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Market Snapshot: Recent Developments and Major Amendment of the Business Corporations Act

Market Snapshot: Recent Developments and Major Amendment of the Business Corporations Act

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The M&A market in 2020 has been significantly affected by the coronavirus pandemic. According to the latest quarterly M&A overview prepared by CzechInvest, the leading agency supporting business and investments in the Czech Republic, “in a very short period of time and on a large scale, many companies have had to close down or limit their operations, dismiss stuff members, and disrupt supply chains.” Although there has been some recovery since May, the situation remains unpredictable. The second and next presumed waves will likely bring even more uncertainty.

Although this is hardly the first time the M&A market has been hit by an economic crisis, and although it has always recovered before (most recently, the post-2008 crisis period proved to be a great time to go shopping for cheap assets), this time the situation seems different. The impact of the pandemic will likely divide the market more than it has before. We will see winners (e-commerce, fintech, etc.) who profit from the various restrictions, and losers (automotive, tourism, etc.) who suffer from them. This ultimately will result in changes to deal terms and new issues with respect to due diligence and how it is conducted, pricing/valuations and other terms of deal financing, and the time required to obtain regulatory and other third-party approvals. Investors will be interested in the economic resilience of potential targets. Others (who are sitting on plenty of cash) will speculate on prices falling and on distressed assets.

Nevertheless, the Czech M&A market has remained relatively active, and according to information from various corporate finance advisors, the pipeline looks healthy. Interestingly, as the lockdown and various restrictions handcuffed advisors trying to make deals by preventing regular face to face meetings, we can see a kind of gap in the pipeline. Similarly, foreign investors, even if they remain acquisitive, find it difficult to travel to the Czech Republic for site-visits and management presentations. Not everything can be done virtually; building trust and verifying the facts on the ground remain important even in these times, and their absence can be an obstacle for some transactions. What remains relatively strong is the Czech mid-market, which is largely driven by the limited succession possibilities of the founders. According to some local private equity players with very good track records, the inflow of opportunities and potential projects is even stronger than before the pandemic.

Major Amendment to the Business Corporations Act

An extensive amendment to the Czech Business Corporations Act will enter into force on January 1, 2021, clarifying a number of unsettled issues and introducing some substantial changes. Besides technical amendments, it will bring changes to the distribution of profits and other capital funds, liberalize classes of shares, significantly modify the monistic management model of joint-stock companies, change per-rollam (by letter) decision-making process in limited liability companies, joint-stock companies, and cooperatives, and amend the liability and method of remuneration of members of statutory bodies. These changes will affect virtually all forms of companies.

In particular, companies should ask themselves whether the changes in the rules regarding the distribution of profits and other capital funds will work for them after January 1, 2021, and what impact that may have on their plans. The criteria for distributions will change to apply jointly to dividends and other equity payments. On the other hand, investors will have more clarity and legal certainty when it comes to structuring various rights by means of classes of shares. For example, it will be possible to issue shares only with economic rights and without voting rights. This is a great opportunity in the current situation.

By Tomas Dolezil, Partner, JSK

This Article was originally published in Issue 7.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Czech Republic Knowledge Partner

HAVEL & PARTNERS, attorneys-at-law, with offices in Prague, Brno, Bratislava, Pilsen, Olomouc, and Ostrava, has a team of 220 lawyers, tax advisors and 500 employees in total, is the largest independent law firm in Central Europe.

Our clients include large international companies, leading Czech and Slovak firms, including strategic state-owned companies and public sector authorities, as well as medium-size businesses, individual entrepreneurs, and investors. We advise approximately 100 of the Fortune 500 companies, and almost 50 of the Czech Top 100 companies. HAVEL & PARTNERS currently provides its services to a total of 2,000 clients. We have the most comprehensive international support available to both Czech and Slovak law firms. We provide legal and tax advice in 12 world languages in more than 90 countries around the globe. Up to 70 % of the transactions we deal with involve an international aspect.

HAVEL & PARTNERS was named the best law firm operating in the Czech Republic by the prestigious British rating agencies Chambers and Partners (2020) and Who’s Who Legal (2018, 2019). It is also the most successful law firm, providing the most comprehensive legal services in the Czech Republic and Slovakia, based on the total number of all nominations and awards in all years of the Law Firm of the Year awards. The firm became the absolute winner of this competition four times in the last six years, receiving the main award Domestic Law Firm of the Year in the Czech Republic (2015, 2017, 2018, 2020) and ranking as one of the most recommended law firms in all categories of law. Our company is also a three-time winner of the Law Firm of the Year award for Best Client Services (2015, 2016, 2019). In the field of M&A, HAVEL & PARTNERS is the best law firm in the Czech Republic based on the annual International Advisory Experts awards (2018, 2019). In Slovakia, it also won the prestigious global M&A Today Awards (2013–2018) for Mergers & Acquisitions six times in a row, and repeatedly won first place in the ranking by Lawyer International Legal 100 (2017, 2018). Prestigious international rating agencies EMIS DealWatch and Mergermarket have ranked HAVEL & PARTNERS among the leading law firms by the number of transactions completed in the entire CEE region since 2009. Based on annual awards of the Acquisition International magazine, HAVEL & PARTNERS has become the Law Firm of the Year 2019 in the M&A category in the CEE region.

Firm's website: https://www.havelpartners.cz/en/

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