Structural changes within companies are one way of increasing revenue and capital accumulation. By merging companies or creating a completely new entity consisting of pre-existing entrepreneurs, the market position of a given company is strengthened. However, it is a complicated and lengthy process, in the course of which it is easy to make mistakes.

Read what constitutes a comprehensive M&A service and what a law firm can help you with.

What is M&A?

Mergers and Acquisitions (M&A) are actions that aim to:

  • merger of entities with a similar market position in order to create a completely new legal entity,
  • acquisition of a company with a weaker position by a stronger company.

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    Although in both procedures a merger of companies’ assets takes place, the situation in each case will look slightly different.

    Joining forces by entities with a similar market position is known as merger. In this case, shareholders of both companies usually retain similar influence on the management, functioning and policy of the new entity. The doctrine points to two types of mergers. It can be a merger by

    1. acquisition,
    2. establishment of a new company.

    In the case of a takeover sensu stricto, a weaker company is “absorbed” by a stronger company, which usually retains a dominant influence in shaping the situation in the company and at the same time takes over the resources of the smaller company. An acquisition takes place through:

    • the purchase of shares or stocks in accordance with the provisions of the Commercial Companies Code,
    • the purchase of components of an enterprise.

    In practice, reverse takeover is also distinguished, i.e. acquisition of control in the acquiring company by shareholders of the acquired company.

    The division of mergers and acquisitions is not of a strict nature, therefore, each time the procedures aimed at merging entrepreneurs with each other must be individually planned and carried out. Much depends not only on their position, but also on the target customer sector, industry, technological level or convergence in market vision.

    When is it worth using M&A procedures?

    Due to the variety of market situations and dynamically changing economic conditions, the reasons for carrying out M&A will be different each time. Most often, the decision to take such steps is determined by:

    • Striving to increase the scope of the conducted business

    This rationale may be followed by companies from the same sector (e.g. construction), when they want to increase the range of provided services or reach new clients or enter new markets (also foreign). Diversifying the range of services or products offered also leads to independence from market instability in the original sector.

    • Safeguarding against competitive influences

    A stronger company is less susceptible to market mechanisms, price fluctuations and actions aimed at weakening its position as part of unfair competition. It also effectively eliminates some players from the industry.

    • Gaining know-how

    Many companies are keen to have their structures taken over by an entrepreneur with more modern technology. They gain access to patents, more advanced technological lines or specialists whose services are extremely expensive.

    • Elimination of margins and fees

    In the manufacturing industry, it is common for plants to use the same supplier for many years. You may find that instead of paying a margin to the supplier of the goods and lengthening the logistics chain, it is cheaper to merge companies and create a comprehensive structure. It can take care of the entire trade process from the beginning (production of goods and their processing) to the end (delivery of the product to the recipient).

    • Increasing the company’s liquidity

    Mergers and acquisitions are also used to raise new sources of finance. Higher capital makes it easier to obtain credit, loans or leases on favourable terms and to restructure liabilities more profitably.

    • Simplifying the management model

    A properly executed M&A strengthens the position of management. Most often this goes hand in hand with an increase in remuneration and revenue, as well as simplification of the entire decision-making path. This is particularly important in capital groups, where an overly complex network of mutual relations between parent companies and subsidiaries can sometimes lead to ill-considered decisions or even blocked actions.

    What services does a law firm provide in the context of M&A?

    M&A processes are complex transactions that consist of many threads. Each of them must be taken into account and properly conducted so that at the end the companies achieve the desired effect. Contrary to appearances, functions and acquisitions are not only a combination of capital or changes in management boards.

    It is also about ensuring the protection of jobs, taking care of the company’s legal situation and the compliance of all procedures with the law.

    All of these areas can be handled by a law firm that specialises not only in providing day-to-day services to business entities, but also in supervising, coordinating and comprehensively supporting M&A procedures. What assistance can you count on?

    Transaction advisory in M&A processes consists of a comprehensive market analysis in order to find optimal sources of financing, potential investors and the preparation of an action strategy. Mergers and acquisitions are complex activities that require careful planning even before the first step is taken.

    Every change in the structure of a company should be preceded by the creation of a detailed business plan and an assessment of potential risks. It is also necessary to conduct business talks and negotiations in order to obtain the best possible result.

    As part of transaction advisory:

    • the company receives comprehensive information about financial conditions, business and legal conditions, which it can use during negotiations with investors,
    • a qualified team of specialists helps to identify targets and business intentions of competitors
    • data is collected on the functioning of the entire sector so that it is possible to formulate a long-term corporate strategy.

    Using transaction advisory services, you can prepare and plan your M&A transaction exactly as you wish, without relying on chance.

