‘Cautious optimism’ continues to characterize Baltic M&A market

FORBES Latvia | October

M&A as a strategic element

Investment funds are still a dominant factor that determines the M&A market activity in the Baltic countries, and no changes in this regard can be expected in the near future.

It is early morning. As I cross the empty Vansu Bridge, I enjoy the sunrise impressions above the Riga skyline. I make it to the office shortly after 5 AM. I wake up my computer and let the coffee wake me up. There is a slight feeling of excitement. We are signing today! Several months of negotiations and work will reach their culmination in just a moment. A few more touches to the transaction documents, and they will be ready to be signed. This is how a day this year started when we signed one of the below deals.

I started my career 10 years ago. Therefore, I did not really experience the ‘silent’ period in 2009 when the number of M&A transactions in the Baltic countries reached its lowest point – only 16 transactions throughout the entire year (Mergermarket data have been used for the purposes of this article). In turn, 2018 has so far been the most active year in the Baltics with respect to the number and the total value of M&A transactions, namely, 75 transactions totalling EUR 2.726 billion. It should be noted that this fascinating total value figure is dependent upon the still pending deal of Blackstone’s purchase of 60% of Luminor, worth EUR 1 billion.

The subjective experience shows that M&A transactions and processes are becoming more and more professional. In today’s market, there are two generations of consultants that are able to manage these processes professionally and at a level that corresponds to the international practice standards. References to ‘common practice’ are becoming increasingly powerful arguments during negotiations. Because of this, 70-80% of the sales process can be easily predicted, including which issues will result in the most heated discussions. The remaining 20-30% is the exciting part that can present unexpected results due to interactions between different generations, experiences, a particular buyer, seller, their advisors, the industry, and the company.

The number of transactions and their total value in Latvia lags behind that of its neighbouring countries. Respectively, in 2018, 32 transactions were announced in Estonia, 26 in Lithuania, and 17 in Latvia. In the first half of 2019, a total of 43 transactions were announced, of which only 9 were announced in Latvia. The statistics, however, only cover publicly disclosed transactions of certain value.

This year, several well-known companies used M&A as a tool to achieve their strategic goals – to expand their business or develop new areas of business activity. For instance, the Cido Group closed a deal on the acquisition of Bauska beer, the Baltic media leader Express Group purchased Bilesu paradize, but the Latvian Post purchased the Pasta stacija brand terminals. The latter is a rare, but a good and welcome example of how a state-owned corporation entered the M&A market with the aim to provide leading-edge services. Parkdema (a manager of parking lots of various brands in Latvia, Lithuania, Estonia, and Poland) also expanded its scope of activity by purchasing EuroPark Latvia.

There are 3 transactions in the real estate M&A area that should be highlighted. Baltic Horizon Fund purchased Galerija Centrs (transaction worth EUR 75 million). The Estonian investment company Collonna continued to increase its portfolio in Latvia by acquiring a business that owns the Luminor headquarters building in Riga (the rumour has it that the potential buyers showed a level of interest in this deal that is unusual to the local market). In turn, the Swedish cellulose producer SCA acquired several Latvian companies with forest property portfolios.

We can be happy about the Latvian companies and funds whose operations take place beyond the territory of Latvia. For example, the Livonia Partners fund signed a deal for the purchase of 60% of the Estonian window and door manufacturer Fenestra. Brain Games acquired a Lithuanian board game wholesaler New Media Publishing, thus expanding its business activities in the territory of Lithuania.  Karavela, the manufacturer of the Kaija products, signed a deal for the acquisition of the German manufacturer Larsen.

Several cross-border transactions involving Latvian subsidiaries were also announced this year. For instance, SCHWENK acquired the CEMEX’s Scandinavian and Baltic companies, but Consolis Group acquired TMB Group companies in Finland and in Latvia.

The first half of 2019 had even more activity in Estonia and Lithuania, and these countries deserve a separate review. One of the most valuable deals of this year should be highlighted, where Apax Partners (a London-based International Private Equity Fund) through its first investment in the Baltic countries acquired Baltic Classifieds Group, which owns several Baltic online advertising platforms (including City24). The value of the transaction is estimated at EUR 300 million.

One of today’s challenges is the difficulty to attract funding from banks. In part this is due to the forced ‘overperformance’ when carrying out customer due diligence and the saturated existing portfolios. Practice shows that working with private funds can be much more effective if the right conditions are in place. A good example from this year is the acquisition of Smiltene milk, which was financed by BPM Mezzanine Fund.

Investment funds continue to be a dominant factor that determines the M&A market activity in the Baltics. No changes in the near future can be expected in this regard. Statistics show that in 2018 the Baltic private and venture capital market reached a mark of EUR 3 billion. The Baltic countries have gained international recognition, therefore new foreign funds are expected to continue to enter the market.

If we look at M&A processes, we can see that vendor due diligence or 'self-due diligence' is becoming a common practice. Respectively, before addressing potential buyers or investors, a due diligence of the business to be sold is carried out. Doing so can help organise the business by increasing the sales value, as well as speed up the sales process. I’ve noticed that presenting documents in person and in physical form only during legal due diligence is rare in today’s average M&A process. Generally, access to documents and information is provided electronically. In the case of non-complicated processes Dropbox or Google Drive may be used. However, for larger transactions, we recommend using one of the specialised service providers (iDeals, Merrill, Intralinks, ect.), which provide a win-win process efficiency and control for both parties.

One of the essential components of an M&A deal is the representations provided by the seller. If these representations are violated, the buyer may bring a claim for damages against the seller. Elsewhere in Europe, it is already a common practice to insure such representations. Namely, the seller can insure his or her liability, but the buyer – any possible losses. The introduction of such instrument may be one of the new features of future transactions in the Baltic market.

The M&A market in the Baltics is currently active. There is reason to hope that the activity will remain stable in the near future. Cautious optimism is here to stay.

Written on 3 September 2019, published on 2 October 2019

Vairis Dmitrijevs, Head of M&A







by Vairis Dmitrijevs, Head of M&A, Latvia

Related Lawyers

Vairis Dmitrijevs

Head of M&A

+371 29 258 370


Gints Vilgerts

Partner, M&A

+371 29 107 768


Related Experience

Providing legal assistance to one of the largest Latvian glass manufacturers in a cross-border dispute with Italian company regarding the delivered goods. On 26 June 2019 the court satisfied client’s request to ensure the claim by seizing the debtor’s financial means in Italy.

Representing a marine insurance company in litigation against a Latvian retailer regarding the retailer’s failure to pay for the delivered goods according to United Nations Convention on Contracts for the International Sale of Goods.

Representing a Latvian top 15 company in an ongoing collective dispute with several trade unions. The dispute concerns the interpretation of the rules that determine the amount of compensation that employees may claim in case of business trips or work travel trips.

Representing the client before the State Employment Inspectorate regarding alleged discrimination of employees on the grounds of family status. The case shall clarify, whether employees must issue health insurance to employees, who are on parental leave.