Spit and Polish
13 March 2011 | By James Swift
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With Poland having ridden out the downturn admirably, firms are flocking there with a view to making it their CEE launch pad. James Swift reports
Poland has distinguished itself from the rest of the former communist bloc since the downturn and is now focused on becoming a hub for banking and capital markets transactions in Central and Eastern Europe (CEE).
The country’s economy has certainly gone from strength to strength. In the fourth quarter of 2010 Poland’s GDP expanded by 4.4 per cent and 4.2 per cent the previous quarter.
“Poland suffered a bit, but not as much as other countries in Europe during the downturn,” says the managing partner at DLA Piper’s Warsaw office Krzysztof Wiater. “The country’s become much more stable and mature than its neighbours, which has made long-term planning much easier. So the country’s much more attractive as a jurisdiction for banks.”
It has been a big year for lawyers in terms of deals too, but then some would argue that the market never really went away.
“The market’s been strong for the past three or four years,” says Andrew Kozlowski, managing partner at CMS Cameron McKenna’s Warsaw office. “Every year we’ve increased our fee income by around 10 per cent.”
According to some, the absence of any real fallout in Poland has even led to problems in deal-making.
“The crisis was too short in Poland,” explains Tomasz Krzyzowski, Baker & McKenzie M&A co-head in Warsaw, “so people have come back with the approach that they had before the crisis as to the prices, multipliers and financing.”
This, however, is only a minor complaint. And as true as it may be, it certainly did not get in the way of deal-making in 2010. According to Thomson Reuters there were 437 deals amounting to almost $19bn (£11.68bn) that year, compared with only $5bn in 2009.
One of the biggest transactions this year, and one that has provided evidence of the attractiveness of Polish banks, has been Raiffeisen Bank International’s e490m (£420.75m) acquisition of 70 per cent of Polbank, the Polish banking branch of Greek bank EFG Eurobank Ergasias. Dewey & Leboeuf advised Raiffeisen Bank, while a cross-border team of CMS lawyers saw to the sellers’ legal requirements.
The deal was far from straightforward. Poland will have to change its banking laws for the transaction to go through, since the target’s Polish branch must be converted into a standalone bank. The target was a local branch and so, under Polish law, lacked corporate personality. For the Greek bank to avoid the hassle of going through the transaction as an asset sale, the target had to incorporate into a licensed Polish bank, which was almost impossible under the existing licensing requirements.
Also this year, Spain’s Banco Santander agreed to buy a 70 per cent stake in Bank Zachodni WBK from Allied Irish Banks for e2.9bn; and there are strong rumours that Bank Millennium, part of Portugal’s BCP, is on the market, with no shortage of potential buyers.
“Banks in Poland have plenty of capital on their balance sheets,” says Jonathan Weinberg, head of the CEE/CIS banking and finance practice at White & Case. “In the case of the local subsidiaries and branches of international institutions, they have a unique degree of autonomy about how they deploy their money. So we’re seeing a remarkable number of banks changing hands.”
Senior staff members at Deutsche Bank have even forecast that M&A will meet or surpass last year’s total. One of the biggest transactions on the horizon is the sale of Poland’s second-largest telecoms operator Polkomtel, which is expected to fetch around e4bn.
Fair for middling
But it is not just a handful of headline deals that is giving the impression of a solid pipeline of work. Mid-market deal activity, law firms’ bread and butter in a country such as Poland, is also strong.
“We’re involved in a number of smaller transactions that don’t have the headline names for the target, but still, compared with last year, the volume of work’s significantly higher, and they’re the most important to law firms because they reflect the majority of our income,” says Krzysztof Libiszewski, a partner at Wardynski & Partners.
The IPO market is also expected to flourish, despite plans to limit the amount of investment by Polish pension funds, as companies from across CEE look to float on the Warsaw Stock Exchange (WSE). The WSE has been one of Europe’s leaders in IPOs over the past 12 months, even overtaking the Vienna Stock Exchange in terms of trading volume late last year.
“Our corporate guys have 16 IPOs at the moment,” says Krzyzowski at Bakers. “In the last quarter of 2010 we did the IPO for AviaSolutions - the first Lithuanian company to list in Warsaw. Companies are coming from Ukraine, Belarus, Bulgaria and all over the place to Poland’s stock exchange.”
Homing in on Poland
Unsurprisingly, some of Europe’s largest independent firms have made Poland the focus of their CEE practices. Garrigues, for instance, announced in November 2010 that it would close its Bucharest office and centralise all its functions and services through Warsaw.
“The economic situation’s different than in any other jurisdiction in Eastern Europe,” says Garrigues head of CEE Alejandro Miquel. “Just by walking along the street you can tell the momentum here’s different.
The macroeconomic situation evolved completely differently and the low impact of the recession mean it’s gone through a more advanced recovery, so there’s been a continuous flow of deals and investments.”
In October 2010 in Warsaw, Garrigues hired White & Case capital markets associate Filip Urbaniak and CMS Cameron McKenna corporate senior associate Piotr Sitarski as partners to cope with the increased demand in M&A and capital markets work. The firm is also on the verge of hiring a partner to launch a tax practice in Poland, something that until now has been missing from the firm’s business model.
“As well as reinforcing the practice areas that are connected with the momentum of the economy, and the arrival of foreign banks, we continue to try to reinforce the firm in construction, infrastructure and real estate - classically strong areas for the firm,” says Miquel. “A substantial number of Spanish entities have real estate assets in Poland, and a lot of these must now be liquidated and transferred.”
The place to be
Salans has also made Poland a focal point for its international strategy. The Warsaw office, which opened in 1991, is roughly the same size as its Paris office - and is only slightly less profitable, according to the firm.
“CEE’s one of the regions where we’ve developed a leading market reputation,” says global managing partner Dariusz Oleszczuk. “It’s clear that many of our key clients, especially private equity clients, banks and international companies, treat CEE as one region, so we look at this as an important strategic region.”
“We’re using [the Warsaw office] as a platform for the rest of the region,” says Salans Warsaw managing partner Tomasz Dabrowski. “Our business model here is to have a fully diversified shop. The market’s still growing and we don’t see any reason to start slowing down here. A couple of years ago, if a firm had 100 lawyers, it was a big deal; now it’s no surprise if a firm has
Gide Loyrette Nouel, too, has put a lot of emphasis on its Warsaw practice, which it launched in 1991, although the firm stops short of describing the city as a regional hub. Besides Warsaw it has also invested in Hungary, which became a hub for the southern part of CEE when the firm closed its Prague and Belgrade offices in 2010.
At present Gide focuses on real estate and M&A in Poland, but senior partner Pierre Raoul-Duval expects banking and finance to play a bigger role in the near future.
“Poland’s undoubtedly one of our strategic offices in that part of the world,” says Raoul-Duval. “It was one of the first offices to open under the firm’s new strategy programme in 1991. We moved there because we felt there were all the ingredients for us - it was a developing market that felt like a level playing field for everyone and it’s a civil law country.
“It’s the most populous country in that area and clearly an office of major importance for us, but it’s not a hub. I think what we’ll see is a development of synergy between Poland, Russia and Ukraine; so there’s no one country that’s more of a hub than the other.”
Poland’s size, stability and economic performance during the downturn mean news of its surging dealflow and opportunities for law firms should surprise no one. But there is still time for that. Poland, along with Turkey (which has comparable potential for growth), is one to watch in 2011.