The global COVID-19 crisis has led to a significant change in the field of M&A, both in Austria, and worldwide. In my more-than-twenty years of experience, I have not seen anything change the Austrian legal market so incredibly. Starting in March 2020, as a first step, several transactions in Austria were at least temporarily put on hold. As a result, the total number of transactions decreased in 2020. However, this trend was not unique to Austria, but represents a worldwide paradigm shift caused by increased uncertainty about the future of business.
The increased volatility that was a consequence of the changed economic landscape persisted until activity rebounded strongly in the third and fourth quarters of 2020, when, as in previous economic downturns, top performers sought opportunities in a context of discounted assets and lower valuations. This caused a more-than-increased workload for many M&A lawyers and advisors in Austria.
In addition, both the European Union and national governments - not least because of the COVID-19 crisis - are trying to protect their economies.
Austria has implemented its version of the new European foreign investment framework, controlling investments by non-EU residents in fields like energy, information technology, traffic, health, food, telecommunications, media, and data processing. I expect that this new regime will significantly extend the scope of transactions requiring approval, and as such, delays in transactions that have to be considered when structuring them. Nonetheless, inbound transactions have continued to rise, carried out primarily in the technology, media, and telecommunications sector, as Austria has many hidden champions in niche markets that are interesting for foreign investors. Most such deals, last year, were executed in the fields of technology, industry, and real estate. In contrast, the recovery to pre-crisis levels of outbound transactions is proceeding at a much slower pace as Austrians are typically more cautious and more risk-averse.
Unlike previous years, 2020 was also characterized by the Austrian legislator’s adoption of relief measures for companies and corporate transactions. As an example, the legislator allowed notarial deeds to be executed through video conferences, allowing transactions to be carried out without the physical presence of contracting parties.
Moreover, the obligation of a company to file for insolvency in the case of over-indebtedness has been suspended until March 31, 2021. This is also a reason why, despite the global economic downturn, corporate insolvencies declined significantly in 2020. Consequently, the number of companies at risk of insolvency is currently rising and a sharp increase in corporate insolvencies is expected in 2021. That brings me to the area of distressed M&A, which has been on an upward trajectory since the end of 2020. It is expected that this upward trend is to continue in the current year as government stimulus programs and deferments expire.
Another implication of the global COVID-19 crisis is that it has accelerated a lot of trends. Whether it is digitization, automation, big data, decentralized finance, sustainability, remote working, digital shopping or going from global to local, acquiring companies – or their assets – can lead to new opportunities and help companies keep up with the pace of change. Such trends do not stop even for us lawyers. I have never spent as much time in video conferences in my life as I did last year.
While 2020 proved that nobody can predict the future, I remain bullish in my outlook for the Austrian M&A market in 2021, as the underlying key economic drivers are solid: The costs of debt financing are still at historically low levels and many companies and investors have amassed considerable amounts of cash. In addition, the announcement of positive vaccine news provides further impetus for a recovering economy and higher levels of corporate transactions. It is essential for me as a lawyer to have a strong team, to be flexible, and to have ideas to react to a changed environment.
By Elke Napokoj, Partner, BPV Huegel