Three into one
23 January 2012 | By Dale McEwan
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Consolidation is continuing in the Baltic states as firms respond to businesses’ requirements for a one-stop shop service across the region
Many legal markets are in the process of consolidation, but for firms operating in Latvia, Lithuania and Estonia the consensus is that a collaborative pan-Baltic reach is the be-all and end-all of legal activity.
“If you want to be successful you have to find a way to provide a service to all three countries,” says one local lawyer.
For several firms in the past few years, merging to form a single, pan-Baltic outfit has been the answer to that question.
Following in the footsteps of Tark Grunte Sutkiene, Sorainen, Borenius and Lawin, December 2011 saw the merger of Šarka Sabaliauskas Jankauskas from Lithuania, Latvia’s Treilons & Petrovics and Estonian firm Tamme Otsmann Ruus Vabamets.
The three firms will now be known collectively as Triniti, a single brand with more than 40 lawyers.
The three firms previously worked as best friends, but following the creation of Triniti they are reorganising into cross-border practice groups. They will continue to be regarded as separate firms, with their own profit pools for regulatory reasons,although practically, from a client perspective, Triniti is a one-stop shop.
Estonian partner Tõnis Tamme believes that international investors increasingly see the three Baltic countries as a single region rather than as separate jurisdictions.
“Speed and convenience are important for serving our local and international clients,” insists Latvian partner Anri Leimanis. “Pooling the three firms and their teams into one cross-border legal brand guarantees that the offices of each country turn into a one-stop agency, regardless of which of the three countries the client turns to.”
Tamme says the three firms are represented equally, providing similar amounts of work. If the number of pan-Baltic clients increases, then a full merger would be a possibility within five years.
“We’ll put our heads together and get this alliance working,” he adds.
Speaking about 2012, Leimanis says Triniti plans to establish better connections with neighbouring Russia. He explains that this is another factor that spurred on the creation of the Triniti brand.
“A client flow from Russia’s started and they always ask the same question: ’Do you serve the neighbouring countries?’,” he says. “The Russian market’s opening up.”
The firm is considering adding bespoke services for a Russian clientele, including accounting and trustee facilities.
“They quite often ask for these services,” adds Leimanis.
But Triniti has not been the only firm making moves in the Baltics. Regional firm Varul launched an office in Belarus in October 2011 - its first outside the Baltic states.
“We’ve seen our clients in the Baltics, as well as abroad, looking outward for possible expansion opportunities, and statistics indicate that Belarus is one of the major points of interest,” says Helmut Pikmets, managing partner at Varul Estonia.
“We’re already witnessing several Belarusian investors interested in the Baltic construction sector,” comments Varul managing partner Robert Juodka. “Moreover, many Belarusian businesses prefer Lithuania as the jurisdiction for registering holding companies.”
One reason for Baltic firms to look for opportunities overseas is that the countries’ economies are - like those of many other European jurisdictions - struggling. Lithuania and Latvia are witnessing their own mini-financial crises following the collapse of Bankas Snoras and its subsidiary Latvijas Krajbanka at the end of 2011.
The Lithuanian Central Bank liquidated Snoras, the country’s third-largest bank by deposits, in November after discovering that assets of around Lt3.4bn (£822m) reported on the bank’s balance sheet were missing.
Estimates from Latvia’s bank regulator suggest that around Lt100m may be missing from Latvijas Krajbanka. The Lithuanian government decided to take over Snoras after the discovery.
“That’s influenced the busin-ess environment,” says Borenius Lithuania managing partner Daivis Švirinas, adding that many creditors of Snoras have approached the firm regarding representation. “That’s impacted more than the problems in Europe.”
“We have several clients who have issues with Snoras,” says Mindaugas Vadapalas, a partner at Lithuania’s Law Office Vadapalas Vaitekunas & Partners Eurolex. “The main point is that we’re still missing information from the bank, such as what the [precise] asset value is.
“What we know is that the claims of our clients will not be fully approved. They’ll lose money, but the question is, how much?”
Back at Triniti, Leimanis explains that the collapse of the banks has opened up new avenues of work.
“It creates opportunities for us as we’ve been approached by some London financiers wanting to buy these claims against the banks,” he reveals. “At the moment we’re looking for clients who want to do that.”
M&A in focus
As far as M&A work is concerned, the Baltic M&A Deal Points Study 2011, carried out by a consortium of Baltic firms, contains some interesting conclusions with regard to transactions across the three states. The study analysed 96 M&A and joint venture transactions completed between January 2009 and June 2011.
The statistics show that the technology and food and agriculture sectors were the most active target industries, accounting for 22 and 15 per cent of transactions respectively. Of the three Baltic states, most buyers originated from Estonia, which completed 20 per cent of the total transactions.
Most Baltic buyers, especially those in Lithuania, acquired targets in their own countries. Estonian buyers acquired 11 targets out of 15 on their home turf, Latvian buyers seven targets out of seven and Lithuanian buyers 11 out of 12.
Finnish buyers preferred Estonian targets and Polish acquirors preferred Lithuanian ones. Meanwhile, Swedish buyers scooped up mainly Lithuanian targets, while US interest was focused on Estonia.
In terms of transaction value, the figures are a reflection of the global economic squeeze. The bulk of transactions - 33 per cent - were in the €1m-€5m (£835,000-£4.2m) bracket and 62 per cent of deals were valued at €5m or less, of which almost half had a value of €1m or less. Conversely, 43 per cent of transactions in the 2009 study had a value of between €5m and €25m, with 64 per cent at €5m or above.
One of the largest transactions in 2011 saw the Tallinn office of pan-Baltic firm Lawin advise US-based rare earth oxide producer Molycorp on its acquisition of a 90 per cent stake in Estonia’s rare metal producer Silmet by subsidiary Molycorp Minerals. In the transaction 80 per cent of the shares were acquired from Silmet Grupp and 10 per cent from chemistry and metallurgy specialist Treibacher Industrie. The remaining 10 per cent of the shares continue to be held by Silmet Grupp. The transaction value was approximately $89m (£57m) and provided Molycorp with its first European base of operations.
Despite the debacle surrounding Snoras and Latvijas Krajbanka, the economies of Lithuania and Estonia have performed relatively well in recent times. Of the three Baltic states, the consensus is that Latvia has been least active for firms.
“2011 for our Estonian office was very good,” says Sorainen group managing partner Pekka Puolakka, adding that the office witnessed double-digit growth. “Lithuania’s also improved on 2009 and 2010, but it’s not like 2008. Latvia’s been a bit of a problem actually - it’s not quite there.”
Puolakka explains that Latvia’s economy and society is still close to default mode.
“It’s very much a foreign investment-driven economy,” Puolakka adds.
“We cleaned up, although rather roughly, and efficiency has improved,” says Lithuania-based Švirinas. “Those small markets can be easily hit, but they can also easily recover. Recently our Lithuanian exports [have been] increasing. The only weakness of our market is that it’s small.”
Puolakka says the crisis management in Estonia was the most prudent of all European countries’.
“Also, Scandinavian investors have been active in Estonia,” he adds. “Scandinavia and many big Scandinavian companies are in good shape and consider the Baltic states their home.”
“What’s important is that our jurisdictions, being not that big, can be flexible,” explains Lawin Tallinn managing partner Peeter Lepik. “Our government’s made some quite good decisions. This has been effective for the economy. We haven’t spent that much. 2012’s going to be a busy year.”