Mergers & Acquisitions Comparative Guide

• Published date: 11 November 2022
• Subject Matter: Corporate/Commercial Law, M&A/Private Equity
• Law Firm: Brulc Gaberscik & Partners
• Author: Mr Luka Gaber'čik

1 Deal structure

1.1 How are private and public M&A transactions typically structured in your jurisdiction?

Of the three major types of deal structures used in Slovenia, the share purchase agreement is by far the most common, with asset deals a distant second. Due to the relatively small size of the Slovene market, there is no demand for classic merger deals, which are relegated to the status of consolidation tools for tax or operational purposes.

Most mid-level deals are driven by sellers opting for a semi-open negotiation process, with invitations to potential buyers suggested by the seller's business consultants. A buyer-driven deal is subject to an exclusive negotiation process, based on an acceptable indicative offer to the majority shareholder.

In terms of the types of sale procedures, hostile takeovers are practically non-existent, due to the hiding of shares in shell companies and the difficulty of enforcing laws against concerted action. Most major transactions of publicly traded companies may be considered as friendly takeovers or at least neutral takeovers.

1.2 What are the key differences and potential advantages and disadvantages of the various structures?

An asset deal limits exposure to the target's debts and agreements with other parties. It is especially viable in cases where only part of the company is for sale (eg, logistics; storage; the production of source materials), where a share deal would require a carve-out. An asset deal may also be favoured for companies with large cash reserves, due to tax optimisation on the seller's end. On the other hand, an asset deal is relatively complex, due to the necessary listing of the assets; and it may not limit all debts of the underlying business due to certain legal limitations. Additionally, an asset deal does not allow for the transfer of licences of the target, except in some insolvency-related cases.

A share deal involving a publicly traded target is subject to several legal requirements, such as:

• a public offering;
• rules restricting insider trading and market abuse; and
• the compulsory public disclosure of certain information.

In the case of non-publicly traded companies, a share deal may have to address relations with different shareholders and their interests. In recent cases, some share deals of limited liability companies have been fast-tracked thanks to increased use of robust drag-along and tag-along clauses.

Due to the prevalence of share deals, sometimes the seller will require a pre-emptive statutory change, such as a carve-out of certain assets, which is done exclusively to facilitate the transaction and to make the offered assets more appealing to potential investors.

1.3 What factors commonly influence the choice of sale process/transaction structure?

As explained in question 1.2, we see a major difference between sale processes started by the seller and those started by the buyer. In the former, the seller will prefer at least a semi-public call for indicative bids to companies that are perceived as most interested in the target. The process is usually supported by a financial adviser, which steers the sale. Where the seller is government owned, a transparent call for bids is usually publicised - although with reservations not to sell as an insurance policy should the transaction becomes politicised. Where the sale is started by the buyer, the latter will usually bid for a controlling share of the company, with a requirement for an exclusive negotiation period clause.

We believe that this difference in sale procedures reflects the seller's need to drive up competition among potential bidders; while in the case of a buyer-driven deal, the buyer must compete against the seller's estimate of the future value of the company.

2 Initial steps

2.1 What documents are typically entered into during the initial preparatory stage of an M&A transaction?

As Slovenia is a small market, the international usage of all related documents is followed; and thus no localised names are given to the initial documents.

Usually, if the seller starts the sale process, it will begin as a call for bids or an invitation to express interest, with an attached teaser containing financial data and an overview of the offer. An indicative offer by the buyer is given (supported by proof of funds, if the buyer is not well known), with an invitation to sign a letter of intent (also known as a 'memorandum of understanding'). The letter of intent is usually not binding, except for clauses such as exclusivity, confidentiality, possible break fees and so on.

2.2 Are break fees permitted in your jurisdiction (by a buyer and/or the target)? If so, under what conditions will they generally be payable? What restrictions and other considerations should be addressed in formulating break fees?

There is no judicial case law on break fees in transaction negotiations, but the Code of Obligations foresees liability for damages in case of fraudulent negotiation or negotiation without intent. In our view, there is no hard legal limitation on the agreement of break fees that would inure to each party; but as they are considered contractual penalties, they should be reasonably limited. The case law relating to break fees in real estate transaction supports a 10% limit.

In practice, the break fees are set by the seller's financial advisers, usually in an amount that will cover the transaction costs. Government-owned sellers do not generally enter into legally binding letters of intent, except where necessary.

2.3 What are the most commonly used methods of financing transactions in your jurisdiction (debt/equity)?

Due to the small size of the Slovene market, most M&A transactions are of an international nature, with the local company as the target. Hence, we cannot provide a definitive answer to this question. We do believe, however, that the Bank of Slovenia's decision to introduce cash deposit fees and historically low interest rates has made M&A transactions a very viable growth strategy for successful companies with low dividend expectations. Initial public offerings are not used for equity financing of M&A transactions; whereas debt is mostly in the form of bank loans for smaller transactions and syndicated loans for larger targets.

In the past, many M&A transactions were initiated because of creditors' requirements to resolve the pre-insolvency status of the seller, with the transfer of accrued debt thus playing a major role in the transaction structure.

2.4 Which...