M&A (Mergers and Acquisitions) – service and consulting

Mergers and acquisitions (M&A) are complex transactions that require precise planning, analysis and expert advice. Whether it’s expansion into new markets, raising growth capital or a strategic partnership, a properly managed M&A process can yield significant business opportunities. Professional advisory services include due diligence, contract drafting and negotiating the terms of the transaction, thereby minimizing the risks associated with the sale of a business. Utilize the services of a professional advisor to guide you through each phase of the transaction.

What are mergers and acquisitions (M&A)?

Mergers and acquisitions abroad, but also in the Czech Republic, known as M&A (mergers and acquisitions) are strategic processes by which two or more companies merge (merger) or one company is taken over by another (acquisition). A merger involves the combination of business activities, whereby a new legal entity is created or one of the original entities is continued. An acquisition is the purchase of a share, assets or the entire business, whereby the acquirer gains control of the target company. These transactions are motivated by various interests of the buyers or investors, for example, to achieve synergies, increase market share, improve financial performance or enter new markets.

M&A processes require thorough preparation, including market analysis, financial and legal due diligence, business valuation and setting up the optimal transaction structure from both a legal and tax perspective. Successful implementation depends on quality planning, professional negotiation and precise setting of contractual terms.

Types of mergers and acquisitions

Based on our experience and current practice, M&A transactions in Slovakia are dominated by mergers and acquisitions where companies operating in the same or similar industries merge to consolidate the market, increase market share and achieve operational synergies. Another common type is transactions involving the integration of companies at different levels of the chain, allowing for cost optimisation and better control of production and distribution processes at the top with a holding company.

• Among acquisitions, strategic acquisitions are common, where the goal is to expand the product portfolio, enter new markets or eliminate competition.
• Financial acquisitions, generally by investment funds, focus on increasing the value of the target company through restructuring or improving operating metrics.
• A specific type is the manager buy-out, where management acquires ownership of the company, often with the support of external investors.

The differences in models and transaction settings reflect the diverse strategic objectives of companies and investors, as well as their ability to respond to market dynamics.

How are mergers different from acquisitions?

Mergers and acquisitions are two different types of corporate transactions, with similar outcomes but in different ways.

• A merger is the process by which two or more companies combine to form a new entity, with all the original companies being dissolved and their assets and liabilities transferred to the newly formed company.
• Conversely, an acquisition means that one company takes control of another, whereby the target company may either disappear or continue as a subsidiary within the parent company.

Mergers often take place between equal partners who decide to pool their resources and capabilities, while acquisitions are more often unilateral, where one company takes over another, for example a company or investor acquires a majority stake in a company. While a merger may involve a larger negotiation process that also involves setting up integration processes, an acquisition may be faster and less complex in terms of decision-making as one company decides to take over the other.

How mergers are structured

Mergers are structured in different ways depending on the objectives and preferences of the companies involved. In a merger by amalgamation, one company absorbs another, with the surviving company being fully integrated into the one that takes over its assets and liabilities. A merger by amalgamation means that two or more companies form a new legal entity, with all the original companies disappearing. The key step is the drafting of the merger project, its approval by the general meetings and its registration in the Commercial Register. Legal and tax due diligence, protection of creditors and minority shareholders as well as ensuring tax neutrality are important parts of the process. A successful merger requires careful planning and the cooperation of experts to minimise risks and maximise benefits for all parties involved.

How acquisitions are financed

Financing of acquisitions in Slovakia is usually done through a combination of equity and external financing, with the most common methods including bank loans or private equity and venture capital financing. In the case of bank loans, the acquisition is often financed through a combination of short-term and long-term loans, with the bank providing the financing taking into account the position of the buyer and the value of the acquisition.

Private equity and venture capital funds participate in the financing of acquisitions, offering capital and support in the growth and restructuring of the target company. Optimising the tax structure of the transaction is also an important aspect, which may include the use of tax credits or a debt financing strategy, which can reduce the overall cost of the transaction.

How mergers and acquisitions are valued

The valuation of mergers and acquisitions in Slovakia includes various valuation models, which are selected based on the nature of the transaction and the availability of data on the company.

• Among the most commonly used methods is the discounted cash flow (DCF) model, which focuses on projecting future cash flows and discounting them to present value.
• Another popular approach is the comparative analysis (market approach), where the value of the target company is estimated by comparing it to similar publicly traded companies or to recent transactions in the same industry.
• The multiples approach relies on financial ratios such as EBIT, EBITDA or revenue and determines the value of a company based on multiples of these ratios compared to other companies in the industry.

Each valuation model has its advantages and disadvantages and its correct application also depends on the specific industry in which the valuation takes place. For this reason, in complex transactions, a combination of several methods is often used to obtain a more accurate value of the business.

HighGate’s role in M&A – our services

We provide clients with our expertise in the following areas:

• analysis of the company and business model;
• preparing the structure of the transaction and setting up an efficient legal and tax regime;
• performing legal and accounting and tax due diligence;
• preparation and negotiation of transaction documentation (term sheet, acquisition agreement, investment agreements, corporate documentation);
• negotiation of the shareholders’ agreement;
• post-transaction advice.

Impact on shareholders

The role of advisors in the mergers and acquisitions (M&A) process has a significant impact on shareholders as they provide expert advice that can influence decisions and transaction outcomes. The role of advisors is to provide independent and objective analysis that helps shareholders understand the value and risks of a transaction. In the area of business valuation, advisers apply a variety of valuation models to provide shareholders with a realistic picture of a fair price for their shares, which is key in deciding whether to accept a sale or takeover bid. In addition, advisors perform legal, financial and tax analysis to help ensure that the transaction is compliant with the law and optimized for tax consequences. The negotiating skills of advisors can also lead to better terms for shareholders, for example in the form of a higher purchase price or a more favorable transaction structure. Finally, advisers play a key role in minimising the risks of a transaction, thereby increasing the likelihood that shareholders will achieve the maximum possible return and protect their interests.

Examples of M&A

In the Slovak market we are more and more frequently encountering the entry of foreign players interested in investing their capital in Slovak companies or incorporating them into their multinational structures in terms of strategic positioning. For companies, this means available capital to support their growth and modernisation in various sectors of the economy.

As part of our M&A advisory services, we have provided services such as:

• in society DETOX s.r.o., one of the most important companies operating in the field of industrial waste processing on the Slovak market;
• the leading Slovak investment platform Crowdberry in connection with the acquisition of an additional stake in a major Slovak e-commerce company GymBeam s.r.o. from co-investor Slovak Investment Holding;
• investment group Ethernum Capital, in the creation of an acquisition JV structure with the private equity fund ETERUS Capital a.s., whose investment intention is the consolidation acquisitions of pharmacies in the Slovak Republic;
• for the globally operating Atlas Copco Group in connection with the acquisition of 100% of the business interest in the Slovak company ACJ;
• SEC Technologies, a major Slovak company developing a unique gas detector for the defence industry, in the preparation and negotiation of transaction documentation governing the provision of a venture capital investment by a Crowdberry Group company.

If you are interested in this topic, please do not hesitate to contact us:

• Tomas Demo, e-mail: tomas.demo@highgate.sk

For more on M&A and private equity, please visit this section of our website: venture capital and M&A

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Alternatively, you can address your specific questions in a consultation with our partner Tomáš Dem, who also specialises in this area. You can book a consultation here: