The Bulgarian tech scene is currently seen as hotbed for foreign investors. In the last year there has been a surge in mergers and acquisitions within the tech sector, with 50% of all announced M&A deals focused on information and communication technology. Even as the global economy has faced its ups and downs, foreign investors, particularly from the US and Western Europe, have continued to show interest in acquiring Bulgarian tech companies.

The tech sector has led M&A activity in Bulgaria over the past year, attracting foreign investors due to the region’s favourable business climate and growth potential. Telecoms infrastructure deals have been prominent, while digital transformation has increased demand for tech companies, especially those developing AI and cloud solutions. Bulgarian tech start-ups have seen rapid growth, drawing interest from both local and international investors, including venture capital funds.

The new start-up companies are typically incorporated in Bulgaria. The incorporation process is considered relatively simple and inexpensive. At this time there do not seem to be any general advantages of having the start-up registered in another foreign jurisdiction. The incorporation is a quick process as the procedure itself takes about a week. Since the process involves the opening of bank account prior to registration of the company in the Commercial Register, the bank KYC procedures sometimes take longer to complete and may extend the incorporation timeline.

The most frequently used form of entity for initial incorporation of start-ups is limited liability company (OOD). The joint-stock company (AD) is usually considered a somewhat more sophisticated corporate form offering better corporate structuring and management options.

In 2023 Bulgaria introduced another type of company – the Bulgarian Variable Capital Company (VCC) – designed to provide start-ups with more flexibility and ease of incorporation than the traditional company structures. The technical infrastructure for VCC registration is anticipated to be operational in 2025.

In Bulgaria, early-stage financing is usually provided by business angels and/or venture capital funds which specialise in providing seed investments. Government sponsored funds are also a source of financing for early stage start-ups. There is no standard set of early-stage financing documentation. Usually, the documents include an Investment Loan Agreement and/or Shareholders’ Agreement together with Articles of Association reflecting the relevant arrangements between the parties.

The typical sources of venture capital in Bulgaria are local and foreign venture capital funds as well as business angels. While the venture capital ecosystem in Bulgaria has been growing, it is still relatively small compared to more mature markets. Therefore, securing venture capital can be competitive, especially for start-ups in early stages. However, there have been notable successes, and government initiatives and foreign investment have been contributing to the development of the VC landscape. Bulgaria has several government-sponsored venture capital funds. These funds aim to support local start-ups and provide them with the necessary capital to grow. Foreign venture capital firms are increasingly active in Bulgaria, particularly those with a focus on Central and Eastern Europe. They often bring international expertise and networks to the local start-up ecosystem.

It could be said that there are established standards for venture capital documentation in Bulgaria. The investment process is typically initiated by presentation of a pitch deck and business plan covering the start-up’s plans and strategy, market opportunity, and financial projections. Start-ups are also typically required to provide financial statements to the potential investors (if available). The process then continues with a due diligence procedure of the start-up (usually legal, financial and operational due diligence review) and completes with the signing of investment documentation which typically comprises an Investment Loan Agreement and/or Shareholders’ Agreement together with Articles of Association reflecting the relevant arrangements between the parties.

As a start-up grows and expands its operations, it may need to adopt a corporate form that better suits its needs. For example, a limited liability company (OOD) might be appropriate in the early stages, but the shareholders may need to transform the start-up to a joint-stock company (AD) which is often more suitable for larger companies with more shareholders, especially professional investors. If a start-up plans to expand into other countries, it may need to establish subsidiaries or branches in those jurisdictions, which often requires adopting the appropriate local corporate form. Investors may have specific preferences or requirements regarding the corporate form or jurisdiction. As a rule, in Bulgaria the joint-stock company is the preferred company form for a large number of the bigger investors. The authors have seen no cases where investors have required the start-ups to change their jurisdiction, except in cases of listings (IPO) on foreign stock exchanges.

In the past decade, more investors have opted for going public and listing on a securities exchange rather than seeking a sale, even though selling tends to remain the most common choice. In 2018, the Bulgarian Stock Exchange, with the approval of the regulators, established the SME Growth Market (BEAM) as a specialised market within the Bulgarian Stock Exchange designed to facilitate fundraising for small and medium-sized enterprises in Bulgaria. BEAM is primarily aimed at small and medium-sized companies registered as joint-stock companies in the country or abroad.

Bulgarian start-ups’ choice of exchange for listing depends on their target market and investor base. Domestic exchanges like BSE or BEAM offer easier access to local investors and simpler regulatory compliance. Foreign exchanges like London, Frankfurt or Warsaw provide greater visibility and access to international investors but require more complex compliance and foreign consultant support. Domestic listings may offer limited liquidity, especially for smaller start-ups, while foreign exchanges typically provide better liquidity due to larger trading volumes. The decision impacts fundraising success, investor reach, and overall valuation.

