Interview with… János Tamás Varga, VJT & Partners

What have been the key trends on the Budapest legal market in the recent years? How you see your position?

I think three key trends have shaped the direction of our legal market.

First, there has been a steady rise in M&A transactions. The investment climate has improved. Our firm has seen both established market players in various industries (such as financial, manufacturing or service industries) and completely new tech/health care start-ups with strong ability to grow as targets.

Second, there has been a rise in compliance mandates. We can see that clients are seeking advice not just on GDPR, but also other compliance issues (such as anti-money laundering, antitrust or consumer protection).

Third, new client expectations are radically shaping the landscape of Budapest’s legal market.

All three market trends have a steady impact on our firm. We have been able to further build up in areas where we are traditionally strong and develop the advisory mindset dictated by new client expectations. Apart from key international law firms, we are either the only Hungarian independent law firm (like in technology or data protection area) or among the few privileged ones (like in M&A or employment area) who can stay ahead of the competition in first and second tier of The Legal 500.

How are client expectations changing?

Clients expect lawyers not to be just good lawyers, but also trusted advisors who really understand their needs, how their industries work and speak their business language. Clients are more seeking specialists and not all-rounders. This is why it is important to establish a unique selling proposition or USP. Only a good USP can answer the client’s very usual question: “why I should do business with you rather than with your competitors”. Finally, there is a growing need for digitalisation. Clients are looking for cost-efficient solutions which drive law firms to automatize processes.

Has COVID-19 brought any change in this regard? What impact has it had on the pattern of work you’ve been getting in different practice areas? How has the nature of the work changed, if at all (eg – fewer M&A deals and more corporate restructurings)?

There were some slow-downs, some deals even in very advanced stages aborted in February and March 2020. But in the second half of 2020 the transaction market started to show signs of life, and in the last two months of the year we saw quite an active M&A market. A few sectors like technology and pharma even benefited from the COVID-19 challenges; our technology practice experienced a massive increase in work volume. From the outset, this new situation generated us a lot of privacy and employment-related work. Otherwise, our domestic M&A practice remained busy, and we had a lot of COVID-19-related commercial advisory work (such as force majeure effects and the termination of lease contracts under COVID-19 laws).

Hungary has a tradition of close working relationships with German and Austrian clients around the CEE region. Is this still so, and where do foreign instructions come from these days?

Yes, indeed, these are very close ties. Germany remains Hungary’s most important investor; they are particularly strong in manufacturing sectors. But Hungary is also a major investment location for US companies (40 out of the 50 biggest US companies are present in Hungary) and the Chinese FDI to Hungary is also significant.

We experienced that foreign instructions originated from plenty of other countries too (including UK, other EU/EEA countries, Japan and other Asian Tigers). Foreign instructions come to us both directly and through referral networks (ie multinational US and UK law firms).

Which recent change of legislation has impacted the M&A market noticeably? 

The new Hungarian COVID-19 rules introduced restrictions on cross-border M&A transactions (in which the investor is from a non-EU/EEA country). Certain transactions affecting strategic companies require notification to the Hungarian top-level administration. There are more than 20 sectors considered to be “strategic” including energy, tourism, transportation, health care and information technology. This imposed significant additional burden on M&A deal planning and impacted the timing of the transactions as well. As of mid-November 2020, over 30 notifications have been submitted. We shall see what impact this new regulatory process will have on FDI.

What does innovation mean to you and how can clients be better off from it?

Innovation has several different aspects like finding the most creative solution for the client or seeking for the most cost-efficient solutions.

We truly believe that the future lies in automatisation of legal solutions, especially in compliance fields. Clients can be better off with such solutions as they can significantly speed up the auditing work of large companies and a high-quality legal service can become available to small- and medium-sized companies as well. This is why we are working together with a Hungarian consultant company Simplexxy on legal-tech solutions.

What makes Hungary an attractive destination for foreign investment in the technology sector? How does the firm support client in emerging technologies?

Hungary has some very good traits (such as a favourable geographical location, logistical infrastructure, highly-skilled workforce and low wages) creating an ideal climate for foreign investment in the tech sector. Hungary is a start-up hub on the rise. We support our clients in emerging technologies through our technology M&A practice, which integrates our niche technology knowledge with M&A expertise. We are regularly advising key Hungarian venture capital firms specialised in investment into Hungary based start-ups with global ambitions.

There has been a steady stream of work in technology and data protection, emanating from developments such as the legal force of electronic signatures, GDPR regulations and cybersecurity issues, what other hot topics are you currently advising on, or what changes do you foresee in the sector?

We are regularly advising a Big Four tech company on hot digital topics such as ISP liability, algorithms and the new rules on video-sharing platforms. We foresee a shift from traditional GDPR work to data breach management and cybersecurity work, as the Hungarian privacy regulator recently imposed its highest ever fine in this area (close to €300,000). More mandates could come from global platforms as they could be subject to more intensified regulatory scrutiny. For example, the Hungarian competition authority (HCA) started to target key global platforms and recently fined Facebook for misleading consumers by marketing its services as “free” (when the users paid with their data). The recent record fine of HCA against Booking (roughly €7m) for its unfair market practices (eg cancellation was advertised as “free of charge” while the cancellation fee was built into the price) also perfectly demonstrates that the HCA is heavily focused on Big Tech world. So, apart from GDPR, digital consumer protection has become a very hot topic in Hungary.

What makes Hungary a healthcare R&D hotspot, and what legislative developments are expected in the future to grow the sector? Why do you think healthcare multinationals are expanding into the Hungarian market and how does your firm support clients in their ventures?

Hungary established a tailor-made taxation and incentive regime to create this R&D hotspot. To support the pharma industry, the government concluded strategic partnership agreements with market-leading pharma firms (such as Teva, Richter, Egis and Sanofi) and also created a public procurement scheme to centrally manage the supply of drug products to healthcare institutions.

The market developments clearly evidence that this is a dynamically developing industry, so it is definitely worth multinationals keeping a close eye on it. We support clients in any business cycle of their ventures, and we have a track record in pharma M&A transactions and strong cross-practice capabilities in the related areas including data protection, IP, antitrust, pharma ads and other sector-specific regulation.