    Valuation of companies involved in M&A

    Valuation of a company for the purposes of M&A is supposed to answer the question of how much the company is actually worth. It is natural that the buyer aims to obtain the lowest possible price in order to maximise future returns. The seller, on the other hand, aims to receive the highest possible price.

    Valuation may concern not only shares, but also the company itself (its components, such as machinery, production lines). Usually the market value or fair market value is taken into account, which is a broader and more authoritative concept.

    The valuation of an enterprise can be done in different ways. In practice, the most commonly used approach is

    1. asset-based – the value of a company’s assets is reduced by its liabilities (including public and legal assets and liabilities),
    2. comparative – the transaction price is compared with the values of other, comparable enterprises (taking into account key economic indicators)
    3. income – the value of income is discounted by the rate of return,
    4. unconventional – applied in unconventional projects with a high degree of risk.

    Of course, within each approach different methods are distinguished, which should be selected individually for the valuation. For example, the comparative approach distinguishes between the adjusted net asset method, the liquidation value method and the replacement value method.

    The choice of method should depend on the available data, the legal circumstances and the purpose of the valuation itself.

    A properly conducted valuation is the result of cooperation between lawyers, accountants and tax advisors, thanks to which a party to a transaction:

    • identifies the company’s weaknesses that prevent it from developing its full financial potential,
    • determines the main sources of costs and revenues, which enables better planning of development after the M&A transaction,
    • create a flexible business model based on a realistic profit and loss account and generate a business forecast in advance.

    All collected data are compiled in the form of a report supplemented with the opinion and recommendations of specialists.

    It should be remembered that each valuation of a company should be carried out on the basis of the current International Financial Reporting Standards (IFRS) and National Accounting Standards (NAS). These are the guidelines against which every business operation is evaluated.

    Comprehensive due diligence

    Thorough knowledge of a business partner is the key to success. This is why due diligence is often used at the preliminary stage of M&A (before negotiations even begin). Depending on its scope, it is conducted by a team consisting of lawyers, accountants, tax advisors, IT specialists, and sometimes even engineers or production technologists. Why is due diligence so important in the M&A process?

    What is due diligence?

    Due diligence is nothing more than an evaluation of mutual capabilities by companies, which must assess whether a merger or acquisition in a given situation is profitable. In this way, the buyer protects itself from the consequences of an unfavourable purchase (reduction of financial ratios, legal liability).
    In practice, due diligence consists of meticulous analysis of documentation, verification of relevant records, and interviews with representatives of the target company. It is assumed that the burden of conducting due diligence rests with the buyer, as it is the buyer who is interested in determining the value of the acquired company, but this may not always be the case.
    The due diligence results in a report on the basis of which the buyer (or seller) can decide on a negotiating strategy in the course of the M&A. It may also turn out that the results of due diligence act not only as a signpost, but also as a warning sign, and the party commissioning the verification of a business partner after the analysis of data may withdraw from further cooperation.
    It should be remembered that due diligence is not the same as an audit. Its scope is much broader and goes far beyond the determination of basic economic indicators.

    What industries does due diligence cover?

    Due diligence can cover many areas of a company’s operations.

    • Legal due diligence

    This aspect of due diligence involves the investigation and elimination of legal risks. It usually covers such issues as:

    • examination of the company’s articles of association,
    • analysis of concluded contracts (in terms of generally applicable laws and internal procedures)
    • assessment of resolutions, regulations and minutes.

    Contracts concluded with employees and employee policies are also examined. Of great importance for legal due diligence is the procedural aspect of a company’s operation (e.g. pending court and administrative disputes, enforcement titles issued for and against the company, due and undue debts and enforcement proceedings, as well as court rulings and administrative decisions).

    • Financial due diligence

    Financial due diligence focuses on the business performance of a company. Operating results and factors determining prices, margins and costs are of decisive importance here.

    For proper analysis it is necessary to identify KPIs (Key Performance Indicators) important for the company, i.e. indicators which in a given configuration show the value of the company – this is why due diligence looks different for each entity.

    The result of the financial audit will be, among others, determination of EBITDA (Earnings before interests, taxes, depreciation and amortization), which means operating profit.

    • Tax due diligence

    The tax aspect of due diligence aims to determine the company’s position from the perspective of public and legal liabilities. In the course of it, the correctness of settlements of such taxes is determined, such as:

    1. PIT,
    2. CIT,
    3. VAT,
    4. property tax,
    5. PCC

    In the course of the audit, decisions of tax authorities, individual interpretations and collateral opinions are verified. This is particularly important if the M&A process involves companies located in the territory of different countries, which results in the need to comply with several systems of legal norms.