Listing on a foreign exchange can impact future sale feasibility, especially regarding minority shareholder squeeze-out rules. Different jurisdictions have varying regulations on squeeze-outs, potentially complicating the process of acquiring 100% control. Companies must comply with both home and foreign regulatory requirements, increasing complexity and costs. Foreign listings may attract a different investor base with unique expectations, potentially influencing sale terms. Additional approvals and filings for cross-border transactions can extend timelines and increase expenses. These factors collectively affect the dynamics of future sales for companies listed on foreign exchanges.

When a Bulgarian start-up decides to pursue a sale as a liquidity event, the choice between an auction and a bilateral negotiation depends on several factors.

For smaller or earlier-stage start-ups, a bilateral negotiation with a strategic investor or a private equity firm might be more appropriate. This approach can allow the company to maintain control over the sale process and potentially negotiate better terms. Larger, more mature companies with a strong track record and significant assets may be able to attract multiple buyers and benefit from an auction process. This can drive up the price and increase competition among potential bidders.

In a strong market with high demand for acquisitions, an auction can be a good way to attract multiple bidders and maximise the sale price. In a weaker market, a bilateral negotiation might be more suitable, as it can allow the company to focus on finding a buyer who is willing to pay a fair price despite the challenging market conditions.

If the company is looking for a quick sale, a bilateral negotiation might be more efficient. An auction process can take longer, especially if there are multiple rounds of bidding. If the company’s primary goal is to maximise the sale price, an auction can be a good option, as it can generate significant competition among potential buyers.

In some cases, a hybrid approach may be considered, where the company initially conducts a limited auction process to gauge interest and then enters into bilateral negotiations with the most promising bidders. This can help the company achieve a balance between maximising value and efficiency.

The sale of the entire company is the most common transaction structure for privately held technology companies in Bulgaria, and a sale of a controlling interest with VC funds retaining a minority stake might be considered in certain circumstances. The specific structure chosen will depend on various factors, including the company’s stage of development, the buyer’s preferences, and the VC investors’ objectives.

In Bulgaria, most transactions involving the sale of a privately held technology company are typically done as a sale of the entire company for cash. This provides a clean exit for the seller and complete liquidity for the shareholders, including VC investors.

While stock-for-stock transactions or a combination of stock and cash are less common in Bulgaria compared to cash-only deals, they can be seen in practice as the preferred choice under certain circumstances.

Founders and VC investors in Bulgaria are generally expected to stand behind representations and warranties and certain liabilities after closing. Indemnification and escrow/holdback mechanisms are commonly used to address these risks. While representations and warranties insurance is not as prevalent in Bulgaria as in some other jurisdictions, it can be considered in certain cases. Another valuable tool in technology M&A transactions is the earn-out mechanism. It allows the seller of a business to receive additional payments in the future, typically based on the start-up’s performance or the achievement of certain milestones. This can be an appropriate arrangement particularly when there is uncertainty about the future value of the target company. The earn-out can help bridge valuation gaps, align incentives, and reduce upfront payments.

In Bulgaria, the most common transaction type is a share transfer. When spin-offs are considered, they are typically driven by the need to separate distinct business units or to attract specialised investment, though such cases remain limited.

From a tax perspective, a spin-off is generally considered a tax-neutral event for both VAT and corporate income tax purposes.

From a corporate income tax perspective, the transformed companies and foreign business establishments will be subject to corporate income tax for the final tax period, as per the general tax laws. This taxation is considered conclusive.

At the shareholder level, accounting gains or losses arising from the acquisition of shares in the receiving or acquiring companies are not recognised for tax purposes in the year of acquisition. These gains or losses could lead to temporary tax differences in future periods.

Income earned from the acquisition of shares by foreign legal entities may be subject to withholding tax or be exempt, depending on the general tax laws and applicable Double Tax Treaties. Withholding tax on capital gains, if applicable, is due within 60 days of the share transfer.

There are no restrictions on conducting a business combination after a spin-off procedure is completed. However, the Bulgarian Commerce Act stipulates that during a spin-off process, neither the converting nor the receiving company can change its legal form simultaneously.

The specific requirements for a post-spin-off business combination depend on the nature of the transaction. Typical requirements may include adherence to applicable tax regulations, filing with the National Revenue Agency (NRA), obtaining merger clearance from the Commission for Protection of Competition (if necessary), registering relevant changes with the Bulgarian Commercial Register, and conducting due diligence on the business transaction.

A spin-off typically takes at least four months to complete. The timeline is influenced by statutory notification requirements to relevant authorities, preparation of necessary documentation, and obtaining certificates from foreign company registers, including notarisation and apostille. Before initiating the spin-off, parties must notify the NRA. The NRA issues a certificate within 60 days of the notification submission.

