Technology M&A 2023 Comparisons

With soaring inflation, rising interest rates, geopolitical tensions related to the outbreak of war in Ukraine, and the ongoing COVID-19 pandemic, the following have emerged as the key trends in the Polish technology M&A market in 2022:

• a significantly lower number of IPOs took place on Polish stock exchanges than in previous years;
• market fluctuations have made buyers more cautious, lengthening due diligence processes and the average time taken to close a deal;
• among investors, technology, media and telecoms (TMT) continues to be the most popular sector due to the continuously increasing digital spending on the companies’ side, as well as the relatively good market sentiment in this industry – Digi Index 2022 (which is a kind of purchasing managers index for the digital industry) increased by 0.6 percentage points this year (from 1.8 to 2.4 points);
• in Q3 2022 private investors were the dominant group among sellers, accounting for 76% of completed M&A processes; and
• due to EU regulations and the suspension of raw material imports from Russia (in reaction to the ongoing war in Ukraine in 2022), there has been a progressive consolidation of the Polish energy market, with the merger of the Orlen and Lotos groups at the top of the list.

Most Polish founders incorporate their start-ups in Poland. At a later stage, typically when start-ups expand their operations globally or raise late-stage or large investment rounds from foreign investors, they establish holding structures in foreign jurisdictions – usually by “flipping” their shares. The choice of jurisdiction depends largely on the industry in which a given start-up operates, however, it seems that the USA, Canada or the UK are the preferred jurisdictions.

The time of incorporation of a company in Poland depends on the legal form and the method of its establishment. Incorporation of a limited liability company ‒ the most frequently chosen legal form of a newly established start-up in Poland ‒ usually takes up to 48 hours when template articles of association are filed using a dedicated online platform, between two and six weeks ‒ when the incorporation documents are filed with the NCR.

The minimum share capital for a limited liability company is PLN5,000, PLN100,000 for a joint-stock company, and PLN1 for a simple joint-stock company.

Polish tech entrepreneurs usually choose a limited liability company for the initial incorporation, as the form is appropriate for a smaller number of shareholders, low share capital amount and limiting the risk of their liability for the company’s affairs. A simple joint-stock company, introduced into the Polish market in July 2021, is specifically dedicated to start-ups. The main purpose of this type of company is to reduce set-up costs and facilitate its incorporation, day-to-day operations, corporate governance, and future liquidation. For further details, see 8.1 Significant Court Decisions or Legal Developments.

Start-ups can also be incorporated as joint-stock companies; however, due to the relatively high minimum capital requirement, and more complex corporate governance rules and procedures under which the company operates, this form is more suitable for more developed companies – for further details see 2.6 Change of Corporate Form or Migration.

Early-stage financing in Poland typically comes from domestic or international seed venture capital funds. In recent years, there has been a noticeable increase of early-stage angel investing, which is provided by private investors – usually high net worth individuals (including former founders), angel co-investment funds or family offices.

Typically, early-stage transaction documentation consists of an investment agreement and a shareholders’ agreements, including financial model, set of representations and warranties and agreed articles of association of the start-up. Debt financing has also recently gained in popularity. In this case, the documentation is based on convertible loan agreements.

Venture capital funding in Poland is typically provided by Polish venture capital funds and, for the last few years, seed financing has been fairly easily available to Polish start-ups.

Most active Polish venture capital funds are backed by government-sponsored funds of funds or institutions, such as the Polish Development Fund (Polski Fundusz Rozwoju), the National Centre for Research and Development (Narodowe Centrum Badań i Rozwoju), or other public institutions. With the investment period of most publicly backed funds ending in 2023, VC management teams began active fundraising in 2022.

In recent years there has also been a noticeable increase in corporate venture capital funds, established mainly by large Polish banks, state-owned companies or corporations, as well as early-stage angel investing supported by several angel co-investment funds.

In line with the general CEE trend, the Polish start-up and venture capital ecosystem has become an interesting market for foreign venture capital firms. The volume and value of investment rounds made by foreign VC investors are increasing year on year, and there are several foreign funds regularly investing in Polish start-ups. However, it is widely expected that 2023 might bring a noticeable slowdown in the venture market in Poland.

Although most of the venture capital transactions in Poland are based on similar documentation, there is no well-developed and generally approved model of documentation, which would be widely used as a market standard, such as the US, NVCA or UK BVCA models of venture capital documentation.

As start-ups progress in their development or raise later-stage financing rounds, they may transform from a limited liability company into a joint-stock company. For several formal and practical reasons, the joint-stock company is more suitable for companies with more complex shareholding structures, or ones that are willing to establish larger and more structured employee stock option plans, raise venture debt with warrants, or are contemplating listing on a stock exchange.