    • Vendor due diligence

    Vendor due diligence is due diligence, but from the standpoint of the seller’s position. It aims to identify the weaknesses of its own company and allows it to better prepare for negotiations. Vendor due diligence is preceded by fundamental due diligence. It is recommended that due diligence be performed in the case of:

    • exceptionally large transactions,
    • mergers or acquisitions with an exceptionally complex business profile,
    • companies with a complex ownership structure.

    Thanks to vendor due diligence, the buyer minimizes the risk of an unsuccessful M&A process, can flexibly react to changes at a later stage, but most importantly presents itself as a responsible and trustworthy business partner.

    By implementing vendor due diligence it is much easier to eliminate information leaks. The buyer identifies confidentiality agreements or relevant clauses at an early enough stage and does not risk disclosing them during negotiations.

    In order to increase the value of this type of audit in the eyes of the buyer, the seller may agree with the advisors performing the due diligence that they assume a reliance clause or reliance provision.

    This consists in the possibility of making a claim to the auditors in a situation where the vendor due diligence report omits important information that was in the documents provided.

    Comprehensive due diligence takes from several weeks to several months. The duration depends on the size and scope of operations conducted by the audited company, the amount of documentation and the type of M&A transaction itself.

    Support in drafting SPA agreements

    Support in drafting SPA agreements

    The key element of each M&A process is the conclusion of a Sales and Purchase Agreement (SPA). Its essential elements are:

    • subject matter of the agreement,
    • price and the manner of its payment,
    • transaction terms,
    • rights and obligations of the parties, liability of the parties.

    It is increasingly common to see in transaction contracts also a section familiar from Anglo-Saxon contracts and entitled “Representations & Warranties”. (Representations & Warranties). They serve as a mutual guarantee of the factual and legal states indicated in the contract by the parties. In practice, this often involves, for example, express consent to the sale of the subject of the contract, acceptance of risks or clarification of the subject of the contract.

    Every SPA agreement must be carefully drafted and well thought out so that the interests of the represented party are adequately protected. SPA contracts often involve sums of millions of euros. For this reason, various mechanisms play an important role in transactional contracts, which make it possible to secure the seller’s interest in the event of deferment of payment. These include, for example:

    • the moment of transfer of ownership

    Retention of title until full payment is made is particularly relevant where the parties have agreed to pay by instalments. Alternatively, installments of different amounts may be agreed upon and ownership will pass upon payment of the larger part.

    • Payment into an escrow account

    The seller may require the buyer to transfer funds to a bank account set up specifically for this purpose, which prevents the free disposal of cash. This is an additional security for the seller, although it requires the buyer to obtain credit or have cash in advance.

    • Contractual mortgage on real estate

    If the company includes real estate, the parties may enter a mortgage in its land and mortgage register, which secures the buyer’s claims up to the amount of the outstanding sale price. It is important that the object of the security actually has an adequate value!

    • Bank guarantee or surety

    For the buyer, a guarantee or surety are convenient ways to strengthen the negotiating position, while for the seller they facilitate the enforcement of claims from a third party that has taken on the contractual obligation to settle the debtor’s arrears.

    Another popular security for the seller’s interest may be a voluntary submission to enforcement by the other party to the agreement (in the form of a notarial deed), an assignment by way of security or a bill of exchange, or – less frequently – a pledge or registered pledge.
    Get help from lawyers who can help you create or review an SPA contract that safeguards your interests.

    Carve-out assistance

    Business carve-out consists in including only a part of the structure of a given company into the M&A process. This part is sold to external investors, but does not lose its connection with the parent company. Carving out can be used as a source of growth. New investors introduce innovative ideas and development strategies that help increase the financial results of a company that is considered unprofitable.

    Carving out properly is difficult and resembles cutting with a surgical scalpel. This is because questions need to be answered about:

    • the value of individual assets and liabilities,
    • The financial and legal terms of the carve-out,
    • The necessary financial documentation,
    • the viability of the business separation,
    • support from the parent company,
    • The impact of the spin-off on the parent company.

    It is worth remembering that a business spin-off is not just about selling a few company cars or real estate. It also includes personnel, technology and IT structure, which must be precisely separated from the business as a whole.

    Legal assistance in the spin-off also means identifying all costs, including hidden costs such as licensing fees or lease payments. It is also worth considering the implementation of Transition Service Agreements (TSAs) at this stage. This is a good way to find your way through the maze of legal regulations and financial indicators.

    Developing financing strategies for M&A

    M&A processes do not have to be carried out using the buyer’s capital. Many of them are based on an external financing model.

