A Journey Into Law and Mergers
Although born and raised in the Czech Republic, Jan finished high school in the US. He just wasn’t sure what to do. He returned to his native Brno (the Czech Republic’s second-largest city) and started studying engineering at university. However, he didn’t enjoy engineering, so decided to switch to Law, having always liked social studies and history.
He then decided to do an LL.M at Kent College of Law in Chicago from 2005-6. He especially relished the cases pertaining to commercial law and mergers and acquisitions. He then secured a job with global powerhouse law firm Linklaters with their office in Prague, during which time he passed the bar exam and registered as an attorney.
In 2008, the four CEE Linklaters offices spun off from Linklaters into the Kinstellar law firm. Kinstellar is a fully independent firm with a strategic focus on smaller markets. The firm now operates in 10 countries from Prague to Almaty and has a truly global reach, whilst still remaining independent. Jan thinks this focus on smaller markets is “a great business model” for the law firm with which he’s worked for 13 years.
A Long-Term Collaboration with Wolters Kluwer
Jan has contributed on an ongoing basis since then to some of the corporate sections for the Wolters Kluwer book on M&A-related and corporate law. Jan is also responsible for updates on M&As in the Czech Republic, along with other colleagues.
He has enjoyed the process over the years and believes it’s a very good working relationship based on mutual respect. He calls the M&A textbook “a simple but effective cookbook regarding M&As” and readily admitted that he often quotes from it to clients on the more basic and fundamental legal principles and issues regarding M&As and corporate law. “It’s really that helpful,” he says, smiling.
An M&A Evolution Born in the 1990s
One needs to remember that all countries in the CEE region were communist until relatively recently. Once markets opened in the 1990s in the aftermath of the collapse of the Soviet Union, some of the businesses in CEE countries like the Czech Republic grew enormously.
As a result, some local entrepreneurs became very wealthy but with children who, once adults, had no interest in the business. And so arose the issue of succession for many such family-owned companies. According to Jan, this trend triggered quite a lot of opportunities in the M&A market, especially for private equity firms who in turn needed advice and guidance from experts such as him on these complex deals. This alone has been quite a significant trend in the last three to four years.
M&A Maturation in the CEE Region
There have been other trends in recent years in the region. One example is that of an increased number of local investors winning and completing deals in their own countries and further beyond in the CEE region. Five to 10 years ago most M&A deals in the region were by foreign investors, mainly from the USA, UK and Germany. Local investors were invariably minority shareholders or mere onlookers for the most part.
But this has changed as now local investment companies and financial groups are becoming more active in the region. Czech investment companies are now not only doing big deals in the Czech Republic but even abroad, competing with foreign companies in some of these transactions.
Jan also believes that there are fewer deals with purchase price adjustments; as well as more locked box transactions; an increase in earn-outs; a decrease in liability cap cover; and greater application of price retentions as security for claims. He sees all of these as a gradual and necessary evolution of the market.
Many of these deals have been in the IT, health-care and manufacturing sectors, as well as leisure/hospitality. Jan sees these trends not so much as being indicators of ‘upheaval’ in the market but, rather, a maturation thereof. The dynamic has also changed in that it is currently more of a “seller’s market”. That too may yet change again.
Another example of this maturation in the region that Jan cites is that of due diligence. In the past, due diligence reports were far more descriptive, sometimes hundreds of pages in length. Today, these same reports are more concise and thus shorter and more user-friendly. It’s been an evolving trend over the past few years – and one that clients have welcomed. The focus now is on efficiency in services rendered to clients, which has meant more use of technology in legal work and more effective collaboration.
FDI & Consolidation – Dangers Ahead?
Foreign direct investment (FDI), and, in turn, the M&A field, will in time be impacted by local governments wanting to protect local business. These will be primarily those companies regarded as being ‘key assets’ for a country. Therefore, their protection from a majority foreign shareholding will be increasingly considered a matter of the national interest for CEE governments and regulators. This is certainly a trend for the coming years, what with EU legislation being enacted regarding the protection of key national assets.
Protective legislative changes in this regard have been brought in to slow down the buying up of infrastructure and other ‘key asset’ companies by, for example, China.
Start-ups and fintech companies have been especially targeted in recent years by local and international players, with consolidation being one of the driving factors for M&A deals. Jan was asked whether there is a danger of monopolies and even cartels arising out of all this consolidation?
He agreed that there could be such a danger, which is why some of these deals have been carefully negotiated due to, for example, an anti-monopoly authority imposing conditions for a deal.
Whereto M&As in the CEE Region?
Jan believes that the future of M&As is an exciting one in his country and region. But there are cautions. In terms of the biggest challenge that should arise in the coming years, Jan has this to say: “Purely from the point of view of a law firm, it’s definitely the use of technology”.
He believes that this impact of AI and other emerging technologies on the M&A field will evolve in the coming years. For example, software developed in the USA and UK is useful for huge markets that have the same language, whereas in the CEE region one has 15-20 countries with as many different languages, which in itself is challenging. But he is certain that AI is a looming challenge for law firms in more ways than one.
Jan also cites the geopolitical situation as a possible challenge for the immediate future. After all, the CEE region is literally at the crossroads between various major countries and trading blocs. As such, the market in his region is very sensitive to the machinations of international relations and tensions, be they the USA v Russia, the USA v China, or indeed the very future of the EU itself in the aftermath of Brexit, to name but a few.
In the meantime, it’s full steam ahead for the M&A sector in the Czech Republic and beyond. That no doubt pleases Jan Juroška.