, are attractive acquisition targets for many reasons. Poland is a country with a population of 38 million, a high market share of domestic companies, a solid HR background supported by migrants from eastern countries, noteworthy intellectual property rights, and opportunities to obtain public funds as part of public-private investments.