    A law firm specialising in M&A transactions is not only able to assist in finding the optimal financing method, but also offers support in risk assessment and preparation of legal and financial documentation of the entity.

    Key elements of developing a financing strategy include:

    • preparation and conduct of due diligence,
    • development of the structure of external financing of the transaction,
    • preparation of a financial model together with a report for potential investors,
    • advice and negotiations in obtaining financing.

    What is business debt and equity financing?

    The two most popular types of M&A financing are the debt and equity model. How do they differ from each other?

    Debt financing is based on using the resources of a third party (e.g. a bank). The advantage of debt financing is that the buyer of the business does not have to commit its own funds and does not limit its control over the process by giving it to others. The disadvantage of this solution is that the obligation must be repaid with interest, and often security must be provided for the duration of the loan.

    Equity financing, on the other hand, is based on raising funds to finance the transaction through the involvement of another entity (e.g. another company that lends its capital). This is then referred to as third-party capital participation.

    The advantage of this solution lies in the fact that the acquiring company does not have to be burdened with debt. Cooperation of several entities may also mean faster entry into new markets. The disadvantage of equity financing, however, is the division of control and influence between several companies or individuals and potential decision-making problems.

    It is worth remembering that a business spin-off is not just about selling a few company cars or real estate. It also includes personnel, technology and IT structure, which must be precisely separated from the business as a whole.

    Legal assistance in the spin-off also means identifying all costs, including hidden costs such as licensing fees or lease payments. It is also worth considering the implementation of Transition Service Agreements (TSAs) at this stage. This is a good way to find your way through the maze of legal regulations and financial indicators.

    Developing financing strategies for M&A

    M&A processes do not have to be carried out using the buyer’s capital. Many of them are based on an external financing model.

    A law firm specialising in M&A transactions is not only able to assist in finding the optimal financing method, but also offers support in risk assessment and preparation of legal and financial documentation of the entity.

    Key elements of developing a financing strategy include:

    • preparation and conduct of due diligence,
    • development of the structure of external financing of the transaction,
    • preparation of a financial model together with a report for potential investors,
    • advice and negotiations in obtaining financing.

    Kluczowe elementy opracowania strategii finansowania obejmują również:

    • przygotowanie i przeprowadzenie due diligence,
    • opracowanie struktury zewnętrznego finansowania transakcji,
    • przygotowanie modelu finansowego wraz z raportem dla potencjalnych inwestorów,
    • doradztwo i negocjacje w pozyskiwaniu finansowania.

    What is business debt and equity financing?

    The two most popular types of M&A financing are the debt and equity model. How do they differ from each other?

    Debt financing is based on using the resources of a third party (e.g. a bank). The advantage of debt financing is that the buyer of the business does not have to commit its own funds and does not limit its control over the process by giving it to others. The disadvantage of this solution is that the obligation must be repaid with interest, and often security must be provided for the duration of the loan.

    Equity financing, on the other hand, is based on raising funds to finance the transaction through the involvement of another entity (e.g. another company that lends its capital). This is then referred to as third-party capital participation.

    The advantage of this solution lies in the fact that the acquiring company does not have to be burdened with debt. Cooperation of several entities may also mean faster entry into new markets. The disadvantage of equity financing, however, is the division of control and influence between several companies or individuals and potential decision-making problems.

    Support in disputes that may arise during or after an M&A transaction

    An M&A transaction results in the merger of the assets of two or more companies. This is important not only from an economic perspective, but also from a litigation perspective. Litigation may occur in the course of organising the merger or acquisition and after the transaction has been finalised. Comprehensive legal assistance increases the security of the company (or partnership) and protects its legal position.

    Disputes within the acquiring company

    Disputes within the acquiring company may relate, among other things, to breaches of non-competition agreements or contracts requiring confidentiality by persons representing the company in the course of M&A procedures.

    • Confidentiality agreement

    A Non-Disclosure Agreement (NDA) obliges a company’s employees to keep confidential key information of significant importance to the business. This may include data regarding, for example

    • business or sales plans,
    • Technology, patents, industrial designs,
    • product or service know-how.

    A properly structured NDA is designed to protect the situation of an entrepreneur who is involved in negotiations. However, in order to be able to effectively enforce claims for breach of NDA, it is necessary to provide for appropriate provisions in the contract:

    • precise definition of the scope of classified information

    This may not be all data concerning the enterprise, but specific parameters, the disclosure of which may lead to damage to the enterprise. Good examples include: the architecture of a program, a customer list, a chemical formula or an engine diagram.

    • defining the scope of protection of classified information

    Determining what actions must be taken by company personnel for information to be considered properly protected has a twofold significance. On the one hand, it guarantees the company’s sense of security. On the other hand, it frees the employee from liability in a situation where he or she has complied with the contractual standards.

