M&A and Investments in Central and Eastern Europe

This summer, TLS attended the “M&A Spotlight: Central and Eastern Europe (CEE)” breakfast seminar hosted by Wolf Theiss and Mergermarket in London. Our attention was refocused on this emerging yet developed region, where businesses are reaping the rewards of an active mergers and acquisitions (M&A) market.

Why is CEE a Highly Coveted Region?

The event provided insight on the CEE region following Wolf Theiss and Mergermarket’s annual report, which showed M&A activity is thriving with no signs of slowing down. Investors tend not to look primarily toward CEE because of a misconceived risk factor, but the reality is that it is a well-supported market strengthened by recent government investments. The injection has prompted developments in renewable energy and infrastructure.

Many factors make CEE an attractive area for M&A activity, including:

1. Geographic location and stable economy – CEE is remarkably close to the rest of the European Union (EU), which allows easy access to the single market and a wealth of trade opportunities. The region profits from a stable political climate that transcends into a steady economy. Benefitting from headwinds of uncertainty around Brexit, there is a genuine interest in growth and investment in CEE as an alternative, particularly in the tech, media, and telecommunications sectors. Investors have noted CEE businesses taking necessary steps toward “Brexit preparatory work”; however, this is seen as an asset rather than an imminent threat.
2. A skilled workforce – Well-educated and tech-savvy individuals are scattered throughout the region. After reviewing M&A progress in 2018, the report focuses on the tech industry within the CEE market: many innovative start-ups have entered the picture, and we’re seeing “cities like Warsaw, Prague, and Cluj in Romania becoming hubs for companies developing apps, fintech products, and other software.”^[1] This extends to CEE countries adopting start-up incubators (like that in the Czech Republic) and universities promoting digital education (as in Slovakia).^[2]
3. Healthy competition – Investors who have ventured into CEE have found a comfortable position from which to continue investing while making ground on competitors who still have no mandate in the region. The tech industry plays a major role in this surge since it stems from engineers and software developers: more and more young entrepreneurs are entering the market with innovative apps and programs (particularly regarding fintech) seeking foreign investment. And not to forget, the well-established telecommunications and media businesses are still showing steadfast success, attracting further revenue streams to the region.

The Challenges

The esteemed speakers articulated the huge benefits of investing in CEE. However, from 26 years’ experience working in the region, we know that it can often present practical challenges. At TLS, we leverage our technology and expertise to provide practical business solutions:

1. Multi-language – Like any cross-border operation, there are often language barriers. The CEE counts over ten native first languages, with citizens being highly proficient in second languages as well. Even though there may be crossover—e.g., there is about 82% intelligibility between Czechs and Slovakians^[3] —most CEE countries and their languages are independent. From machine translation powered by artificial intelligence (AI) to court-registered sworn translators and bilingual, cross-qualified paralegals, TLS is capable of efficiently managing any multi-language workflow. Our AI and analytics tools, unlike many, are built to function with non-English data.
2. Multijurisdictional – With over 100 international offices and a presence in Prague, Warsaw, and Budapest, TLS truly is a global firm built on an extensive local footprint. Supported by a battle-tested team of legal professionals, our expertise extends beyond language and legal technology to virtual data rooms (VDRs) and AI to speed up due diligence, which is instrumental for ensuring smooth cross-border M&As.
3. GDPR and Cybersecurity – Business in CEE is still subject to the European General Data Protection Regulation (GDPR). Even before the regulation came into force, the legal industry had seen unprecedented numbers of cyber breaches in the last five years.^[4] Compliance with the GDPR is multifaceted; however, one constant concern is the transfer of EU citizens’ personally identifiable information (PII). This can occur inadvertently within any deal. TLS’s proprietary VDR, TransCEND, has an auto-redaction plug-in proven to accurately redact 100% of known PII and up to 75% of unknown, third-party PII. To further address cybersecurity concerns, TransCEND’s advanced information rights management allows you to control who can download, edit, print, or even view documents down to a specific IP address or individual—even after it has been downloaded locally.

Whether you’re a first-time CEE investor or connoisseur, TLS has the tools and knowledge to make your business interests in the region a complete success.