Chambers and Partners: Corporate M&A 2022 - Austria

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Corporate M&A 2022 Austria: Trends & Developments Markus Fellner, Paul Luiki, Elisa Maria Kaplenig and Peter Blaschke Fellner Wratzfeld & Partners

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AUSTRIA Trends and Developments Trends and Developments Contributed by: Markus Fellner, Paul Luiki, Elisa Maria Kaplenig and Peter Blaschke Fellner Wratzfeld & Partners see p.6

Overview of the Austrian M&A Market The boom in the worldwide M&A market is being driven primarily by active private equity investors and a large number of special purpose acquisition companies (SPACs), ie, shell companies that raise money via an IPO and then invest in unlisted companies. These market drivers on the global stage have not yet played a significant role in Austrian transactions.

Nevertheless, Austria remains a stable M&A market. The number of deals with Austrian involvement increased from 275 M&A transactions in 2020 to 293 M&A transactions in 2021; this corresponds to an increase of 6.5% in M&A transactions according to the M&A Index 2020 published by EY Austria (Ernst & Young Global Limited). However, the number still is below the pre-COVID-19 level in 2019.

Transaction volume on the other hand decreased from EUR12.6 billion to EUR9.1 billion. This however is still in line with the long-term deal volume average. A majority of the deal volume was made up mostly by five top deals, representing 70% of the total transaction volume. The remaining 30% was divided primarily among 35 other M&A deals.

Signa Holding GmbH’s purchase of 50% of Selfridges department stores (excluding Canadian locations) for around the equivalent of EUR2.35 billion accounted for the biggest volume in 2021.

Strategic investors Strategic investors are still involved in the vast majority of transactions in the Austrian M&A 2

market: 276 out of the 293 transactions in 2021 involved strategic investors; this corresponds to a plus of 16 deals compared to 2020. Transactions that involved financial investors, such as private equity or venture capital firms, still play a minor role in Austria’s M&A market with only 17 deals (5.8% of total transactions) compared to 15 deals in 2020, showing a slight increase. The proportion of strategic transactions and those by financial investors thus remained more or less constant compared to the previous year.

Sector dominance in the last year The most deals took place in the real estate sector (77), followed by the industrial sector (64) and companies from the technology sector (59).

In terms of published transaction volumes, the retail and consumer sector ranked first with EUR2.4 billion attributable to the purchase of the Selfridges department store chain by Signa Holding. The real estate sector ranked second with a transaction volume of EUR2.2 billion.

Foreign investors became increasingly active in Austria in 2021, with the number of transactions in the “inbound” segment rising by 32 deals – an increase of 31.7%. The 133 in-bound transactions were the most in this category since 2015.

Austrian investors announced 104 M&A transactions in 2021 in pursuit of their international growth targets. This means that there were roughly the same number of acquisitions of foreign companies (“outbound”) as in the previous year with 106 deals (minus 1.9%).

Trends and Developments AUSTRIA

Contributed by: Markus Fellner, Paul Luiki, Elisa Maria Kaplenig and Peter Blaschke, Fellner Wratzfeld & Partners

Legal Changes Made in the Last 12 Months Digitising notarisation The Austrian legislator implemented a new Section 90a into the Notarial Regulation (NO), which came into force on 1 January 2021. Since then there is the possibility to draw up all notarial acts and other public or publicly certified deeds by use of electronic means of communication without the need for physical presence before the notary. Especially for parties located abroad this brings a substantial benefit with regard to avoiding travel expenditures and time delays.

This modernisation allows for a clear simplification and acceleration for the performance of the official notarial acts required under Austrian corporate law.

Possible future changes Also of note is that the government’s 2020–24 programme provides for a further acceleration and simplification of the process for business start-ups, for example by promoting the development of digitisation in corporate law.

In this context, the Austrian government intends to introduce a new form of corporation, the Austrian limited. This new form is intended to offer an internationally competitive option to innovative start-ups and founders in an early stage of their business. Furthermore, unbureaucratic establishment, including savings models for building up share capital, e-government and English as the official language, as well as flexible share allocations to investors and employees are intended to be implemented. The exact cornerstones are currently being discussed with experts on corporate law.

