Lithuania becoming a buyer's market as well as new court decisions open the door for traditionally less used M&A deal structures according to CEE Attorneys Partner Oksana Kostogriz.
“We're seeing a shift towards a buyer's market, where transactions are becoming increasingly creative,” Kostogriz begins. “This includes more complex transaction financing structures: external funding through quasi-equity, mezzanine financing, postponed payments, bonds, different combinations of the aforementioned, and using target assets to secure the financing on top.” Interestingly, she says, “sellers, who were previously hesitant about such arrangements, are now more open to these creative solutions. Additionally, sellers are more open to considering earnouts.”
According to Kostogriz, this opens “opportunities for market consolidators who might not have readily available funds but know the market well and have a clear vision of how to extract synergies, transform businesses, and increase a company's profitability.” According to her, this trend isn't sector-specific but rather has more to do with the very nature of the purchasers and sellers. “There's significant movement in traditional sectors like production, infrastructure, and similar with long-standing businesses lacking growth opportunities and the owners exploring exit opportunities” she explains.
Another trend gathering traction in the market is the usage of option agreements. "We finally saw court practice accepting that an option agreement is not a preliminary agreement and that parties who concluded such an agreement can be forced to execute it, Kostogriz explains, adding: "Previously there was no enforcement possible – one could only claim for compensation of damages. Before that parties and lawyers were quite reluctant to use options, while they are great tools for structuring transactions and incentivizing management."
“The geopolitical situation is still creating tensions, meaning that Lithuanian businesses are looking for opportunities to diversify in other geographies,” she continues. “There's a noticeable trend towards diversifying investments, with significant interest in countries like Poland, the Czech Republic, Romania, and other CEE countries.”
Finally, focusing on the bigger picture, Kostogriz reports that next year will be big for Lithuania because of an “election cycle that will usher in a new President and a new Parliament. Also, the European Parliament elections will be held as well.” According to her, the entire political arena will be “focused on topics that are most sensitive to the general public: taxation, pension funds, health care, and the like. Having this in mind, still, I do not expect a major impact on M&A activities, even though some potential investors might see additional uncertainties in the market,” she concludes.