On November 20, 2020, CEE Legal Matters reported that BDK Advokati, working alongside Sweden’s Gernandt & Danielsson Advokatbyra, had advised Embracer Group AB on its acquisition of all issued shares of Mad Head Games d.o.o., a game development studio from Novi Sad, Serbia. SunjkaLaw advised Mad Head Games shareholders Nenad Tomic, Uros Banjesevic, and Aleksa Todorovic on the deal.
Counsel for Mad Head Games: Tomislav Sunjka, Founder and Principal, SunjkaLaw
CEELM: Libor, Vladimir, how did you and BDK become involved in this matter? Why and when were you selected by the Embracer Group as external counsel initially?
Vladimir: As in most of international transactions, the clients leave the choice of the local law firms to their legal counsels. In this deal, Embracer Group worked along with Swedish law firm Gernandt & Danielsson Advokatbyra and this is where the instruction came, as G&D used to work on IP matters with our SEE Legal colleagues from Slovenia (Selih & Partners) and they rightfully trusted that we would be equally good.
CEELM: What about you, Tomislav? How did you and SunjkaLaw become involved in this matter?
Tomislav: SunjkaLaw is a law office well known in Serbia and Novi Sad, as we are a specialized and focused law firm, and have been such for 21 years. The scope of our work, among other things, includes consulting and representing clients in the IT industry. This comes from our expertise in all matters connected with business, and from the fact that Novi Sad is considered the IT capital of Serbia. In light of our reputation for handling complex legal matters, and the brand we have built when counselling and representing clients in the IT industry, Mad Head Games chose us as their legal counsel for each stage of the representation in this project.
Vladimir: What, exactly, was the initial mandate when you were each retained for this project, at the very beginning?
Vladimir: The initial request was to confirm that the deal could be closed within two weeks, since Embracer Group – in parallel with this deal – was negotiating 11 other game studios acquisitions and all of them were supposed to be executed and announced on Nasdaq Stockholm on November 17. Hence, we had to thoroughly discuss the process with the sellers and their lawyers and fix the timeline and step plan that would take us to the agreed signing date, as otherwise there would be no deal.
Tomislav: We were hired to advise and represent the shareholders from day one until the fulfilment of all the obligations set out in the Sale Purchase Agreement – six years in all.
CEELM: Who were the members of your teams, and what were their individual responsibilities?
Vladimir: On the Corporate/Tax side our Counsel Tomislav Popovic had a lead role along with Associate Sanja Dedovic. Our IP Partner Bogdan Ivanisevic and his team were responsible for IP and Data Protection issues as this is most sensitive segment in the game studios business – along with HR issues, which were covered by Associate Marija Gligorevic. My main responsibility was to manage the overall process, assist in relation to local law inputs and due diligence findings in the SPA, and assist in the deal structuring, which was very complex, due to time constrains and various issues we had to resolve along the way.
Tomislav: The members of the team on this project were Velibor Repaja, who was responsible for Corporate matters, Jelena Bajin, who was responsible for Corporate and IT, IP, and Data Protection matters, Ivan Strbac for Employment issues, Junior Associate Andrea Fluture, for technical execution support, and me, Tomislav Sunjka, the Principal of SunjkaLaw, as a case manager for the transaction and negotiator.
CEELM: Please describe the deal in as much detail as possible, including your (and your firms’) roles in helping make it happen.
Vladimir: The goal of our client was to acquire 100% of the equity in MHG and at the end this was agreed with the sellers. As G&D had a lead role on the SPA, one of our prime responsibilities was the due diligence of MHG, especially agreements with their main customers, games distributors, and suppliers, as well as the online platforms where their games can be downloaded. Game studios are very specific kinds of companies and the business environment they operate in is different from standard sectors we are seeing on other deals, and this was the biggest challenge for us: to understand their business and the commercial arrangements they have, and to spot any risks in those agreements.
Tomislav: First, the project included the initial negotiation of the ground principles of the project and commercial issues. After these were determined and negotiated, the analyses and mark-ups of the Sale Purchase Agreement were fairly normal, and there were only a lot of mostly-technical issues to deal with – the transfer of shares, intellectual property issues, earn-out issues, manner of payments, and so on. The project also included the Sale Purchase Agreement itself. Everything was done successfully and smoothly, through the cooperation of each party and the cooperation of the advisors. The difficulty was structuring the sale purchase price, followed by setting the time frame for fulfilling the obligations of the Sale Purchase Agreement, as well as the demand of the purchaser that the deal closing should be done at an exact moment.
CEELM: What is the current status of the deal?
Vladimir: The deal has successfully closed and MHG is now integrating successfully within Embracer Group.