The Impact of COVID-19 As in many other countries, the COVID-19 pandemic has led to uncertainties in completing M&A transactions. Core issues such as purchase price calculations are much more challenging when the target’s prospects are impacted by

COVID-19. Conversely, the unstable climate offers possibilities for seasoned, crisis-resilient buyers and strategic and financial investors to purchase desired targets under favourable conditions.

Many companies will come under increasing economic pressure in 2022 as the COVID-19 pandemic has now been ongoing for two years already and therefore even companies that have not been available for sale and/or have been offered at a much higher purchase price will become suitable targets for many buyers.

An increase in new distressed M&A deals is expected in 2022.

Increasing importance of due diligence Identifying risks within the target company is the main focus of due diligence. Buyers should consider the specific consequences of COVID-19 for the target company in the due diligence process to determine whether the target company is adequately protected against the negative impact caused by the virus. Disrupted supply chains, loss of production and decline in revenue, but also existing insurance policies, if any, measures ordered by public authorities, crisis management processes and consequences entailed by remote working, if applicable, should be carefully reviewed.

Drafting clauses Buyers should increasingly seek protection via material adverse change (MAC) clauses. These clauses aim at providing for circumstances that were not predictable and adversely affect the target company. The MAC clause entitles the buyer to rescind the agreement between signing and closing, which gives a buyer leverage to renegotiate SPA conditions without being liable for a breach of contract. Given that the pandemic has been on-going and thus is no longer unforeseeable, MAC clauses will need to be carefully drafted to reflect this.

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AUSTRIA Trends and Developments

Contributed by: Markus Fellner, Paul Luiki, Elisa Maria Kaplenig and Peter Blaschke, Fellner Wratzfeld & Partners

The negotiation of purchase price provisions also has become more challenging with the pandemic and the accompanying uncertainties. From the perspective of the buyer, agreeing to locked box concepts where the purchase price is essentially set in stone has become much riskier.

Certain representations and warranties that received less attention in the past now are often a focal point. These include the collectability of the target company’s claims and supply chain issues. From the seller’s perspective, full disclosure is key and ideally can be coupled with an exclusion of warranty claims to the extent adequate disclosure has been made to buyer.

Changes in regulation related to COVID-19 The COVID-19 crisis triggered a series of regulatory amendments and M&A transactions have been impacted by some of these changes. The provisions, which were set to expire at the end of 2021, have been extended into 2022 due to the ongoing COVID-19 pandemic.

Virtual meetings With regard to corporate law, the legislator was quick to take advantage of the already existing benefits of digitalisation and thus enacted a law that allows all companies to hold their general meetings and pass shareholder resolutions virtually via video conferencing so that the physical presence of persons is no longer necessary.

Due to the ongoing pandemic, the legislator has extended the measures until 30 June 2022 in a first step. Virtual meetings will therefore remain an integral part of corporate practice in 2022.

The new amendment triggered by COVID-19 also enables the virtual execution of notarial deeds even after the COVID-19 crisis as the legislator decided to implement the rules permanently.

These changes enable M&A transactions to be conducted, while maintaining physical distance and promoting health. This is important for the 4

typical Austrian target M&A transaction, which involves the sale of shares in a limited liability company (GmbH), which must be completed in the form of a notarial deed.

Ordinary general meetings Furthermore, the legislator has again extended the eight-month period for the holding of an ordinary general meeting to 12 months (Section 2 (1) to (3) COVID-19 Corporate Law Act), after this had already been determined for the previous year. This applies to the ordinary general meeting of stock corporations pursuant to Section 104 (1) of the Austrian Stock Corporation Act and limited liability companies according to Section 35 (1) of the Austrian Limited Liability Companies Act. General and shareholders’ meetings therefore can also be held at a later date within the first 12 months of the financial year.

The extension of the deadline for the preparation and its submission to the members of the Supervisory Board of annual financial statements and of documents specified by law by up to four months has also been approved by the legislator for 2022. The deadline thus ends at the latest after the first nine months of the financial year. The same applies to other accounting documents that must be submitted within the deadlines applicable to the submission of annual financial statements.

Financial statements In deviation from Section 277 of the Austrian Business Enterprise Code (UGB), the annual financial statements, the management report documents and other reports as appropriate must now be submitted to the Commercial Court and published no later than 12 months after the balance sheet date.