At a later stage of growth and development some start-ups, especially these willing to attract large foreign investors, are also increasingly changing the jurisdiction of the holding structure, or setting up subsidiaries in foreign jurisdictions, mainly in the USA and UK. For further details see 2.1 Establishing a New Company.

Statistically, the most frequent liquidity event for Polish technology start-ups still is a privately negotiated share deal or asset deal.

IPOs on the Warsaw Stock Exchange (WSE) have lost steam in recent months, mainly due to the volatility of the financial markets and the geopolitical tensions in CEE, and, currently, an IPO does not seem to be a viable exit route for Polish technology start-ups. In 2022 there were no spectacular IPOs, and the number of IPOs is significantly lower than in the past year.

When considering a liquidity event, investors generally choose one of the two processes at the outset; however, a dual-track process is not uncommon and is usually carried out by large companies and large institutional investors. New noteworthy trends can be identified, such as reverse acquisitions of listed companies, which is a faster and simplified procedure for introducing a company to the stock exchange without carrying out an IPO.

Most Polish technology companies still choose to list on the domestic stock exchanges rather than on a foreign exchange. The preferred choice is either the WSE main market, or the New Connect – an alternative market of the WSE, which offers less strict formal requirements compared to WSE and is more suitable for smaller companies.

The foreign stock exchanges are not yet that popular among Polish technology companies, mainly due to their relatively small capitalisations. Only the largest Polish companies decide to list on a foreign stock exchange. The most notable example is the EUR9.5 billion IPO of Polish-based InPost S.A., which was listed on the Euronext Amsterdam Exchange in 2021.

If a Polish company decides to go public on a foreign stock exchange, the future sale process may be subject to certain regulations applicable to that stock exchange. If a company chooses to list on the WSE, any future sale or merger will be subject to the regulations and matters described in 6. Acquisitions of Public (Exchange-Listed) Technology Companies.

In the Polish M&A market, most of the negotiated sale liquidity events of privately held venture capital-backed technology companies (exits) are carried out in bilateral negotiations as one-to-one deals. However, auction processes are not uncommon. Exits are usually commenced as competitive auctions, where several potential buyers are invited to submit their offers and even conduct limited due diligence. It is quite common that one selected bidder is then granted exclusivity to continue bilateral negotiations.

Typically, the sale transactions of privately held Polish technology companies with several VC investors are structured as a sale of all shares in the company. The exit transaction may also be partial, but when it happens, the founders usually retain some minority stake. Nevertheless, it is uncommon for the VC investors to stay in the company after a liquidity event in the form of a sale of a majority stake (change of control), and the decision over whether to sell or stay in the company by the VC investors depends not only on the future profit, but also on the decision-making process in the acquired company, or the VC funds’ lifespan.

It is very common that privately negotiated acquisitions of technology companies contain earn-out provisions for the founders, usually for one or two years following the liquidity event.

The majority of the Polish M&A transactions are all cash considerations, and wholly stock-for-stock transactions are uncommon. However, an increasing number of M&A deals concerning Polish technology start-ups are structured as a combination of cash and stock, where the stock component usually constitutes a smaller part of the entire purchase price. In all such cases, the buyer’s stock is usually liquid, or a liquidity route is implemented. Also, the stock component is received mainly by the founders rather than VCs or other financial investors.

It also happens that the stock (of a buyer in the case of an industry purchaser, or of the acquired company in case of a financial purchaser) is offered as part of the future management incentive plans for the founders or managers that remain within the company after the liquidity event.

In general, in Polish private M&A transactions, the buyers expect all sellers to provide customary representation and warranties and to be liable for breach thereof. Typically, the founders are expected to stand behind all representations and warranties and certain indemnities after closing, whereas VCs may wish to stand behind representation and warranties relating only to due organisation, title to shares, or their authority and capacity to enter into the agreement. Given its importance, representations, warranties, and indemnities are often heavily negotiated by the parties to the transaction.

Warranty and indemnity insurance is becoming increasingly popular in Polish M&A transactions, especially in large ones, and is slowly replacing escrow as a form of securing buyers’ claims under representations and warranties or indemnities. It is also not uncommon for smaller deals to have hold-backs, but this form of security it not popular in mid to large-size transactions.

Spin-offs in Poland may arise out of projects created at technology or medical universities, as well as other research institutions, but also from existing corporate entities – usually IT companies and “software houses”.

It is also noticeable that in recent years several Polish IT companies developed a reputation of venture builders, being able to regularly create completely new projects and companies.