Tomislav: The entire project successfully closed in December 2020 but parts of the mutual obligations set out in the Sale Purchase Agreement will need to be fulfilled over the next six years, and we will monitor and work on that.
CEELM: What was the most challenging or frustrating part of the process?
Vladimir: The biggest challenge was the deadline of November 17, and being aware that you have a limited amount of time to complete a process that usually lasts at least three times longer. Luckily, we had closed another deal, at the beginning of 2020, in which our client, Logo, sold 60% of its shares to GetSwift, where we had one week from the day when we were instructed and when the term sheet was signed until the closing, so we knew it was doable, with the right team and a lot of strong coffee.
Tomislav: I would not say there were any parts that were frustrating, since everything that the project included was part of my regular day-to-day work, which I still enjoy, and it is something that I have been doing successfully for over 20 years. It was somewhat challenging to define the “ground rules,” in the sense of negotiating the basic principles of the transaction each side would not back out from, but even that was done with good communication and with understanding by the other side, without much drama. It was very time-focused, including overnights and working over the weekend, but nothing unusual.
CEELM: Was there any part of the process that was unusually or unexpectedly smooth/easy?
Vladimir: The cooperation with Gernandt & Danielsson Advokatbyra was very easy and enjoyable. Also, the main deal team at the Embracer Group was very direct, to the point, and ready to come up with pragmatic solutions.
Tomislav: I can say that most of the project went fairly smoothly, from the negotiating part to the execution part. All the advisors who participated were highly professional and we understood each other very quickly.
CEELM: Did the final result match your initial mandate, or did it change/transform somehow from what was initially anticipated?
Vladimir: Yes, it did.
Tomislav: Yes, as I mentioned above, the initial mandate never changed. There were some changes in the legal actions that were taken during the transaction, but the goal remained the same the entire time.
CEELM: Vladimir, what specific individuals at Embracer instructed you, and how did you interact with them?
Vladimir: Andrey Iones, the COO, headed the negotiations for Embracer. He is a great negotiator with a pragmatic deal approach and a focus on relevant aspects of the transaction. When Nasdaq Stockholm announced this deal and when we realised that, in addition to MHG, Embracer had also negotiated and agreed on 11 other acquisitions, I was stunned to find out that in addition to our long and complex discussions and the enthusiasm he had in getting this deal done, he was going through the same process on 11 other deals. Don’t tell me that AI will replace humans in M&A.
CEELM: Tomislav, what about you? What specific individuals at Mad Head Games instructed you, and how did you interact with them?
Tomislav: There were four shareholders – Aleksa Todorovic, Uros Banjesevic, Ivan Zorkic, and Nenad Tomic – and we communicated with all of them regularly. Day-to-day communications mostly went through Nenad Tomic, as he was the CEO of the company.
CEELM: How would you describe the working relationship with each other on the deal?
Vladimir: The cooperation with the seller’s lawyer, Mr. Sunjka, was very smooth. We have known each other for several years but have never worked together. He was very cooperative, and although at the beginning we had quite opposite positions in reaching the deal closing, we managed to agree on a structure that was accepted and implemented successfully by our clients.
Although Novi Sad, where Mad Head Games is based, is just 40 minutes away from Belgrade, we had to have all meetings via Teams and Zoom due to the pandemic.
Tomislav: Working with BDK Advokati was, as it always is, a pleasure, since their level of professionalism is very high, and that is something that I personally take as a must in all legal communications, including this one. Also, we had great communication and dealt with all the issues that arose with understanding and efficiency. In light of the project’s time limits, the negotiations were effective and straight-forward, and the entire deal, including the procedures before the relevant authorities, did not last more than a month, in total. We usually communicated by phone, teams, zoom, or email, since at this time the COVID-19 pandemic was in full swing, and we all felt that we should be responsible and have meetings in person only when absolutely necessary.
CEELM: How would you each describe the significance of the deal?
Vladimir: For BDK Advokati the significance of this deal was in building our experience in games studios transactions, as there will be many more deals of this (and even greater) size. The business of games studios and development of new games is linked with the latest IT technologies and the growth of social networks and apps, and only when you have the opportunity to be involved in a deal like this can you understand the legal challenges and issues in the gaming industry and how to recognize the risks they might create for the transaction. Deals like this also give you a huge advantage in approaching other games studios and helping them build not only corporate and commercial departments, but also a compliance structures, as this is one of the biggest challenges in this industry, especially when you have reputable investors from US and EU.
Tomislav: The deal is significant as it is, to my knowledge, the first investment of the Embracer Group in this part of the world. It shows that a company from Novi Sad, Serbia – if it has talented and hard-working people – can achieve great things in the IT sector. It also shows the strength of the IT sector in Serbia – the fastest developing sector, full of highly educated and motivated young people, who, with a little support, can amount to world class IT companies.