    • introducing a contractual definition of a breach of confidentiality

    By specifying in the contract what the parties mean by a breach of confidentiality, the scope of an employee’s responsibility is further clarified. In this way, both parties to an NDA contract know whether disclosure alone is sufficient or whether, for example, the contractor must use the data.

    • duration of the ban

    The NDA should also clearly indicate the duration of the prohibition. Most often it binds employees or collaborators for the duration of their cooperation on a given project. However, nothing stands in the way of extending the confidentiality obligation also to the period after the termination of cooperation.

    Beware, however, of introducing an indefinite ban. In the event of a court dispute, such a stipulation may be considered invalid!

    • Sanctions for violations of NDA prohibitions

    In practice, two types of consequences for non-compete violations are distinguished – monetary and non-monetary.

    Pecuniary sanctions take the form of a contractual penalty, i.e. an additional contractual provision that obliges the other contractual party in the event of a breach of a specific non-monetary obligation (e.g. disclosure of classified information).

    As a rule, it is assumed that in order to demand payment of a contractual penalty, it is not necessary to suffer damage and it is sufficient to prove the mere fact of breach of a contractual provision.

    When stipulating a contractual penalty, one should remember to provide in the content of the agreement for the possibility to claim damages exceeding its amount. In this way, the company protects its interests in the event that the amount of the contractual penalty does not fully cover the incurred damage.

    On the other hand, non-monetary penalties consist in immediate termination of an employment contract or cooperation agreement with an unreliable employee or co-worker.

    • Non-compete agreement

    A breach of a non-compete agreement by an employee (e.g. by moving to a competitor in the course of an M&A transaction) may also be a cause of dispute. To be effective, this contract, like the NDA agreement, must specify as precisely as possible such information as:

    • the extent of competition

    It may be specified geographically (e.g. the territory of a province) and in terms of subject matter (e.g. a prohibition on engaging in a particular activity). It is important that both pieces of information are given in such a way as to be unambiguous for the employee. Otherwise, in the event of a court dispute, the contract may be invalidated.

    • Duration

    A non-compete agreement can be entered into before the start of the relationship as well as during the relationship. Its duration usually extends throughout the employment period and also after its termination. However, it is important not to specify an indefinite period in the agreement.

    • Responsibilities

    The contract should state exactly what the employee is responsible for. In this way, the parties prevent the need to interpret vague terms.

    • Compensation

    For compliance with a non-compete, a person with an employment contract is entitled to compensation in an amount not less than that set out in the Labour Code. In the case of civil law or B2B contracts, the need to provide for a financial equivalent is based on case law and helps to ensure the equivalence of benefits.

    When concluding a non-compete agreement, remember to keep it in writing in the case of an employment contract (although this form will also work perfectly well for other employment bases.

    Disputes within the acquired company

    A merger may also result in the acquiring company becoming involved in litigation initiated by the acquired company. In what areas can a law firm help you?

    • Disputes with counterparties

    Running a business involves the risk of entering into litigation, which can arise for a number of reasons. Among the most common are:

    • non-performance or improper performance of a non-monetary contractual obligation (e.g. late delivery of goods,
    • failure to pay an invoice issued.

    Each time the litigation tactic must be appropriately adjusted to the subject matter of the dispute, the evidence gathered. The task of lawyers in this situation is to use the interpretation of legal regulations, case law lines and views expressed by doctrine to obtain a positive outcome or minimise losses.

    This applies both to proceedings before the court of first instance, the court of appeal or the Supreme Court.

    • Disputes with employees

    Litigation with persons employed by the company may cover all issues relating to the performance of employment duties. This will include e.g.:

    • termination of the employment contract,
    • delay in payment of remuneration,
    • calculation of holiday pay,
    • determining the existence or non-existence of an employment relationship,
    • disputes under collective labour law.

    It is worth emphasising that employment cases involve the need to follow a separate procedure and appear before an employment court. This requires not only a good knowledge of the law, but also a practical view of the problem and the ability to find an optimal way to resolve the dispute taking into account the preferential treatment of the employee.

    • Disputes with consumers

    Consumers are a special group of recipients of goods and services, which has been given special protection by the legislator. This privileged position is reflected in many legal regulations contained in:

    • Civil Code,
    • The Act on the Protection of Consumer Rights,
    • the Telecommunications Act,
    • Act on out-of-court settlement of consumer disputes.

    Conducting a dispute with a consumer also requires experience in proceedings before the Office of Competition and Consumer Protection or the Office of Electronic Communications. Many disputes involving consumers can be resolved at the pre-court stage using the Alternative Dispute Resolution (ADR) procedures.