There is no sufficient publicly available information to conclude whether it is customary for an investor to approach the acquisition of a public company by way of gradually building and acquiring a stake prior to making a voluntary or mandatory takeover bid. However, it is not unusual for a potential investor to acquire minority stakes of shares in a public company before proceeding with the acquisition of larger stakes of shares, which would enable either (i) a voluntary takeover offer (in case the investor acquires more than one-third of the shares in a company which has a controlling shareholder) or (ii) which would trigger a mandatory offer placing requirements (in case of acquisition of more than one-third of the shares in a company which does not have a controlling shareholder or more than 50% of the voting rights absent controlling shareholder).

Strategies for use of “creeping” minorities may also apply to the extent an investor has acquired more than one-third but less than two-thirds of the voting rights and is generally prohibited from acquiring more than 3% of the shares within one year. On such occasions, the investor may acquire up to 3% per annum until mandatory offer threshold is reached and a mandatory offer is placed (please consider 6.2 Mandatory Offer).

The POSA also provides for the option for a person who has acquired more than 90% of the voting rights to register a tender offer with respect to the outstanding shares. If it does not wish to register a tender offer within 14 days of the acquisition of 90% of the voting rights, it will be required to notify the shareholders, the regulated market and the FSC on its intent to register a tender offer at least three months in advance of such future tender offer. Finally, a person who holds at least 5% of the shares in a public company and wishes to acquire more than one-third of the voting rights will be entitled to publish a tender offer after clearance of the draft tender offer by the FSC.

The calculation of the thresholds above is based on the compliance with mandatory disclosure of participation requirements under the POSA. The applicable thresholds for regulatory disclosure of voting right participations in the general meeting of the shareholders under the POSA are set to 5% of the voting rights and percentages multiple to five (10%,15%, etc). These disclosure requirements apply to both direct and indirect participation and to acquisitions of multiple investors acting in concert or under mutual control, so far as such participation shall entitle the investors to vote their rights in concert, directly and indirectly.

Respectively, disclosure requirements apply to divesting shareholders whose participation falls below the thresholds multiple to 5%. The details on the determination of the participation which require disclosure, and the disclosure procedures are set out in a special Ordinance of the FSC.

As a rule, a mandatory offer will need to be registered with the FSC and published (absent prohibition by the FSC) in the following cases: (i) when an investor or shareholder acquires a controlling stake of more than 50% of the voting rights (directly and indirectly) or of more than two-thirds of the voting rights, unless the excess shares are transferred within 14 days of the acquisition, so that the percentage falls below the mandatory offer thresholds. In case both thresholds are reached, only one tender offer is filed; or (ii) when an investor or shareholder acquires directly or indirectly more than one-third of the votes in a public company, which does not have a controlling shareholder with more than 50% of the voting rights, unless the excess shares are transferred within 14 days of the acquisition.

The obligation to file a mandatory offer shall occur in all cases of direct and indirect acquisition of voting rights including by related parties or parties acting in concert. The filing for registration of the offer will need to be made within 14 days of the acquisition of participation or within one month from the date on which the reorganisation or the capital decrease of the public company have been registered in the Commercial Register, in the cases where the thresholds for mandatory offer were reached as a result of the company reorganisation or invalidation of shares due to capital decrease.

The typical transaction structures are direct acquisitions either at the regulated market (the Bulgarian Stock Exchange) or off the floor of the exchange in OTC transactions. Complicated acquisition approaches (such as mergers or other forms of business combinations) are not typical, although legally feasible and practicable.

Public company acquisitions in the technology industry are typically structured as cash rather than as stock-for-stock transactions, although the consideration may well be discharged by way of stock-for-stock exchange (typically in the context of public company reorganisation). Cash is permissible and can be used in a merger transaction structure as well. It is typically used in cases of voluntary or mandatory takeover/tender offers. However, this will largely depend on the reorganisation procedures.

Pricing rules exist for the determination of the tender offer prices in the POSA and in a special FSC Ordinance. The price or the exchange value of the shares in the mandatory tender offer cannot be lower than the highest value among (i) the fair value of shares determined in the substantiation made in accordance with FSC Ordinance; (ii) the average weighing market value for the last six months before registration of the tender offer; and (iii) the highest value per share paid by the offeror and/or the parties related to the offeror during the last six months before registration of the offer. The mandatory tender offer price cannot be lower than the average weighing market value for the last six months, or absent such value – of the highest value per share paid by the offeror or parties related to it during the last six months before registration of the offer with the FSC. The offeror is obliged to substantiate the mandatory tender offer price. With respect to the substantiation of the price, the provisions of a special FSC Ordinance shall apply.

