When I get asked about how long an M&A transaction in Lithuania usually takes (from start to finish, i.e. initiation of talks to closing), I’ve gone from a 6-9 month horizon a decade ago, to something like a 12-18 month horizon in the current landscape. This shift has been noted by many M&A and legal experts here locally, and is mostly linked to the increased level of regulatory permits that companies typically need to go through in any transaction. This typically means the Bank of Lithuania or other sector regulators, and almost always the competition and national security authorities. In a recent transaction the distance between signing and closing was over 12 months, meaning the champagne had to be kept on ice for over a year.
The discussion in the financial services space is always around whether a potential buyer can get through Bank of Lithuania scrutiny unscathed. This is extremely important as the expectations of the regulator are extremely high. And rightly so, but it’s something consultants have learned the hard way. I can attest that in several deals buyers with highest bids were not accepted into further discussions due to insufficient proof that they could be an acceptable buyer in the eyes of Bank of Lithuania.
About a week ago, an article caught my eye, stating that the Competition Council of the Republic of Lithuania announced that when Estonian company Ekspress Grupp acquired 100% shares of Lithuanian media portal Lrytas in 2022, it did so without notifying the institution and obtaining its permission, and thus violated the Law on Competition.
While this decision is likely to be appealed, Ekspress Grupp have been fined EUR 140k and most importantly - obligated to remedy the violation within 2 months by either ceasing the infringement or restoring the previous situation or eliminating the consequences of the violation.
So basically a roll-back of the whole deal, meaning shares would potentially return to previous owners (or other market players), and any business, management or strategy changes (plus any integration work) done in the past year would have to be retracted.
Ekspress Grupp held the opinion that it was not obligated to notify the Competition Council about the concentration because the combined revenues of the transaction participants did not exceed EUR 20m. The company argued that the revenues of Lrytas from the sale of advertising space to foreign-registered clients should not be attributed to revenues obtained in the Republic of Lithuania. I have not been a part of this transaction so I will not comment on the merit or circumstances of this specific situation. It’s better to be safe than sorry, so in my projects we typically assess our clients’ situation pre- and post- transaction, and with the help of legal experts determine the necessity to inform competition authorities (it’s almost always a resounding “yes, let’s do so”), and plan the process accordingly.
I have a soft spot in my heart for the anti-trust authorities; I’m a firm supporter of the job they do in protecting consumers and seeking to prevent market players from acquiring quasi-monopolistic positions. However, this got me thinking about the increasing burden of regulation on any M&A transaction, and the toll it typically takes. Especially if the decision is a “no-go”; I still keep getting asked about the Rimi / Iki deal, where my colleagues did the financial due diligence work. Which, again, is why getting approval is a “must” before closing the transaction, and starting to make changes that may be hard or impossible to undo.
Coincidently, this week I was walking to a deal negotiation meeting, listening to one of my favourite podcasts “All-In”, and a lot of talk was, in fact, about cancelled M&A deals due to over-scrutiny of competition authorities. In many cases a merger or a buyout is the only way for a sizeable start-up to achieve liquidity, however it appears that across the globe competition authorities are targeting potential transactions, taking over a year to come to decisions, which leads to companies either abandoned deals or not going through them at all.
Chamath Palihapitiya outlined three specific cases that he felt illustrated a growing sense of regulatory overzealousness, and focusing the impact on clients, employees and obviously investors:
Figma / Adobe deal, initially signed at USD 20bn, but now at USD 30bn level due to price increase in what was heavily a share deal; this was called off after a 15 month review process, and in the end Adobe will need to pay a USD 1bn break-up fee (transaction termination compensation) to Figma; in a previous episode of “All-In”, the panel discussed many reasons why there are limited or no antitrust implications from a product perspective for this specific transaction.
Cigna / Humana deal, potentially creating a USD 140bn company, however the deal did not take off as it likely would have faced scrutiny from the U.S. Justice Department, which in 2017 successfully stopped Anthem (now Elevance Health) from buying Cigna for USD 54bn, and thwarted Aetna's plan to purchase rival Humana for USD 34bn.
Illumina / Grail deal, valued at USD 7.1bn, in which Illumina had a stake before the transaction, and now must unwind the merger (in similar fashion to what Ekspress Grupp might have to do); in July, Illumina was fined a record EUR 432m by the European Union for closing its takeover of Grail before securing EU antitrust approval.
A final take away from this: it appears you need to have solid break-up fees in SPAs, and not only that – you may need to agree that these fees are applicable even in the event of any third party - such as a regulatory authority - scuppering the deal. From my personal experience here in Lithuania, I’ve typically seen that break-up fees are waived under such circumstances, appealing to the fact that it was “no one’s fault” and everyone “tried their best”. Perhaps my colleagues from law firms or other M&A consultancies can confirm/object where this is already coming to our market, but it’s definitely something I will be thinking about as we head into 2024.
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