    Developing an optimal strategic cost management model

    Transforming a business always involves committing significant financial resources to stimulate the entity’s growth. This may limit the potential of merging companies and, as a result, reduce the expected effect of the merger or acquisition.

    Strategic cost is the term used to describe every financial item in an enterprise – from the cost of producing a single item of goods to the price paid by the end customer.

    In practice, it is not possible to create a single, universal model for strategic cost management, because it depends on too many factors (e.g. company’s industry, scope of operations, competition, regional and global demand).

    Developing an effective strategy requires time and cooperation of specialists in economics, accounting and taxation, but it opens new horizons for the company.

    Benefits of implementing strategic cost transformation

    What are the goals of implementing cost transformation plans?

    • Focusing on cost reduction increases a company’s liquidity, stabilises its position and reduces potential losses.
    • Cost transformation allows for the reduction of expenses that do not directly translate into strengthening the company’s economic position.
    • Cost scalability makes it easier to match growth rates to changing circumstances.
    • Ability to apply Agile management strategies that work well in a dynamic business environment.

    By implementing strategic cost management, the client gains financial transparency and the ability to monitor the relationship between profit and the costs of individual activities on an ongoing basis.

    By implementing strategic cost management, the client gains financial transparency and the ability to monitor the relationship between profit and the costs of individual activities on an ongoing basis.

    M&A legal and tax services

    Comprehensive legal and tax services during and after an M&A can cover many areas of law that are related to the business activities of the entities.

    Aspects of legal support to M&A

    • Labour law

    In terms of labour law, M&A processes force the employer to develop a new organisation of employee obligations so that they are assimilated in the new organisation. Although the merger itself does not necessarily result in a change of contracts, it raises the potential need to consult with works councils representing employees regarding

    • changes in the employer’s establishment,
    • changes in the employment structure,
    • economic measures aimed at maintaining employment levels.

    The purpose of such interaction is to develop a common position with the participation of both parties.

    Under labour law, the transfer of a workplace to a new employer also gives rise to a number of information obligations:

    • to notify employees or trade unions of the date, reasons and effects of the transition,
    • informing employees about the responsibilities of the merging entities towards employees,
    • indication of the scope of the terms and conditions of employment and pay, which result from the internal regulations and which are taken over by the new employer,
    • informing about the scope of binding a company collective labour agreement
    • Administrative law

    Legal assistance in the course of M&A in the field of administrative law primarily includes comprehensive support in obtaining for the client the authority to carry out a specific type of business activity.

    The law provides for several types of administrative approvals, which may take the form of:

    • concession (e.g. performance of air transport),
    • permit (e.g. production of medicinal products)
    • license (e.g. performance of road transport)
    • consent (e.g. for operation of machinery and equipment requiring technical supervision)
    • entry in the register of regulated activities (e.g. in the register of telecommunications undertakings).

    Legal services include participation in administrative proceedings before competent administrative authorities as well as in administrative court proceedings before the WSA and NSA,

    • Competition protection

    Legal assistance in the sector of competition protection includes not only the creation and consultation of documentation that arises in the process of M&A, but also support during the proceedings before the Office of Competition and Consumer Protection concerning the planned concentration (so-called antimonopoly proceedings).

    Competition protection also includes non-compete agreements signed with sellers of an enterprise. Their precise formulation is necessary to enable the enforcement of potential contractual penalties in the event of a dispute.

    • Real estate

    Legal support in the field of real estate in M&A transactions mainly concerns the examination of their legal status. This includes not only a detailed analysis of land and mortgage registers, but also the rectification, deletion and making of entries and the establishment of new registers.

    Thanks to this, a company acquiring assets of another company is certain that the transaction is safe and subject to the protection of the warranty of public credibility of land and mortgage registers in Poland.

    The analysis of the legal status also includes transaction restrictions resulting from:

    • pre-emption rights
    • easements encumbering real estate by virtue of a statute or decision of an administrative authority.

    Property surveys also make it possible to assess the risks involved in purchasing a property and to plan actions in the event that physical or legal defects in the plot of land become apparent.

    Legal assistance in this field requires excellent knowledge of real estate regulations, but also of the practice of land registry courts and of the technical requirements for commercial real estate.

    Tax support aspects of M&A

    • Tax avoidance

    The current provisions of the Tax Code, and in particular the GAAR (General Anti-Avoidance Rule) clause, may be used by tax authorities to initiate proceedings in connection with structural changes of an enterprise.

    When assessing the prerequisites specific to proceedings based on the GAAR clause, the tax authorities assess whether:

    • the achievement of the tax advantage was contrary to the purpose of the Act,
    • the achievement of the tax advantage was the main or one of the main purposes of the activity,
    • the manner in which the entity acted was artificial.