Looking to the Future M&A transactions already have begun to bounce back and this trend is expected to continue as

Trends and Developments AUSTRIA

Contributed by: Markus Fellner, Paul Luiki, Elisa Maria Kaplenig and Peter Blaschke, Fellner Wratzfeld & Partners

the general outlook for overcoming the COVID-19 pandemic continues to brighten, especially since the COVID-19 vaccines have been approved and other pharmaceuticals are entering the market helping to bring the COVID-19 pandemic under control by relieving the burden on the health sector.

Companies in the pharmaceutical and healthcare sectors, technology companies, companies concerned with sustainability and the environment and online retailers also should present attractive targets. In these areas, investor demand is likely to be even stronger than before the crisis.

For Austrian companies, growths in turnover is expected for 2022 with the industrial, tech and real estate sectors likely remaining the key drivers. In addition, an uptick in distressed M&A can be expected as COVID-19 relief programmes start to phase out. All of this will be supported by enhanced digitalisation, which has progressed substantially and opened up new opportunities in implementing M&A transactions.

The conflict in Ukraine has added a new crisis, just when the COVID-19 seems to have been brought under control for businesses. It remains to be seen what impact this conflict will have on M&A deal appetite as it unfolds. In the short term it will be important for buyers in all transactions involving a Russian or Ukrainian element to take a very close look at the target’s activities in the due diligence to assess issues such as the possible applicability of sanctions and the heightened need for a MAC clause.

Though there may be many market swings, it is anticipated that the Austrian market will become more buyer-friendly in 2022 as COVID-19 continues to put pressure on some companies and start-ups. In addition, once the economy recovers more fully, these companies will be seeking new investors. Private equity funds are also expected to become more active, having accumulated liquidity and thus on the lookout for investment opportunities.

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AUSTRIA Trends and Developments

Contributed by: Markus Fellner, Paul Luiki, Elisa Maria Kaplenig and Peter Blaschke, Fellner Wratzfeld & Partners

Fellner Wratzfeld & Partners has a team of more than 70 highly qualified legal personnel and is one of Austria’s leading business law firms based in Vienna. Its major fields of specialisation include banking and finance, corporate/ M&A, real estate, infrastructure and procurement law, changes of legal form, reorganisation and restructuring. Fellner Wratzfeld & Partners mainly represents Austrian and international private companies but also has clients from the

public sector. The firm advises renowned credit institutions and financial services providers on financing projects. Its expertise has proven its worth repeatedly, but also in regard to financing company reorganisations. The firm draws upon substantial experience gained in the financing of complex consortia in the last few years and has been, and still is, involved in the largest banking and finance cases in Austria.

AUTHORS Markus Fellner is a founding partner and the head of Fellner Wratzfeld & Partners’ corporate and M&A practice who also specialises in banking and finance, insolvency law and restructuring. He was admitted to the Austrian Bar in 1998 and lectures at various institutions, having been awarded a law degree from the University of Vienna and a business degree from the Vienna University of Economics and Business.

Paul Luiki is a US native partner at Fellner Wratzfeld & Partners specialising in the full range of M&A transactions and has a specific focus on cross-border transactions, in particular in the CEE and US regions. His other fields of specialisation are banking and finance, contract law and arbitration. Paul is also a frequent lecturer at the University of Vienna on M&A and joint ventures.

Elisa Maria Kaplenig is an attorney at law at Fellner Wratzfeld & Partners specialising in corporate and M&A, antitrust and competition law and corporate litigation. She obtained a law degree as well as an international business administration degree from the University of Vienna and was admitted to the Austrian Bar in January 2020.

Peter Blaschke is an attorney at law at Fellner Wratzfeld & Partners specialising in corporate and M&A and dispute resolution. He obtained a law degree from the University of Vienna and was admitted to the Austrian Bar in January 2003.

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Trends and Developments AUSTRIA

Contributed by: Markus Fellner, Paul Luiki, Elisa Maria Kaplenig and Peter Blaschke, Fellner Wratzfeld & Partners

Fellner Wratzfeld & Partners Schottenring 12 1010 Vienna Austria Tel: +43 1 537 70 351 Fax: +43 1 537 70 70 Email: marketing@fwp.at Web: www.fwp.at

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