The key drivers for considering a business spin-off include:

• the need to provide liquidity for some key assets;
• enabling tax and cost optimisation of the business structure;
• raising financing by separating valuable assets from the operational risks associated with other activities of the core business;
• securing core business by transferring out the risk associated with innovative activities to a separate entity;
• facilitating M&A transaction; and
• achieving flexibility in management.

For public research units or public universities, the key driver is also the ability to commercialise the results of the unit’s research activities as well as increasing the number of possible business solutions.

Spin-offs can be tax-free provided that both the assets carved out and remaining in the surviving company constitute the organised parts of the enterprise (OPE). The OPE is a business unit that is capable – before the spin-off takes place – of acting as an independent and fully-fledged enterprise from organisational, financial and functional perspectives.

The other condition is that the spin-off is carried out for valid business reasons, so it is not deemed that the main objective (or one of the main objectives) of the operation was to avoid or evade taxation.

A spin-off combined with a merger is possible, however, Polish law does not provide specific or separate mechanisms for such a transaction. Both transactions must be done according to the legal regulations relevant to the type of transaction. It is also advisable to get a tax ruling for such a structure.

Depending on the method, a business spin-off can be carried out within one to six months. It is usually advised that a binding tax ruling is obtained prior to the spin-off, although it is not formally required by the Polish tax law. Some of the conditions of tax neutrality of the spin-off cannot be confirmed in the tax ruling – ie, the business substance of the spin-off, because they are covered by anti-abuse provisions and, thus, are excluded from the scope of the binding ruling procedure (there is a procedure based on the anti-abusive tax provisions which aims at confirming that the given situation is not covered by the anti-abuse tax law).

The COVID-19 laws extended the timeframe for the binding rulings procedure from three to six months. However, in most cases, this procedure takes less than three months. The opinion covering the anti-abusive issues takes up to six months to be issued.

Stakebuilding is permissible under Polish law and possible up to 50% of voting rights in the target company prior to making a mandatory tender offer. However, due to the reporting and disclosure obligations of the bidder and the target company (described below), as well as the minimum price requirement (as further described in 6.4 Consideration; Minimum Price) applicable to the stakebuilder, acquiring large blocks of shares prior to the bid is not customary.

Once it has exceeded 50% of voting rights in the target company, the stakebuilder is obliged to make a tender offer covering all remaining shares in the target company.

In terms of the reporting thresholds, pursuant to the Polish takeover law, any person must notify the Polish Financial Supervision Authority (PFSA) and the target company as soon as such person’s direct or indirect shareholding reaches, exceeds or falls below 5%, 10%, 15%, 20%, 25%, 33%, 33⅓%, 50%, 75%, or 90% of the total number of votes in a public company, and the company must disclose that fact to the public, the PFSA and the WSE.

The obligation to make the notification also arises in the event of a change of the previously held shares above 10% of the total number of votes by at least 2% of the total number of votes in a public company whose shares are trading on the official listing market, or 5% of the total number of votes if shares are admitted to trading on a regulated market other than official listing market, or introduced to an alternative trading system. In addition, the notification should be submitted in the event of a change in the so-far held shares of over 33% of the total number of votes by at least 1% of the total number of votes.

Unless the buyer is obliged to launch a tender offer (see 6.2 Mandatory Offer), it does not need to state the purpose of the acquisition of the stake, nor its plans or intentions with respect to the company prior to acquiring the company’s shares.

Since 30 May 2022, a stakeholder has been obliged to launch a mandatory tender offer if it exceeds 50% of the total number of votes in a public company as a result of a direct or indirect acquisition of shares. Mandatory tender offers (i) shall concern all remaining shares in the company’s share capital and (ii) shall be made within three months of exceeding the threshold.

The aim of changing provisions and introducing one threshold for the mandatory tender offer (previously 33% or 66%) is to harmonise Polish law with the provisions of the Directive on takeover bids (2004/25/EC) and regulations in force in most EU member states.

The obligation to make a tender offer shall not arise if the participation of the shareholder or the entity that indirectly acquired a shareholding in the total number of votes decreases to no more than 50% of the total number of votes as a result of a share capital increase, a change in the articles of association of the public company or the expiry of the preference of its shares, within three months of exceeding the threshold.

Typically, shares of public companies on the Polish market are acquired in the tender offer processes, which require prior notification of a takeover bid for shares to the PFSA and WSE, and are carried out through the brokerage houses.