    Tax advantage is a very broad concept, which includes, inter alia, non-or postponement of tax liability, reduction of tax liability or creation or exaggeration of tax loss.

    The assistance of a law firm in the aspect of the GAAR clause consists, among others, in:

    • obtaining a protective opinion, the content of which will show that the actions planned by the entity are in compliance with the law,
    • comprehensive handling of tax avoidance proceedings if they have already been initiated by the Head of the National Tax Administration.
    • Assessment of transactions with respect to individual taxes

    M&A transactions may give rise to tax consequences on many levels:

    • CIT,
    • indirect taxes VAT, PCC.

    Our task is to identify and optimise the public and legal burdens so that entities involved in a structural transformation can benefit from the optimal tax model.

    On behalf of our clients, we apply for tax interpretations and expert opinions that secure the interests of entities and allow for transaction risk management. We also take advantage of the latest jurisprudence of administrative courts and NSA resolutions in tax matters.

    Applying for an interpretation of tax law involves the preparation of an application that describes the planned transaction or tax event, the expected legal consequences and the applicant’s position in this respect.

    • Transakcje dotyczące akcji i aktywów

    In practice, two types of M&A operations can be distinguished:

    • transactions on shares (the so-called share deal),
    • transactions on assets (the so-called asset deal).

    In the first case, the object is shares in a company, while in the second – tangible and intangible assets that comprise the company. Legal assistance in this respect consists in identifying the best method of carrying out the M&A and its consequences, which, depending on the type of economic operation, will differ.

    In the context of income tax, share deals are taxed at the level of the shareholder. For the company it is tax neutral. The amount spent on the acquisition of shares will be tax deductible.

    On the other hand, asset deal transactions are taxed twice – at the level of the company and the dividend paid. For these activities, the tax deductible cost will be the amount spent on the acquisition of the assets less depreciation.

    As far as VAT is concerned, the share transaction is exempt from it and the asset transaction is not subject to the VAT Act. However, in both cases the buyer is obliged to pay PCC in the amount of 1 or 2%, depending on the subject of the sale.

    Compliance

    Comprehensive legal support includes more than just legal and tax assistance. It also includes overseeing the implementation and updating of relevant compliance policies and procedures. This is particularly important in M&A transactions involving companies that are independent of one another, representing a different level of organisational culture, process flow and employee policy. Why implement compliance management in your company?

    • The implementation of compliance ensures that the company’s processes run smoothly thanks to a precise division of duties and responsibilities among employees at every level,
    • Compliance leads to a reduction in the number of incidents and unethical actions in a company, and facilitates the functioning of the entire structure in compliance with the law
    • The implementation of compliance allows the entity responsible for the breach to be identified immediately and a corrective or sanctioning procedure to be initiated.
    • The compliance policy builds the company’s image as a trusted and responsible partner and increases its competitive advantage.
    • The documentation produced as part of the compliance investigation provides evidence of due diligence in the management of the company’s structure. This is important in the context of the statutory liability of collective entities.

    It is worth remembering that compliance policies may relate to many areas of the company’s functioning such as the aspect of:

    • legal (RODO, AML, anti-mobbing and whistleblowing procedures),
    • external (e.g. code of good practices, guidelines for handling contractors),
    • tax (hedging opinions and tax interpretations, advance pricing agreements, reporting on tax schemes),
    • industry-specific (e.g. IT, pharmaceutical).

    The implementation of compliance ends with the preparation of a detailed report, which also includes guidelines and recommendations for further action.

    Post Merger Integration

    Every M&A procedure ends with the merger of two or more entities into one. However, this does not yet mean that the efficiency of all processes is maximised.

    Post Merger Integration (PMI, also known as Post Acquisition Integration) is designed to increase synergies between individual areas. It is a complex and multithreaded process that supports optimisation of the new company’s resource utilisation and increases the likelihood that the planned goal of the merger or acquisition will be achieved.

    PMI is the responsibility of senior management, stakeholders, the compliance team and the so-called Change Management Expert. Many entrepreneurs also underestimate the importance of the human factor, i.e. the employees who should actively participate in the completion of the M&A.

    Our law firm’s task is to cover all these groups with an umbrella of support and provide comprehensive formal, legal and organizational assistance in the most important areas of PMI.