Tender offers are subject to registration with the FSC and may be published in case the FSC does not issue a temporary prohibition within 20 business days of submission. On the day of the registration of the offer with the FSC the offeror shall submit the offer to the management body of the company, to its employee representatives, with an express note that the FSC has not considered the mandatory offer yet. The management body shall on its behalf notify the employees of their representatives of the substantial conditions of the offer. The substantial conditions shall be (i) the information about the offeror; (ii) the price per share offered or the exchange ratio for the shares; (iii) the number of voting right shares owned by the offeror and those it is obliged to or wants to acquire; (iv) information on the future intents and strategic plans of the offeror with respect to the public company, along with a summary of the substantiation/reasoning of the price. Based on the foregoing, the management body shall file with the FSC within seven days of the receipt of the offeror’s notification an opinion on the proposed. The opinion shall also include information on the existence of contractual arrangements on the exercise of voting rights, to the extent know to the management as well as information on the number of shares owned by the members of the management as well as on their intent to accept the offer or not. The employees’ opinion is attached to the one prepared by the management body.

From the receipt of the offer until publication of the result of the offer, the management body cannot undertake actions aimed at preventing the offer, impeding or increasing the cost of the offeror, such as the issue of shares or entry into transactions which might result in material change in the estate of the company unless such actions are approved by the general meeting of the shareholders, except in case of a competitive tender offer. The general meeting of the shareholders shall also approve any decision of the management body for the actions above adopted prior to the receipt of the tender offer outside the ordinary course of business.

A competitive tender offer may also be registered.

While it is possible for an offeror to enter into a transaction agreement in connection with the takeover offer or business combination, it is not customary. In any event, strict adherence to EU Market Abuse Regulation (MAR) requirements is essential, especially regarding insider information and disclosure restrictions for management members.

In purely domestic transactions governed by Bulgarian law, very detailed representations and warranties are not typical for public companies. Such clauses are more common in international transactions or those governed by legal systems where detailed representations and warranties are standard contractual provisions.

Within three business days from clearance of the tender offer by the FSC, a notice of the tender offer shall be published along with the material conditions thereof in one national daily newspaper or on the website of a news agency or other media, which can ensure the effective announcement of the regulated information to the public in all EU member states. A final version of the tender offer shall be submitted to the company and the regulated market. The company, the investment intermediary and the regulated market on which the shares have been admitted to trading shall disclose the tender offer on their websites until the expiration of the term for acceptance of the said offer. The company shall also disclose the tender offer and the opinion of the management body. Any advertisement must indicate the issue number and the publication date of the national daily newspaper, and the websites referred to above. As a rule, a tender offer may not be withdrawn by the offeror after publication. Exceptions shall be admissible solely where the offer may not be effected due to circumstances beyond the control of the offeror, provided that the term for acceptance has not expired, and if the FSC has approved the withdrawal. Within seven days after notified approval, the offeror shall publish a notice of withdrawal in one national daily newspaper or on the website of a news agency or other media, which can ensure the dissemination of the regulated information to the public in all EU member states. Within three days after receipt of a notice of withdrawal, the investment firm or the central securities depository in which the documents certifying the shares are deposited shall ensure conditions for restoration of the certifying documents to the shareholders who or which have accepted the offer.

A tender offer shall be accepted by an express statement and deposit of the documents certifying the shares with an investment firm or with the central securities depository.

A person who as a result of a tender offer has acquired more than 95% of votes in the general meeting of the shareholders shall have the right to acquire the remaining voting right shares within three months after the expiry of the term of the tender offer. The squeeze-out offer shall be approved by the FSC. The squeeze-out price shall be at least equal to (i) the price of the mandatory tender offer at which the 95% threshold was reached; (ii) the price of the voluntary tender offer in case of acquisition of 90% of the shares; or (iii) the price determined in relation to the substantiation of the tender offer consideration.

The tender offeror must submit a bank letter or similar financial document with the tender offer document. This evidence must confirm the availability of funds to finance the tender offer as of the price justification date or, if temporarily prohibited, the date before the amended tender offer document submission. While the FSC has accepted various bank letter formats, it has not required a specific “certain funds” commitment from lenders.

The MTO disclosure document does not need to include detailed information about the tender offeror’s financing terms, fees and costs. Additionally, Bulgarian law does not mandate the disclosure of due diligence information provided to the tender offeror and its lenders to other target shareholders. However, the MTO disclosure document must still comply with legal requirements and avoid misleading information or material omissions.

Upon receiving the tender offer disclosure document, the target company’s management board is legally prohibited from taking actions that could hinder the offer’s success or impose significant costs or difficulties on the offeror. Exceptions include seeking a competing bidder (white knight) or implementing other defensive measures approved by a shareholder meeting (eg, capital increase). Such defensive measures are however uncommon in Bulgarian M&A practice.

If a bidder fails to acquire 100% of the capital of the target company but holds 95% of the issued share capital of the target, it is entitled within the three-month period after the tender offer completion to acquire the remaining shares for fair consideration under a forced (squeeze-out) sale procedure – please refer to 6.8 Squeeze-Out Mechanisms.

Where a bidder fails to acquire the necessary shareholding for a squeeze-out, contractual arrangements can be employed to enhance governance rights. These may involve entering into specific agreements with other shareholders which may secure specific governance privileges. Given the strictly regulated nature of listed companies, however, contractual instruments may not always be possible to secure governance rights.

