In our legal work in Montenegro, CMS has been engaged in a number of major mergers & acquisitions, representing both buyers and sellers, including Monte Rock’s acquisition of HIT Montenegro in connection with the Hotel Maestral in Budva-Przno, the Delhaize Group’s acquisition of food retailer Delta Maxi, KKR’s acquisition of SBB/Telemach Group, and OTP Bank’s acquisition of Societe Generale Montenegro.
Based on our extensive experience, this short overview represents a guide to the stages of a typical M&A transaction in Montenegro.
The principal phases of an M&A transaction in Montenegro are: (1) Legal due diligence; (2) Signing of the sale purchase agreement; and (3) Closing.
Legal Due Diligence
A legal due diligence represents the initial step in the vast majority of M&A processes. After the analysis of legal documentation, advisors prepare a report, representing a comprehensive overview of the targeted company/business/assets to identify risks and provide recommendations to potential buyers and/or bidders, so they can decide: (i) whether to proceed with the transaction; and, if so, (ii) under which terms, conditions, and protection mechanisms.
The purpose of a legal due diligence depends on its type (e.g., (i) corporate vs. others (project financing, real estate development, etc.), (ii) share deal vs. assets/business deal, (iii) sell-side vs. buy-side, (iv) broader vs. red-flag), and the client and his/her instructions (e.g., (i) type of client (in particular, the industry in which the target operates, investment funds, foreign/domestic entities); and (ii) the client’s instructions concerning the form of the legal due diligence required, specific areas to be covered, thresholds, applicable legal framework, etc.). We recommend that the instructions related to the scope of work be set out in writing with full understanding between the advisors and the client.
In our practice in Montenegro, we have identified the following questions to be addressed during a (buy-side) legal due diligence: (a) What are you buying? (To obtain a description of significant assets, titles, permits, including any lack of them and possible encumbrances, existing, potential or contingent liabilities); (b) Is it acceptable? (To learn of potential deal breakers or significant obstacles (existing or triggered by a transaction)); (c) And under which terms and conditions? (Are there ways to handle the obstacles or not? At what cost?); (d) Do we have all necessary information? (The scope of the necessary information; can we obtain it (in the course of the legal due diligence, before the closing)? Can we rely on representation?); (e) What do we need to close the deal? (Conditions precedent (approvals, restructuring, completion of the procedures, etc.); and (f) What do we recommend? (Disclosure, indemnities, representation & warranties, conditions precedent, price adjustments, retention of the purchase price, etc.).
Signing of the SPA
The SPA in an M&A transaction is a master agreement that regulates all rights and obligations related to the transaction. The following provisions are of relevance to the buyer in an M&A transaction: (a) Commercial clauses and conditions (subject matter of the agreement, i.e. transfer of shares/assets); (b) Conditions precedent/closing actions: (i) all actions that need to be performed or all documents that need to be executed in order that the M&A transaction can close successfully (e.g. merger clearance, corporate approvals, other regulatory approvals); and (ii) all actions that need to be performed and all documents that need to be executed at the closing meeting (transfer deed, payment of the price, registration of the title, waiver of certain rights, etc.); (c) Transitional provisions (definition of the acts and activities of the target and the management in the period from the signing to the closing in order to preserve the value of the target and its business operations (usually limited to day-to-day business operations); (d) Representations and warranties: (i) referring to the issues that do not present identified risks, and (ii) breaches of representations and warranties are subject to indemnification mechanisms; (e) Specific indemnity matters: (i) referring to the issues that present identified risks; and (ii) indemnification mechanisms in the case of occurrence of events identified as risks.
An M&A transaction is deemed to be closed when (i) all conditions precedent are fulfilled or waived; (ii) when shares and/or assets are transferred; and (iii) the purchase price is paid.
By Milica Popovic, Partner, and Tamara Samardzija, Attorney-at-law, CMS Podgorica