    Key areas of PMI

    Post Merger Integration can be delivered on a number of levels (often in parallel to ensure that the call is made quickly and efficiently). The most important of these include:

    • Combining information and knowledge about customers, services and products.
    • Merging a portfolio of separate products and services so that they can be sold by the new company and present a consistent corporate image.
    • Integration of customer relationship management systems (implementation of so-called CRM, or Customer Relationship Management).
    • Developing common internal policies in relation to salary changes, transfers between positions, training of new employees, but also downsizing.
    • Creating joint sales plans, development strategies and a plan for future M&A.
    • Developing a new division of the internal structure into cells, divisions, departments and other organisational units.
    • Developing a single organisational culture; this concept encompasses everything that makes up the proper functioning of any company – from working hours and holiday plans to the dress code and relations between employees and superiors.

    PMI integration may take various forms. From the extreme – like taking over the functioning model of one company by the other or merging only in key areas (e.g. finance), to the development of full symbiosis on selected levels.

    Our law firm’s task is to conduct PMI in such a way as to maximise the benefits from the merger and ensure full compliance with legal standards during the integration.

    What is M&A?

    Mergers & Acquisitions (M&A) is a broad term used to describe comprehensive handling of transactions involving companies under commercial law, which result in their

    • merger,
    • division,

    The support of a law firm in M&A processes does not only consist in organising the formal and legal side of the structural change itself. It also includes a range of additional services designed to ensure that the risk is minimised, the process is effective and runs smoothly. Therefore, M&A supervisory teams consist of lawyers, accountants, tax advisors, IT specialists and HR specialists.

    In order to carry out M&A procedures efficiently it is not enough to apply legal regulations. It is necessary above all to have extensive experience in knowledge of corporate governance, internal policies applied in companies and the ability to take an analytical look at the often very different situations of business entities.

    How to prepare for M&A?

    Conducting an M&A should begin with careful planning of the cycle of activities that will be undertaken at each stage of the transaction. Doctrine distinguishes three main phases of the merger or acquisition process.

    • Preparation Phase

    The preparation phase consists primarily of market identification, preparation of a business model, information memorandum and necessary documentation. At this stage, the partners determine the scope of the M&A, and may also conduct Vendor Due Diligence.

    • Marketing Phase

    During the sales phase, due diligence is usually carried out. The value of the companies is examined and the level of legal, economic and business risks is estimated. Companies interested in M&A begin negotiations and arranging a financing model.

    • Closing Phase

    The closing phase consists of tax optimization of the new structure and integration of key areas of its operation. The company’s management model is refreshed and shareholders plan further activities.

    What to pay special attention to during due diligence?

    Due diligence is most often performed twice – at the very beginning (by the seller) and at the negotiation stage (by the buyer).

    The seller should ensure that during vendor due diligence a carefully prepared teaser is created, i.e. the most important information about the business presented in such a way as to interest a potential buyer.

    In the course of vendor due diligence, the buyer should gather as much information about the seller as possible in order to have a complete picture of the legal and business situation. It is good practice for the parties to agree on a Confirmatory Due Diligence.

    The purpose of such a study is:

    • an accurate description of events, operations, risks that may affect the company’s situation after the M&A,
    • detailed analysis of contractual and corporate documentation,
    • valuation of the audited entity.

    Currently, due diligence examinations are carried out with the use of an IT system (the so-called Virtual Data Room), where documentation subject to the examination is collected. Thanks to this, the entire due diligence verification process runs quickly and can be performed fully remotely.

    Examples of M&A in the Polish post-pandemic reality

    Despite the negative impact of the pandemic on the economy, in the first quarter alone, 76 M&A transactions were conducted in Poland, with the largest transaction valued at nearly PLN 12 billion.

    The increasing dynamics of mergers and acquisitions indicates not only the growing business awareness of entrepreneurs, but also the growing economic potential of the Polish market. Which transactions are particularly noteworthy and what are their outcomes?

    • Acquisition of shares in Aviva Polska by Allianz (the aim is to increase the economic position of the purchaser as the leader on the insurance market of Central and Eastern Europe)
    • Acquisition of BPS brokerage house by fintech mPAY (the aim is to extend the portfolio of provided services with investment-related ones)
    • Acquisition of the property development company Archicom by the property developer Echo Investment (in order to strengthen its position on the real estate market).
    • Acquisition of Polkomtel Infrastruktura by Cellnex Telecom (in order to gain access to IT and Tel-Co infrastructure).

    These few examples show that M&A transactions are an integral part of the Polish market and continuously shape the position of hundreds of companies operating in many industries.

    Mergers and acquisitions are one of the most popular ways worldwide to strengthen the legal and economic position of a company. It is estimated that by the end of 2021 the global M&A market may reach a value of even USD 6 trillion!

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    RPMS Law Office
    Staniszewski & Partners

    Mickiewcza st 22/8
    Poznań 60-836