The offeror is not explicitly restricted under law from entering into deals with minority shareholders to purchase their shares or secure commitments for tender offer acceptance or voting. Therefore, agreements with shareholders in the target company that provide for irrevocable commitment of shareholders to tender their shares, subject to the fulfilment of specific conditions, particularly regarding the offered compensation amount, are not uncommon. However, such deals must comply with the tender offer regulations, market abuse rules, and general legal principles, ensuring equal treatment of all shareholders in similar positions.

The tender offer process involves registration with the FSC, including the submission of a disclosure document containing key information about the offer. The FSC may impose temporary or final prohibitions on the tender offer if the documentation is insufficient or if investor interests are at risk. Once approved, the tender offer is announced publicly, and the target company’s management body is required to provide a reasoned opinion on the offer. The timelines are discussed in more detail in 6.14 Timing of the Takeover Offer. During the tender offer period, a shareholder holding at least 5% of the target company’s shares may make a counterbid to acquire more than one-third of the issued share capital, provided the offer price exceeds the original tender offer price and is approved by the FSC. A counterbid triggers an extension of the offer period and allows the original offeror to improve its offer. While counterbids are legally permissible, they are rare in Bulgaria and specific regulations governing them are limited.

Acquiring more than one-third, 50% or two-thirds of the total number of votes in a public company will typically trigger an obligation of the acquiring shareholder to register with FSC within 14 days after the date of exceeding the threshold, a tender offer for the purchase or exchange of all the remaining shares.

The review of the mandatory tender offer documentation usually takes around 80 days for the FSC to complete, but in practice the approval procedure may last longer. After the approval of the tender offer the specific offer period starts to run. It cannot be shorter than 28 days or longer than 70 days. The exact length of the offer period is specified in the MTO disclosure document.

The payment and delivery of shares is usually completed within one week after the publication of the final results of the tender offer.

Start-ups in Bulgaria are set up by registration in the Commercial Register and Register of Non-Profit Legal Entities. The incorporation process typically includes:

• preparing the documents (resolutions, articles of association, declarations, etc);
• opening a bank account in Bulgaria and transferring the share capital to it;
• registering the new company in the Commercial Register; and
• registering the ultimate beneficial owner in the Commercial Register within seven days (where relevant).

It is possible simultaneously with the incorporation of the new company to also have it registered for VAT purposes as the simplest and fastest way to get a VAT registration.

The entire process for the establishment of a company in practice can take between one and two months to complete, where the most time-consuming step is usually the opening of a bank account due to the very strict KYC/AML procedures and requirements applied by Bulgarian banks.

Additional legal requirements may arise for entities that will operate in highly regulated sectors such as banking, gambling or electronic communications. Depending on the relevant industry, the regulator, the legal procedure and the applicable deadlines will vary. The applicability of the respective regulatory requirements should be analysed on a case-by-case basis.

The primary securities market regulator in Bulgaria is the Financial Supervision Commission.

In March 2024, Bulgaria introduced a general approval regime of foreign investments in line with the requirements under Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union (“FDI Regulation”). By virtue of amendments in the Investment Promotion Act, the regime requires prior review and approval on national security grounds for foreign direct investments (FDIs) in certain key areas of interest for national security purposes. The approval regime should have come fully into force in September 2024. However, as of 1 November 2024, the secondary regulation required had not yet been adopted. Consequently, the approval regime is still not operational, and the notification and suspension obligations do not currently apply to foreign investors.

The approval regime requires FDIs in the fields of activity listed in Article 4(1) of the EU FDI Regulation that trigger the threshold of EUR2 million or target at least 10% of the share capital, to be notified and cleared in advance by a special Interdepartmental Council on FDI Screening. Investments by investors, having non-EU government (public) shareholding or participation are notifiable, even when below the investment thresholds, except for some low-risk countries enjoying preferential treatment (eg, the United States, the United Kingdom, Canada, Australia and others).

The preferential treatment of the low-risk countries is expected to be further regulated in the upcoming secondary legislation. A requirement for a minimum 5% non-EU government participation applies to a listed investor (a public company listed on a regulated market) for the application of this below-threshold notification obligation.

The FDI must involve the fields of activity listed in Article 4(1) of the EU FDI Regulation and/or be aimed at a target engaged in hi-tech activities. The specific sectors listed in Article 4(1) (energy, transport, water, health, communications, media, etc) are indicative but not exhaustive, and the FDIs need to have a potential effect on the critical infrastructure; critical technologies and dual-use items; supply of critical inputs, including energy or raw materials; as well as food security; access to sensitive information; and the freedom and pluralism of the media. The sectors affected by the local approval regime are expected to be further specified in the anticipated secondary legislation.

