Please give us an overview of the current legal market in Austria and how any recent developments have impacted your practice?
While the number of transactions has remained steady at a high level (approximately 180 transactions in the first half of 2018), the deal volume for the first half of 2018 has reached an all-time high since 2012, with a volume of more than €5bn. Deal flow for Austrian targets has benefited from strong business performance of Austrian targets combined with stable economic indicators for the Austrian economy as a whole, which leads to deal stability. Continued low interest rates and the need for businesses to catch up with digital transformation are trends that are global, but are definitely transaction drivers for Austrian companies.
What significant trends exist in the M&A market presently? Are you seeing these just domestically or internationally as well?
Looking at where cross-border buyers come from for Austrian targets, the big three jurisdictions are Germany, the US and Switzerland, though buyers from China also have been active. Sector-wise, over the past couple of years real estate transactions have been very prominent, though there appears to be a bit of a cooling off currently. The industrial sector has also remained strong, which reflects the high level of industrial know how that Austrian companies have in many niche industries. Other strong sectors are the technology sector, software companies and data management. Restructuring deals and an increase of in-bound investments from international investors also play a significant role. One important trend in Austria, which can also be seen in many European jurisdictions and the US, is the increasing use of warranty and indemnity (W&I) insurance. Our firm has closed numerous transactions over the past year where such insurance acted as a bridge between seller and buyer so the buyer could obtain an extended scope of warranty and indemnity protection that otherwise might not have been possible. Private equity buyers are at the forefront of this development.
Another evident trend is the rise in auction processes, especially in real estate deals. Through this the Austrian M&A market has become somewhat more seller friendly. Our firm has led many sell-side deals run as auction processes and practice show how important it is to have a well-structured process with a clearly structured data room to push the deal to a successful conclusion.
What are the three biggest challenges to practising M&A in Austria at the moment?
One key challenge is representing buyers in auction processes. The rules of the game are much different to exclusive one-on-one negotiations. It takes a lot of experience to know how far to go in marking up and negotiating the SPA without being kicked out of the process.
Another challenge is having the in-depth legal expertise to deal with the stringent capital maintenance rules Austria has. Upstream guarantees, for example, often do not work and recognising the legal consequences of past dealings between the target and its shareholders can play a significant role.
Another challenge our firm tackles very well is putting together an M&A team quickly and providing stream-lined advice within tight time frames. We strongly believe in providing hands-on, high-level advice led by a partner to achieve tailor-made solutions.
How does M&A fit into the firm as a whole? Is it easy to collaborate with other teams?
fwp’s philosophy is to work beyond pure practice group thinking. Our M&A lawyers are trained to think outside the box and have various levels of legal expertise. We place a high value on not having ‘tunnel vision’ lawyers. This allows us to combine all legal skills and know how necessary as a
one-stop shop in an efficient manner. Our firm also places a great emphasis on keeping track of key international legal trends, not only in our daily cross-border work, but also as the exclusive Austrian member law firm of the leading international referral network TerraLex, and of the Association of European lawyers. fwp thus is also very active representing Austrian companies in transactions abroad.
What advice would you give to the next generation of M&A lawyers?
Do not to be blinded by the discussion on the use of artificial intelligence. Young M&A lawyers need to focus first and foremost on developing their fundamental skill set. Having expertise in areas such as IP and data protection ill also become increasingly important in M&A transactions, so young lawyers bringing these skills to the table, in addition to the core corporate expertise, will have an advantage. It goes without saying that sectoral expertise is something young lawyers should develop.
What are your predictions for M&A in Austria over the next five years?
We expect Austria to remain an active M&A jurisdiction given that top, technologically advanced Austrian companies continue to make strides, all within a very stable economic environment. Austrian companies will remain attractive targets and, at the same time, will continue to expand internationally via M&A deals. We believe these strengths will more than counter-balance any global rise in interest rates in the near term, which is widely anticipated and mean it will become more costly to finance transactions. We also expect a further increase in the use of W&I insurance.