Mergers are also available, and are sometimes used for the acquisition of public companies, however, they are not often used as tender offers, mainly due to the associated formalities. The process requires adoption of the merger plan by both involved companies which must include the valuation of both companies, which should be then submitted to the registry court where it will be examined and reviewed by appointed auditor, and adoption of resolutions of the general meetings with a two-thirds majority of votes (unless the company’s statutes provide for stricter conditions).

Public technology company acquisitions on the Polish stock market are more typically structured as cash transactions. Stock-for-stock transactions (and combinations thereof) are permissible under the Polish takeover law; however, in practice, they are very rare.

Where any of the company’s shares are traded on a regulated market, the price in the tender offer may not be lower than the average market price for the shares of the target:

• in the three months preceding the submission of the intention to launch a tender offer notice, during which those shares were traded on the main market;
• in the six months preceding the transmission of the notification (of intention to launch a tender offer), during which those shares were traded on the main market; and/or
• over a shorter period – if the company’s shares were traded on the main market for a period shorter than six months.

If it is not possible to determine the price according to the average market price for the shares or when restructuring proceedings have been opened or bankruptcy has been declared with respect to the target company, the minimum price of the shares may not be lower than their fair value.

If the average market value of shares significantly deviates from their fair value, the target company may seek permission from the PFSA to propose that the price does not meet the criteria for the takeover offer.

In case of stock-for-stock tender offers for 100% of the shares of the target, the bidder must also offer cash to the selling shareholders, which may choose the form of consideration.

A takeover offer may be unconditional or subject to certain conditions, the scope of which is restricted by Polish takeover law. The most common conditions include obtaining regulatory consent (such as merger control clearance) or achieving the minimum subscription level (which cannot be higher than shares representing 50% of the total number of votes).

Shareholders wanting a public company to adopt a resolution on delisting are obliged to make a tender offer for sale of shares by all other shareholders – in such case, their tender offer may include a condition that the offer is made on the condition that the shareholders’ meeting adopted such resolution.

In addition, the bidder may introduce certain other conditions in the voluntary tender offer, such as requiring the target (i) to adopt certain resolutions of the shareholders’ meeting or the supervisory board (eg, concerning the changes in the target’s corporate bodies), or (ii) to enter into certain agreements.

The bidder in the voluntary tender offer may reserve the possibility of acquiring the shares (covered by tender offer) despite the non-fulfilment of the reserved condition (naturally, this does not apply to conditions that require obtaining merger control clearance).

Negotiated takeover offers concerning public companies are made based on certain agreements executed between the bidder and the major shareholders of the target company in which the bidder undertakes to make a tender offer, and the shareholders undertake to respond to the offer on the agreed terms. Certain other arrangements can be made, such as those relating to lock-ups, exclusivity, future investments of the bidder into the target, or relating to the management contracts. In such negotiated takeover offers, the responding shareholders may be required to give representations and warranties in the transaction documentation.

If a takeover bid occurs without the corresponding transaction documentation, it is not customary for a public company to give any representations and warranties.

Both a voluntary tender offer and a mandatory tender offer for the shares of a public company must be made for the sale or exchange of all outstanding shares in that company. Unlike a mandatory offer, a voluntary tender offer may contain a stipulation specifying the minimum number of subscribed shares, upon reaching which the purchaser undertakes to buy those shares. When specifying the minimum acceptance condition, a bidder needs to ensure that the minimum number of shares specified in the voluntary tender offer together with the number of shares held by such bidder (jointly with persons acting in concert and affiliates of the bidder) may not constitute more than 50% of the total number of votes in the company. If the above threshold is exceeded as a result of the voluntary tender offer, then the bidder is released from the announcement of the follow-up mandatory tender offer.

The minimum acceptance thresholds are not always in line with the thresholds at which full control in a joint-stock company is acquired. Pursuant to the Polish Companies’ Code, certain matters, such as change of the company’s statute, redemption of shares, decrease of its share capital, or approval of sale of its enterprise, require a qualified majority of three quarters of votes. Moreover, the statute may set higher thresholds for these, and other matters.

A shareholder, whose holding, individually or jointly with its subsidiaries or its parent companies and entities that are parties to an understanding regarding the acquisition, directly or indirectly, of shares in a public company, reaches or exceeds 95% of the total number of votes in a public company, has the right to demand that the remaining shareholders sell all their shares.

The squeeze-out procedure may be carried out only within three months of reaching or exceeding the 95% threshold and is subject to minimum price requirements, similar to those applicable to the minimum price determined in the tender offer. If the threshold is reached or exceeded as a result of a tender offer, the price may not be lower than the tender offer price. A squeeze-out is announced and carried out by a brokerage house, and once announced, it may not be revoked. Prior to the announcement, the offeror must also provide security for the total squeeze-out price. Withdrawal from the announced squeeze-out is not permitted.

