“If I would need to bet on what would be the most popular transaction type this year in Hungary, I would say M&A deals,” says Partner Szabolcs Mestyan of Lakatos, Koves and Partners.
Of course, that doesn't mean M&A will be the only active area. Indeed, as the head of his firm's Banking and Finance practice, Mestyan says that the market can expect interesting developments in this area as well. He explains that, although there is a steady stream of transactions in the financial market, the particular form changes often. Before the crisis, he says, it was concessions. During and after the crisis it was restructurings. And most recently, after the crisis, it has been NPLs. He says, “in the past two years finance lawyers have been kept busy with non-performing loan matters, including — in the first line — NPL portfolio transfers. Since most of those deals are now done and closed, probably a new type of transaction will emerge and take the lead. The question is: what type of transaction will it be?”
“The new direction will certainly be influenced by the global market, by current international trends, and by the upcoming elections in Hungary,” says Mestyan. “Even if the legal market itself won’t be, the transactions will be affected by the upcoming political events. It’s a human thing, people still see elections as a milestone in respect of their business, in respect of their business strategies, and so usually before the elections they delay, waiting for the results." He adds that this might be the reason why those individuals who will determine what type of transactions will mark 2018 in Hungary are still somewhat in the shadows.
Mestyan refers to several pieces of legislation that are affecting his clients. From a financial law perspective, on a European level, two important set of laws have been adopted, he says: “MiFID 2 and MiFIR, created by EU regulators in an ambitious attempt to offer greater protection for investors and inject more transparency into all asset classes on one hand, and PSD 2, the new Payment Services Directive, which is designed to lift the monopoly of banks on their customer's account information and payment services on the other.” He believes that the new legislation will affect the capital market and investment services framework, as well as the payment services and FinTech market significantly.
However, Mestyan emphasizes that he’s not a big fan of MiFID 2. “In my subjective opinion it is an overregulation of the sector. It’s aggressive, but then, this was my opinion regarding the MiFID1 Directive as well, ten years ago.” In his opinion, adding more rules and more bureaucracy to the process will not help it achieve its aim. “They say that all these rules are promulgated in order to facilitate the competitiveness of the EU’s capital market, but I think that even an ordinary person, not being a lawyer or an investor, could speed up rules. A thousand pages may not achieve that purpose, but rather the contrary.” Instead, he believes, “this regulation places a huge administrative burden on all the investment service providers, particularly on smaller players, for whom the costs of compliance are particularly much higher, thus reaching a high level of counter-productiveness.
Turning to developments in the legal market, Mestyan says that by now most Hungarian firms have developed a strategy for implementing artificial intelligence, some are already using it, while others are in the process of introducing it into their system and daily work. “I believe that all the major law firms will inevitably use A.I. software in their professional work, especially in their due diligence reviews to become more efficient,” he says.
Finally, Mestyan notes that he expects to see more mergers of Budapest law firms in the market soon. “In the upcoming period, what we will see is the consolidation of some local law firms. Important exits, mergers, and other movements among Hungarian firms are already on the horizon,” he says, describing the process as representing “a positive direction for the legal market.”