Austria: Centre of gravity
7 October 2013 | By Burhan Khadbai
24 March 2014
25 November 2013
7 July 2014
3 December 2013
3 April 2014
A bustling legal market and political attempts to make Austria a centre of European investment are keeping lawyers on their toes
It was a long, hot summer in Austria and records were shattered – not just in temperature but also in the legal market.
One of the biggest stories of the summer has been the continuing €510m (£426m) dispute over a swap agreement between Austrian bank Bawag and the city of Linz. The case is the biggest civil lawsuit in Austrian legal history and is being dealt with by Lansky Ganzger & Partner and Wolf Theiss.
Linz, Austria’s third-biggest city, is challenging the validity of the swap agreement, claiming deceit and fraud among other things. The trial began on 26 July with the hearing of the Bawag CEO and on 19 August the mayor of Linz was questioned. The trial will continue for a year. Bawag has filed a counterclaim in an attempt to recover costs of around €420m.
“This is a landmark case in dispute resolution,” says Wolf Theiss managing partner Erik Steger. “Linz entered a derivative transaction with Bawag and now there’s a dispute with a value of more than half a billion euros.”
Another record-breaking case involves the collapse of one of Austria’s largest construction companies, Alpine-Energie. Attempts to restructure it have failed and Wolf Theiss is advising on its sale to Jersey-based Triton Advisers, for a fee of around €90.5m.
“Alpine-Energie’s collapse is the biggest insolvency case in Austria’s history,” says Steger. “We’re involved in picking up the pieces and sorting the mess out.”
Austrian records have been broken on the transactional side as well as the contentious. In August Austrian gas company OMV agreed a deal worth over €2bn to acquire a stake in Statoil, Norway’s national oil company. The deal, which is expected to be completed in the next few months, would set a record for the highest amount paid for assets outside Austria. The transaction involves OMV acquiring stakes in Statoil’s North Sea oil fields of Gullfaks, Gudrun, Rosebank and Schiehallion.
In other news, the Austrian subsidiary of Hypo Alpe Adria Bank was acquired by Singapore-based Anadi Financial Holdings in June. Hypo Alpe Adria was one of the Austrian banks considered too big to fail. Wolf Theiss advised the buyer, Sanjeev Kanoria, a British Indian and Anadi’s owner.
“It is a significant move as Dr Kanoria wants to use the bank as a hub for business throughout Europe,” says Steger.
The €65.5m sale is the biggest financial M&A deal and the third-biggest overall M&A deal in Austria in the past six months.
Taylor Wessing’s Austria managing partner Raimund Cancola adds: “We Austrians are glad someone could save it.”
Wolf Theiss was also involved in advising on Internos’ acquisition of the Hilton Danube hotel in Vienna from Austrian real estate company Immofinanz in a deal worth €48.4m. The deal, which completed in September, is the seventh hotel acquired by Internos in 12 months.
Meanwhile, the telecoms sector saw action when CHSH Cerha Hempel Spiegelfeld Hlawati advised on 3 Austria’s acquisition of the Austrian subsidiary of Orange in a deal worth €1.4bn that closed in July
One of the key debates of the year revolves around how Austria can become a business location for investing into Europe. Austria played an important role in the investment of Central and Eastern Europe (CEE) when Western Europe and US investors entered the country around 20 years ago. However, this has stalled recently due to issues affecting the region including the global financial crisis.
“Investment is not so aggressive now,” says Dorda Brugger Jordis corporate partner Martin Brodey. “A key factor behind our growth – as with other leading independent firms in Austria – is investment from the UK and US in the past 25 years.”
“Austria needs to remain attractive to foreign investors,” adds Steger, pointing out that Austrians want investors to use the country as a headquarters for their European business.
Freshfields Bruckhaus Deringer Vienna partner Farid Sigari-Majd adds: “Austria is a natural doorway for investment into Eastern Europe. We also have many attractive features such as social security, quality of life and a stable economy. Vienna is consistently listed as one of the top three world cities to live in.”
Although investment conventionally runs West to East, an example of a switch is the AVE Energie transaction this summer, when the Austrian recycling group sold its subsidiaries in Eastern Europe to EP Industries, a Czech Republic-based company.
Steger acted for EP. He describes the deal as “a very interesting transaction as you normally see the West investing in the East, but here you had a Czech company investing in Austria”.
The Austrian legal market, though small, is stable. The country has benefitted from not having been too badly affected by the world financial crisis compared with most other countries in Europe.