In addition, FDIs by Russian and Belorussian investors, as well as investments in petroleum and petroleum-based products concerning critical infrastructure, are explicitly caught by the local approval regime, irrespective of the common thresholds. These investments are subject to mandatory prior notification and approval, when they trigger the common threshold of EUR2 million or 10% of the capital of the target. However, investments by Russian and Belorussian investors, as well as investments in petroleum and petroleum-based products, may still be subject to review at the initiative of the authorities (ex-officio review), including after completing the investment (ex-post review), even where they have not triggered the notification obligation, either because they are below the thresholds, or because they were completed before the notification obligation came into effect (the notification obligation will start to apply after the adoption of the secondary regulation on FDI screening).

In exceptional cases, the authority also has ex-post screening powers to review other FDIs on national security grounds, irrespective of their value and field of activity.

In addition to the general approval regime, certain sector-specific restrictions apply to foreign investments of offshore companies from tax havens, as well as FDIs in the gambling industry and in the acquisition of farmland, but they are rather limited in scope and effect.

Other than the FDI screening process outlined in 7.3 Restrictions on Foreign Investments, there are no additional rules on national security review.

Export control rules in Bulgaria are in line with the EU export control legal framework. Export/import control exists with respect to the following groups of items.

• Defence-related products listed in a special list approved by the Bulgarian Council of Ministers and published in the State Gazette in accordance with the Bulgarian Defence-Related Products and Dual-Use Items and Technologies Export Control Act.
• Dual-use items subject to control of export, brokering, technical assistance, and transit are listed under Annex I of Regulation (EU) 2021/821.
• Dual-use items subject to control of transfer are listed under Annex IV of Regulation (EU) 2021/821.
• Defence-related products as well as dual-use items and technology subject to import control are listed under Regulations 208/07.06.2024 of the Bulgarian Council of Ministers.

The local merger control rules are triggered where a transaction constitutes a “concentration” within the meaning of the Bulgarian Protection of Competition Act and the relevant domestic turnover thresholds are met.

As a rule, concentrations are notifiable to the Commission for the Protection of Competition (CPC), if they are not within the competence of the European Commission. “Concentration” is in place in case of change of control on a lasting basis and specifically:

• in the case of the merger or amalgamation of two or more previously independent undertakings; or
• where one or more persons, already controlling at least one undertaking, acquire control, directly or indirectly, in respect of other undertakings or parts of them, via acquisition of shares or property, by contract or by any other means.

Joint ventures performing on a lasting basis all the functions of an economically autonomous entity would also constitute a concentration.

A change of control assessment would require consideration of both the law and facts. Generally, the substantive test is whether the transaction will result in the ability to exercise decisive influence over an independent undertaking by means of the right of veto on one or more of the strategic decisions of the company (eg, approval of the budget and business plans, and appointment of senior management).

In Bulgaria, there is currently no market-share notification threshold. The quantitative criterion is based on domestic turnover thresholds and a transaction is subject to mandatory prior notification and clearance by the CPC where:

• the combined aggregate annual turnover of all the undertakings participating in the concentration in the territory of Bulgaria during the preceding financial year exceeds BGN25 million; and
• either the total annual turnover of each of at least two of the undertakings participating in the concentration in the territory of Bulgaria during the preceding financial year exceeds BGN3 million; or
• the total annual turnover in the territory of Bulgaria during the preceding financial year of the entity subject to acquisition (the target) exceeds BGN 3 million.

The undertakings are obliged to notify the CPC of the concentration after the contract is concluded, after the tender bid is publicly announced, or after control is gained, but before any real actions are undertaken to implement the transaction. Any further factual or legal actions related to the intended concentration are forbidden until the CRC issues a permission.

Labour relationships are regulated by the Bulgarian Labour Code and other relevant pieces of legislation, collective labour agreements, and internal rules, policies and orders of the employers. The Labour Code sets minimum standards and most of its provisions are mandatory and may not be waived by the employee. Overall, Bulgarian labour law rules are consistent with the EU legal framework and provide for wide protection of employees.

With respect to M&A transactions, it should be noted that there are cases where employment relationships are transferred automatically to the acquirer on the same contractual terms and conditions:

• merger of enterprises by the formation of a new enterprise;
• merger by acquisition of one enterprise by another;
• distribution of the operations of one enterprise among two or more enterprises;
• passing of a self-contained part of one enterprise to another;
• change of the legal form of business organisation;
• change of the ownership of the enterprise or of a self-contained part thereof; and
• transfer of business from one enterprise to another, including transfer of tangible assets.

These cases require the observance of an information and consultation procedure with the trade unions and employees’ representatives under the Labour Code, typically by the transferor (old employer). Such consultations must start at least two months before the transfer. If there are no trade unions or employees’ representatives, the procedure shall be conducted with the transferring employees. The employer shall duly inform them about the following:

• the transfer and its timeline;
• the rationale behind the transfer;
• the possible legal, economic and social implications of the change for the employees; and
• the measures envisaged in relation to the employees.