A tender offer is subject to a “certain funds” rule and may be launched only if collateral for not less than the total value of the tender offer is established. The collateral must be documented with a certificate issued by the bank or other financial institution providing such security.

A tender offer is announced and carried out through an entity conducting brokerage activities in the territory of Poland. The brokerage house is obliged to submit to the PFSA a notice of its intention to announce a tender offer. Notification shall take place at least 17 business days before the planned date of the tender offer announcement. The notice shall be accompanied by, among other things, the wording of the offer. After 17 business days from the date of delivery to the PFSA, the brokerage house shall transmit the wording of the tender offer to at least one news agency for the announcement in a service that is free of charge and accessible to all investors under non-discriminatory conditions. The brokerage house shall immediately make the announced wording of the tender offer available on its website. The announced tender offer shall be available on the website until the day the acceptance of subscriptions ends.

Typically, negotiated deals may provide for certain deal protection measures that are usually negotiated with the selling shareholders. These may include break-up fees (contractual penalties), granting powers of attorney to respond to the takeover offer, blockades on the securities accounts of the selling shareholders, and no-shop or exclusivity provisions obliging the selling shareholders not to respond to counter-tenders. The common practice (which has increased significantly in connection with the COVID-19 pandemic) is the introduction of material adverse clauses (MAC or MAE) or negative covenants in the interim period.

Such measures are usually not implemented in unsolicited deals, which are rare in Poland.

In the case of public companies, the law provides that certain matters require a special majority of votes. Therefore, as long as the shareholder holds such a majority, it has control over the company without owning 100% of the shares.

It is common that negotiated takeovers of public companies contain irrevocable commitments from the principal shareholders of the target to support the transaction.

These commitments may provide for the obligation of the major shareholder(s) to support and respond to the tender offer on the agreed terms, including to undertake efforts to cause the target’s management board to issue and submit a positive opinion on the tender. Although the shareholders would typically seek an opt-out option in case a better tender offer is made, the bidder may expect the principal shareholder(s) not to withdraw subscription order placements as an acceptance of the bidder’s tender even in case there is a counter tender, or not to accept any such counter tender or negotiate any other sale transaction (exclusivity).

A takeover offer must be published and carried out via a brokerage house operating in Poland.

Brokerage houses are obliged to submit to the PFSA a notice of their intention to publish a tender offer. Notification shall take place at least 17 business days before the planned date of the tender offer announcement. The notice shall be accompanied by, inter alia, the wording of the offer.

The PFSA may, within ten business days, request (i) any necessary changes or additions to be made to the content of the tender offer, (ii) explanations to be given to the content of the tender notice, or (iii) the type or amount of the security to be changed, within a deadline set out by the PFSA.

Depending on the need for clarifications or changes to be made to the tender offer or lack thereof, the PFSA’s review may take up to 15 working days.

Additionally, the brokerage house shall provide the tender offer to one or more information agencies with the aim of its publication on a portal/platform free of charge and accessible to all investors on a non-discriminatory basis.

In some limited cases, the bidder may request the PFSA to approve the offer price proposed in the bid, where it cannot be determined in a manner described in 6.4 Consideration; Minimum Price.

The terms of the tender offer may be amended concerning the timing of transactions for the purchase of shares in the tender offer, as long as these fall before the expiration of the deadline for acceptance of subscriptions or the manner and timing of acceptance of subscriptions in the tender offer. This is without the need to observe the statutory deadlines, in the event that another entity has announced a tender offer for the sale or exchange of all remaining shares in the same company.

Acceptance of subscriptions begins no earlier than on the first and no later than on the fifth business day after the announcement of the tender offer.

The acceptance period for subscriptions in the tender offer may not be shorter than 30 days and may not be longer than 70 days.

In the case of a voluntary tender offer, if a merger control clearance is needed from the Polish Office of Competition and Consumer Protection (OCCP) (see 7.5 Antitrust Regulations), this period can be extended for the time necessary to obtain the clearance, but not for longer than 120 days.

Additionally, the period for accepting subscriptions in a tender offer may be shortened if, prior to its expiry, all remaining shares in the public company have been subscribed for in the response to the tender offer.

There is general freedom of economic activity in Poland, however, start-ups conducting certain regulated activities may be required to obtain appropriate permits from regulatory bodies.

In particular, this applies to start-ups offering financial services (fintechs), such as payment services companies, which must obtain licences, or insurance brokers, which are subject to registration and supervision by the PFSA.