“The big bank crashes did not really affect Austria as we mainly operate through small and independent organisations,” says Cancola.
Other factors that have contributed to Austria’s economic health include the country’s strong mid-sized enterprise sector, its highly specialised industries and an entrepreneurial culture.
More people each year are starting their own businesses in Austria, and some of those entrepreneurs are in the legal market. There are some 6,000 lawyers in Austria, of whom around half are based in the capital Vienna. Unlike close neighbour Germany, the leading firms in Austria are local independents rather than Anglo-Saxon giants.
A major development was the closure of US firm Skadden Arps Slate Meagher & Flom’s Austrian office last month. The only partner in Vienna, Rainer Wachter, left the office following a strategic review that found the office was no longer viable.
DLA Piper Weiss-Tessbach has also suffered some losses this year, with equity partners Wolfgang Freund, Wolfgang Lafite and Philip Dubsky all leaving. Lafite has retired, while Freund left to work exclusively for one client. Dubsky is to join Austrian firm Herbst Kinsky.
The firm says it still has 14 partners in Vienna and is planning to recruit more soon.
So, the question now is where future growth will come from for Austrian firms. The CEE region remains key for many; CHSH forged an alliance in Prague last December, and Wolf Theiss launched in Warsaw when it acquired the local office from Germany’s Beiten Burkhardt a year ago.
However, many believe the real expansion will be found further east.
“Asian investment is the driver to further the Austrian market,” claims Cancola.
Deals such as the Anadi takeover of Hypo Alpe Adria are examples of transactions that could help cultivate Asian investment into Austria.
Sigari-Majd welcomes the prospect of Asian investment in Austria, saying, “The Asian market is active and any investment from there would be good for our M&A market. It’s no secret that our M&A market has been quiet for the past few years.”
According to Thomson Reuters data, deal volume hit a five-year high in 2011, with 388 transactions involving Austria. For the year to September 2013 there were 246 deals, but their total value – $14.9bn (£9.2bn) – is already above the total volume for both 2010 and 2011, and closing in on 2012’s $16.2bn.
Lawyers say the number of small deals is rising.
“The frequency of deals is getting higher but the volume of deals is getting smaller,” says CHSH managing partner Albert Birkner. “Another interesting note is that there are more foreign deals.”
“People are treading more cautiously when it come to M&A – it’s become more demanding,” adds Brodey.
Generally speaking, all practice areas are doing well in Austria. Areas such as restructuring remain strong, with the Alpine case being the top example of the year. But other areas seem to be picking up too, including capital markets.
Birkner says that reports suggest there has been a recent increase in capital markets activity in Austria. “This could start a new trend for capital markets and I expect more capital market rises in the near future.”
Other practice areas doing well include infrastructure and litigation.
“Infrastructure is an area working well right now. We’re working on nine tunnel projects and 1,000 power plant projects,” says Steger.
“Litigation is on the up. Our litigation team has doubled in the past three or four years, and is in high demand,” adds Brodey.
Meanwhile on the regulatory front there is little movement. Political and economic activity has been deadlocked in the run-up to the elections on 29 September and lawyers think the vote could have a major impact on Austria’s drive to become a business location for Europe.
“All four major political parties want Austria as a headquarters location for business,” says Lansky Ganzger & Partners partner Gabriel Lansky. His view is supported by discussions about lowering taxes including corporate tax rates, which could attract foreign investment.
The government made an amendment to the Limited Liability Companies [LLCs] Act in July. A key part of this is the reduction of the minimum share capital for an LLC from €35,000 to €10,000.
“While the reduction is significant to the share capital, it is small within the act itself and I’d not be surprised to see further changes,” says Sigari-Majd.
The reduction is likely to bring benefits, but mainly on a domestic level in attracting more LLCs – already the most popular form of company in Austria.
The amendment has received mixed reaction.
“I don’t think it’s a good idea as it reduces security for creditors,” says Lansky, while Sigari-Majd claims this view is “a fear unjustified”.
“Minimum share capital is not really an issue for creditors as in some places you can start up an LLC for very little,” he contends.
Cancola argues that the outcome of the elections will not have much significance.
“I’m not expecting big changes,” he says.
Whether or not the outcome of the elections has a major impact on Austria’s future, what is evident right now is that Austria, while remaining stable, is itching to grow.
“There are no big issues – we are complaining only on a high level,” concludes Cancola.
Key figures: Austria
Annual inflation: 1.8%
Life expectancy at birth: 81
Source: World Bank, Statistics Austria