If the transfer affects existing employees of the transferee – eg, some are about to be terminated – the transferee shall also conduct an information and consultation procedure.

The procedure is rather formalistic and is usually completed with one or two meetings. It cannot hinder in any way the transfer as no party to the consultations has the right to veto the transfer. Non-abidance by the consultation procedure rules does not render the transfer invalid but creates an exposure for each employer to an administrative sanction amounting to up to EUR2,500.

No currency control and local law requirements or central bank approvals apply for an M&A transaction. Under the Currency Act there are statistical reporting requirements for opening and maintenance of accounts abroad, for direct investments abroad and for finance transactions between local and foreign residents. Statistical declarations and reporting requirements apply as well for cross-border transfers and payments. However, such declaration and reporting requirements serve only the purposes of the statistics of the national payment balance and of the international investment position of Bulgaria.

Recently, some legal developments affected the Public Offering of Securities Act (POSA) which resulted from transposition of the Shareholder Rights Directive II into Bulgarian legislation. The amendments to POSA include regulation of proxy advisers, General Meeting of Shareholders’ approval and publication of the policy on remuneration for board members, as well as publication of a report on the fulfilment of the remuneration policy, etc.

Measures for implementation of Regulation (EU) 2020/1503 on European crowdfunding service providers for business were undertaken.

Other foreseeable legal developments which might affect technology M&A, include the euro reform and currency adoption in Bulgaria.

As a condition to membership in the eurozone, Bulgaria should fulfil certain convergence criteria. In this regard, the Parliament also adopted a decision to accelerate and complete the process of practical preparations for adoption of the euro in Bulgaria. According to this decision, the government should request a date for the country’s accession to the eurozone from 1 July 2025 if convergence criteria are met.

Overall, the due diligence process in Bulgarian technology M&A transactions is designed to provide bidders with the information they need to make informed decisions and to mitigate risks. The information is usually provided under strict terms and conditions set forth in express non-disclosure agreements. Clean team arrangements and insider trading prohibitions are common. While there may be specific limitations on the information that can be provided (eg, GDPR restrictions), public companies are generally expected to provide a reasonable level of due diligence to potential buyers. The level of technology due diligence that the board may allow will depend on the specific circumstances of the transaction. Sensitive or confidential information can be provided in stages, and the most confidential information may be provided only to top-ranked bidders or after submission of binding offer.

Any processing of personal data during the due diligence of a technology company would need to be compliant with the requirements of the EU GDPR. There are no locally specific personal data protection rules in Bulgaria concerning the due diligence process.

Specifically, disclosure of personal data must be minimised if insignificant for the due diligence process. The only available legal basis under the GDPR for such disclosure would be the legitimate interests of the involved parties. Hence, the disclosure must be truly necessary and balanced against the rights and freedoms of the affected data subjects. The legitimate interest assessment should be duly documented. Overall, certain categories of personal data would need to be deleted or anonymised: typically, those would be employees’ data, and specifically any sensitive categories of personal data such as health data.

Another aspect would be implementing appropriate technical and organisational measures for the relevant processing operations in a manner that ensures the security of any uploaded and disclosed personal data.

Finally, in case the due diligence would require the transfer of personal data to non-EU/EEA third countries, it would be necessary to implement appropriate safeguards for the transfer as per the requirements of the GDPR. Typically, this would mean implementing the standard contractual clauses adopted by the European Commission or relying on an adequacy decision such as the EU-US Data Privacy Framework.

Please see 6. Acquisitions of Public (Exchange-Listed) Technology Companies.

The Prospectus Regulation provides exceptions to the obligation to publish a prospectus prior to offering securities to the public or admission to trading on a regulated market.

The exemptions to the obligation for publishing a prospectus related to offering of securities in connection with a takeover by exchange offer are only applicable to equity securities, where a document is made available to the public under the Prospectus Regulation, containing information on the transaction and its impact on the issuer where (i) the equity securities offered are fungible with existing securities already admitted to trading on a regulated market prior to the takeover and its related transaction, and the takeover is not considered to be a reverse acquisition transaction, or (ii) the FSC has issued a prior approval of the document with information on the transaction and its impact on the issuer.

In the first case described above, it is required that the equity securities offered are interchangeable with existing securities already admitted to trading on a regulated market.

There is no separate requirement for bidders to produce financial statements in their disclosure documents in a cash or stock-for-stock transaction.

However, any issuers for which Bulgaria is considered to be a home member state and whose securities are admitted to trading on a regulated market, are required to disclose regularly certain information as provided in POSA, including their financial statements.

Issuers are required to disclose their annual financial statements to the public within 90 days of the end of the financial year and up to 120 days of the end of the financial year for issuers which are required to prepare consolidated financial statements.

Furthermore, issuers are required to disclose publicly a six-month financial report.