Obtaining a license or permit takes at least 30 days but can often take up to three months.

The primary securities market regulators for M&A transactions in Poland are the PFSA and the Polish Office of Competition and Consumer Protection (OCCP).

The PFSA is a financial regulatory authority in Poland that oversees, in particular, banking, capital markets, insurance, pension schemes, and electronic money institutions. The PFSA must be notified about the intended transactions on the regulated market, as described in 6.1 Stakebuilding and 6.13 Securities Regulator’s or Stock Exchange Process.

The OCCP is responsible for merger clearances, see 7.5 Antitrust Regulations, and for foreign investment control, see 7.3 Restrictions on Foreign Investments and 7.5 Antitrust Regulations.

In response to the economic effects of the COVID-19 pandemic, certain temporary laws were introduced in Poland which extended the regulatory scope of control over certain M&A transactions by the OCCP.

Among others, these new restrictions apply to the M&A transaction concerning the acquisition by a person from outside of the EEA of more than 20% of shares in all public companies and all technology companies that develop or modify software in certain key areas for areas for the economy (eg, energy, pharmaceutical, financial services, transportation, data processing or insurance) – if the revenue of these entities from sales and services exceeded in Poland in any of the two financial years preceding the notification the equivalent of EUR10 million. The above restrictions will remain in force until 24 July 2025.

Additionally, permission granted by the Minister of the Interior and Administration may be required in the case of acquiring by a foreign entity (or by a Polish entity controlled by a foreign entity) of shares in a Polish company that owns real estate. This restriction, subject to some minor exceptions, does not apply to foreign entities from the EEA, nor does it apply to Polish law-governed investment funds or to investing in public companies listed on the WSE.

Certain stricter rules also apply to targets that hold agricultural and forest land, and a transaction that breaches the applicable laws will be invalid. Although in the context of technology M&A deals, it is unlikely that start-ups will hold such land, this should be verified during a due diligence review.

Except as set out in 7.3 Restriction on Foreign Investment, there is no national security review of the acquisition of Polish start-ups; however, a national security review may apply to transactions involving companies operating in strategic sectors of the Polish economy.

Under EU law, which is an integral part of the Polish legal system, there is a regulation on export control of dual-use goods. This applies to goods that may threaten national and international security.

The Polish merger control regulations require notification of a concentration to the OCCP of all transactions involving acquisition of control of a target, if the combined turnover of the entities participating in the transaction in the financial year preceding the year of the transaction exceeds the equivalent of EUR1 billion worldwide; or the equivalent of EUR50 million on the territory of Poland.

The notification obligations are required in the case of merger of independent businesses, taking over one or more entrepreneurs, whether directly or indirectly (on public and private markets), establishing a joint undertaking by entrepreneurs; or acquisition of part of the property of another entrepreneur (all or part of the enterprise).

The notification is not required if the turnover on the territory of Poland of the target or the assets to be acquired did not exceed the equivalent of EUR10 million in either of the two financial years preceding the transaction.

Larger transactions might require notification to the European Commission in accordance with European Union merger rules

In simple transactions, the OCCP has one month to respond to the notification, and in more complex cases, the period might be extended by four months.

In practice, the most common labour law issue concerning mergers (either by takeover or incorporation of a new company) is the transfer of the workplace to a new employer. In such cases, the employees need to be notified in writing no later than 30 days prior to the expected date of the planned transfer. In the event of a transfer of the workplace the new employer becomes, by operation of law, a party to the existing employment relationships. For obligations arising before the transfer of part of the workplace to another employer, the previous and new employer are jointly and severally liable.

This issue does not arise in case of acquisition of shares of the target – such transaction does not qualify as a transfer of a workplace or its part to another employer.

If a company that is subject to merger or acquisition has an employees’ council established (permissible in companies employing more than 50 employees), it is obliged (as an employer) to inform and consult with the council the impact of the transaction on the company and the employees. However, the council’s opinion or advise on that matter is not binding.

There are no restrictions on the purchase price in Poland, and in the case of a private transaction, the parties are free to choose the currency in which the price is set.

Several important legal developments in Poland in the last three years have impacted technology companies and M&A.

Joint-Stock Companies

On 1 March 2021, shares of all joint-stock companies (including private companies), limited joint-stock partnerships, and simple joint-stock companies were dematerialised. The dematerialisation is expected to increase the security of trading in shares of non-public companies and reduce the risk of money laundering. Since 1 March 2021, the ownership of shares has been transferred upon entry in the register of shareholders run by a brokerage house that has an obligation to verify the transfer documents and conduct KYC checks on the acquirer. The shares registration mechanics and procedures need to be taken into consideration in the context of private M&A closings.

