Mergers and Acquisitions Stir the Market

The year has begun with record high levels of merger and acquisition deals (M&A) on a global scale, and according to data by the annalists from Dealogic consulting company, they reached USD 1.2 trillion in the first quarter.

What Is the Situation in Bulgaria 

In Bulgaria, this process has its dynamics, too. Lately, deals related to strategic partnerships prevail. The banking and the IT sectors are more attractive as an opportunity for expanding business potential according to the observations of Gugushev and Partners Law Office. “The process of consolidation of financial institutions is mainly due to the need for risk sharing, and this is what makes some smaller banks strive to become part of a larger structure. The banking sector is being transformed and today, mergers are part of this natural process that provides greater “stability”, Lawyer Victor Gugushev believes. What he observes is companies having interest in acquiring competitors in order to expand the market territory and eliminate any unhealthy competition. Such processes are taking place in the credit sector for example.

Telecommunications and Security

The development of the telecommunication market continues. This spring, it became clear that A1 Telekom Austria Group plans to expand its presence in Eastern Europe with around EUR 1 billion allocated for company acquisitions. Through the purchase of regional units and through different-sized deals, it will improve the available infrastructure and its market presence.

There is also a series of acquisitions in the security sector. VIP Security acquired the Bulgarian business of the British G4S, the world's largest security and safety company. VIP Security is the second largest player on the security market in Bulgaria, and this is another attempt of the company to expand its business by “swallowing” competitors. 

With Eyes Wide Open

“In each merger and acquisition deal, the most important thing is the research on what is actually to be bought. The legal and financial analyses are the foundation of the contract that is to be concluded, and respectively to the declarations and the guarantees that will be provided. If problems are found, they may lead to price reduction,” explains Lawyer Dimitrina Metodieva, a partner at Gugushev and Partnerse Law Office and a head of the Commercial and Corporative Law department. She warns that in the course of the whole procedure, there are many subtleties that should be thoroughly considered in order to avoid further issues for both parties.

The End Justifies the Means

During the preparation of the deal, the goals of the merger or the acquisition have to be clear. This is what determines the amount of risk that is often being taken, says Lawyer Victor Gugushev. Usually, the buyer is the leading party because the company becomes their property and hidden burdens may appear. On the other hand, what is important for the seller is his responsibility after the deal to be restricted to acceptable limits. The legal and financial analyses determine the conditions under which the preliminary contract will be concluded.

The Power of Experience

It is also possible that a “buyer” shows a fictitious interest in a deal in order to study the competition. Gugushev and Partners Law Office has not come across such a case, but they explain that a buyer should also be well studied before proceeding with a deal. This is the role of an experienced consultant who can best protect the interests of their client.

Companies, which are at their earlier stage of development, look for a strategic partner who can help them grow. Big players, on the other hand, need the creative know-how of start-ups. This is also the prerequisite for more deals.

Gugushev and Partners Law Office is a legal and tax consultant to the BrightCap Ventures fund, which will invest more than EUR 25 million in technological start-ups.

Attention, Pitfalls

Advice by Gugushev and Partners Law Office

1.     The buyer should be aware of the legal and financial condition of the company.  It is good to solve possible issues in advance; otherwise they may have a drastic influence on the price.

2.     The buyer is to make a correct assessment of the overall condition of the company. The responsibility of the seller is also to be determined; otherwise the buyer may face unexpected issues.

3.     The choice of the right consultant for the deal is decisive. An experienced team may protect their partner from deals with unjustifiably high risk or unfavourable conditions. There are large cross-border deals in which the parties use several consultant teams, not only one.

4.     Contract negotiations are a serious trial for the consultants of both parties and they must be led skilfully.

5.     If the consultant has not done their job flawlessly, this quickly becomes apparent. Only good reputation opens the doors to future engagements.