Usually, the local entities prepare their financial statements on the basis of National Accounting Standards adopted by the Council of Ministers and comply with the acts of the European Union and national circumstances.

Some entities are required to prepare their financial statements on the basis of International Accounting Standards. Such entities include credit and financial institutions, investment firms, management companies and collective investment schemes, persons managing alternative investment funds and collective investment undertakings, undertakings whose transferable securities are admitted to trading on a regulated market in a member state of the European Union.

When referring to International Accounting Standards, the local Accountancy Act refers to International Accounting Standards (IAS), International Financial Reporting Standards (IFRS) and related interpretations (SIC-IFRIC interpretations), as amended and interpreted by the International Accounting Standards Board.

In the cases where a bid is required to be made public, the tender offer should be registered with the Commission and could only be published if the Commission does not issue a temporary prohibition within 20 working days after filing. If the Commission does not issue the relevant act within this term, it is considered that the FCS has rendered a tacit acceptance of the tender offer.

This requirement does not apply to a tender offer for the acquisition and/or exchange of shares with voting rights of a company which has its registered office in another member state and whose shares are admitted to trading on a regulated market in Bulgaria, which has been subject to approval by the competent authority of that member state.

Furthermore, regarding the general obligation to issuers to disclose regulated information, it is required that information relating to the material transactions of the public company for the relevant reporting period should be properly disclosed in the notes to the financial statements.

According to the Commerce Act, board members, including the principal directors, should perform their duties with the care of a good merchant in the interest of the company and all shareholders. This obligation refers to all duties of board members, including when entering into any kind of business combination. Their duties are owed to company shareholders, but there are also general obligations to act in a transparent and in a non-deceptive manner to all third parties.

On the other hand, it should be also noted that according to the Bulgarian law, the care of a good merchant is considered to be higher due diligence care, requiring the possession of relevant commercial experience, professional knowledge and skills.

As regards the protection of the company’s interest, the board members are not entitled, on their own behalf or on behalf of others, to carry out commercial transactions, to participate in commercial companies as unlimited partners, or to act as procurators, managers or members of the boards of other companies or co-operatives where a competing activity of the company is carried out. This restriction does not apply if permitted under the company’s by-laws or by express consent.

In relation to any business combinations, board members should not disclose, including after termination of mandate, the information which has come to their knowledge when it could affect the activities and development of the company.

The Bulgarian law does not impose an obligation to establish special or ad hoc committees in the context of mergers, acquisitions, or other business combinations, but it is permitted for boards to constitute such committees when deemed beneficial to the interests of sound corporate governance. These committees may be instituted as a best practice measure or pursuant to internal governance policies. Although their formation is relatively uncommon, companies could nonetheless create ad hoc committees to conduct independent evaluations of business combinations, particularly where potential conflicts of interest risk compromising the objectivity of the board’s decision-making process.

As described in 11.1 Principal Directors’ Duties, the Bulgarian law provides that members of the board (with either a one-tier or two-tier structure) should perform their duties with the care of a good merchant, meaning also that each member of the board should act in the best interests of the company and its shareholders, an obligation that could also be required in the process of active involvement in M&A negotiations.

Practically, these responsibilities could generally extend to providing shareholders with a well-considered recommendation regarding the proposed transaction. In making this recommendation, the board is expected to exercise due diligence, conduct a thorough analysis, and base its opinion on an informed assessment of the company’s long-term interests and the transaction’s fairness.

The concept of shareholder litigation challenging the board’s decision to recommend an M&A transaction is uncommon in Bulgaria. However, shareholders may still challenge a board’s decisions, particularly in high-profile or contentious transactions, on the grounds that directors failed to act in the company’s best interests.

Bulgarian law requires board members to disclose conflicts and refrain from decision-making where a personal interest exists. Assessing the management and disclosure of conflicts is crucial for buyers to avoid subsequent shareholder claims based on such issues.

When referring to a takeover or a business combination in Bulgaria, usually independent advice is sought in relation to legal and financial expertise, to ensure that the transaction complies with Bulgarian law and serves the best interests of shareholders.

The financial advice provided in the process of an M&A transaction often includes assessment of the transaction’s financial structure, pricing, and in some cases the fairness and competitiveness of the offer, etc.

Providing a fairness opinion is not legally required under Bulgarian law, and therefore it is relatively uncommon in Bulgaria, but could be prepared for specific M&A transactions. This opinion assesses whether the transaction’s terms are financially fair to the company’s shareholders. Fairness opinions serve as a safeguard, offering directors an objective assessment to justify their decisions to shareholders.

Other common independent outside advice which is obtained in the process of business combinations in Bulgaria relates to legal due diligence and analysis. A legal due diligence usually includes analysis of the target company from a corporate and commercial perspective, real estate analysis, litigation and employment analysis and any other analysis which is specific to the company’s business.

Other analysis may include various types of technical analysis based on the structure of the planned project and the company’s commercial activity.