On 1 July 2021, a new type of simple joint-stock company was introduced, with the aim of simplifying the day-to-day operations of early-stage start-ups. Among other things, as described in 2.2 Type of Entity, the founders of a simple joint-stock company may choose the way the company is managed, by deciding if it should have a one-tier board of directors, or a dualistic model ‒ with a supervisory board and management board, as in all other capital companies in Poland. It also introduced a new type of preferred share category – the founders’ shares, which have special voting rights, protecting the founders from dilution.

Voluntary Tender Offers

In 2022, significant changes were made to the Polish takeover law (as partially described in 6. Acquisitions of Public (Exchange-Listed) Technology Companies). The legislature introduced into Polish law the institution of the voluntary tender offer (for subscription for the sale or exchange of shares in public companies), the announcement of which relieves the bidder from the obligation to announce a mandatory tender offer, subject to the mandatory tender provisions. The legislature has also amended the thresholds for mandatory tender offers (for subscriptions for the sale or exchange of shares in a public company). Prior to the legislative change, there were two thresholds (33% and 66%). Currently, only one threshold has been established (at 50%). The change in the thresholds (including the establishment of only one threshold) is a result of the intention to bring Polish regulations in line with EU regulations, which indicates that a mandatory tender offer is announced if there is a change of control (acquisition of shares exceeding 50% of voting rights) in a public company.

Crowdfunding

In July 2022, the first law regulating crowdfunding in Poland came into force (the “Crowdfunding Act”). Two types of crowdfunding have been introduced: investment and loan crowdfunding. The Crowdfunding Act introduces the concept of crowdfunding service providers, which have been required to obtain authorisations from the PFSA to provide crowdfunding services. The PFSA has been chosen as the state authority supervising the Polish crowdfunding market. In addition to granting authorisations, the PFSA has been given the power to conduct inspections of crowdfunding service providers and to impose fines on them. Public offering of securities through crowdfunding service providers requires the preparation and publication of a key investment information sheet.

Companies Code Amendments

On 13 October 2022, a wide-ranging amendment to the Polish Companies Code came into force. In particular, the amendment introduced (i) a holding company law governing the relationship between a parent company and a subsidiary, provided that there is a qualified relationship of subordination between them; (ii) a new institution of “binding instructions”, which is intended to allow parent companies to give binding instructions to subsidiaries with regard to the conduct of the company’s affairs; and (iii) a business judgement rule was introduced which to date has not been regulated by Polish law and has only partly resulted from case law.

A public company may disclose a variety of information to the bidders during the due diligence to the extent that it ensures an appropriate level of protection of its confidential information (trade and enterprise secrets) and certain other information, which according to different regulations, cannot be disclosed to third parties (such as professional secrets, banking secrets, or personal data). In disclosing such information during due diligence, the company must comply with provisions regulating such scope and extent of the disclosure.

The law provides that shareholders shall be treated equally in the same circumstances, therefore, all bidders should have the same access to information in the same circumnutates. If the circumstances are different, the company may decide to disclose different scope of information.

The GDPR rules and restrictions also apply to target companies being subject to due diligence, the scope of personal information disclosed in the process must therefore be strictly controlled and comply with the GDPR regulations.

In the case of M&A transactions on the private market, the bid (offer), negotiations of the deal, as well as the signing of any preliminary transaction documents does not generally need to be made public and the documents are usually kept confidential. However, in the case of transactions that are subject to merger control clearance, as described in 7.5 Antitrust Regulations, submissions of notification by the bidder to the OCCP will be promptly disclosed on the publicly available OCCP website. Also, certain post-closing disclosure requirements apply to private deals, see 10.4 Disclosure of Transaction Documents.

A public tender offer will be made public immediately, and as such, public M&A deals are subject to MAR regulations and disclosure obligations with respect to the acquisition of shares in exceeding certain thresholds, as described in 6.1 Stakebuilding. Also, the target company must disclose the signing and closing of any such deal in the current report on the company’s website.

However, the company makes an internal assessment whether information about a given stage of the negotiations and the manner of its conduct meets the criteria of inside information and whether it should be made public and/or if a disclosure should be withheld and/or delayed. In that respect, typically, commencement of negotiations of a deal is disclosed as “consideration of strategic options”.

The Polish Takeover Law provides that only the following types of shares may be offered in a stock-for-stock takeover offer:

• shares in another public company; and
• other securities admitted to trading on a regulated market or introduced to trading in an alternative trading system carrying voting rights in a public company.

The shares offered in a stock-for-stock bid are not subject to the prospectus requirements.

Polish law does not require bidders to produce financial statements in their disclosure documents in cash or stock-for-stock transactions either on a private market, or in a tender offer. It is also not common for the seller to request such disclosure from the bidder. Nevertheless, the Polish companies are obliged to file their approved financial statements to the registry court annually, and such statements are publicly available in the NCR (since 2018, also online).

In general, in private share sale deals, parties do not disclose to the public the transaction documents. However, the buyer is obliged to inform the target company on becoming a shareholder, and the target company needs to file to the NCR information on the change of its shareholding structure. The NCR may require the company to disclose the underlying documents evidencing the transfer of shares. In such cases, extracts of documents are usually submitted to the NCR so that business information (such as price, payment terms, etc) do not become publicly available.

In the case of joint-stock companies, limited joint-stock partnerships and simple joint-stock companies, the transfer of shares to a purchaser is effective upon its registration by the brokerage house in the register of shareholders of the company. The company or the buyer must provide the brokerage house with all documents confirming the transfer of shares and in some cases, ancillary documents necessary to run the KYC procedure of a new shareholder. Additionally, in case of a merger, a merger plan for capital companies requires submission to the NCR.

In addition, as mentioned in 7.5 Antitrust Regulations, certain information and documents must be provided to OCCP. According to Polish law, the OCCP conducting the merger proceedings may grant consent or prohibit the merger. In matters raising doubts about the impact on competition, the law allows the possibility of issuing a conditional consent, which allows the transaction to be made while imposing certain obligations on parties. Therefore, additional documents may be necessary to be submitted to the President of the OCCP.

In general, the management board of a Polish company manages the company and represents it towards third parties. In the context of an M&A transaction, the scope of principal duties of the management board will largely depend on the type of the deal.

In M&A transactions on the public market, the management board of the target is obliged to issue and disclose to the public and the PFSA, within 14 days from the date of announcement of the tender, its opinion on the tender offer including, among others, the boards’ opinion on the fairness of the price, the strategic plans of the bidder towards the target company and their likely impact on the employees and on the location of the company’s operations or its interests. It also obliged to make relevant disclosures of inside information and in connection with the announced tender offer. It may also obtain the fairness opinion of an external advisor (auditor) as further described in 11.4 Independent Outside Advice.

In a spin-off or a business combination (merger), the management board’s principal obligation it to prepare the spin-off or merger plan, arrange the participating companies’ valuations, make relevant notifications to the shareholders and filings to the registry court.

In case of a private acquisition, the management board’s obligations are not regulated by law, and the scope of their duties in the process will depend on the type and complexity of the transaction, as wells as on the engagement of the board members in the process by the sellers, but also on their post-closing engagement within the target company.

The management board’s duties are owed to the company, and the company’s interest shall be viewed as independent from that of the company’s shareholder(s) and/or affiliates.

The management board is not obliged to form any special or ad hoc committee for the purpose of an M&A transaction or in the case of a conflict of interest, and such practice is not common on the market. However, advice or consent may be obtained from the supervisory board (if established in the company), or from any of the supervisory board’s committees, which are usually formed in public companies. In some cases of conflict of interest, the supervisory board must also take an active role as it must represent the company in all agreements or disputes with management board members.

The management board is not always expected to be actively involved in negotiations of the proposed transaction and the board’s role will depend on the type of transaction.

In the context of public tender offers, the bidder and the principal shareholders may engage the board in negotiations, especially if they expect the board to issue a positive opinion, see 11.1 Principle Directors’ Duties.

In most cases, the management board’s decisions relating to the M&A transaction are usually subject to their approval either on a supervisory board level or at a shareholders’ level.

The shareholder litigation challenging the boards’ decision to recommend an M&A transaction is rare, however, there are several cases where the minority shareholders commenced litigation in certain tender offer or squeeze out cases.

Independent outside advice from various advisers is customarily obtained in most takeovers and business combinations (mergers and acquisitions) on the public and private market. The scope of the advice depends on the deal’s type, complexity, or value, and also on the party seeking the advice. However, in general, the parties to the transaction usually engage corporate, financial, tax, or legal advisors to provide comprehensive assistance in different stages of the transaction process.

In case of a tender offer, the management board of the target company is obliged to issue, deliver to the PFSA, and disclose to the public its opinion on the terms of the planned takeover. In that context, the management board may seek to obtain a fairness opinion from an independent outside financial advisor (auditor), which may support the management board in giving a positive or negative recommendation. A fairness opinion may also be obtained in a privately negotiated M&A transaction.