Of just over 100 deals announced in the Balkans this year, only 10 per cent involve a company from one of the states acquiring assets from a company in another Balkan jurisdiction. That compares to around 45 domestic deals across the major Balkan countries, and a similar number involving a local company being acquired by a foreign corporate.
So cross-border activity within this region – encompassing Albania, Bosnia, Croatia, Kosovo, Macedonia, Montenegro, Serbia and Slovenia – remains relatively rare.
Yet regional relationships are still high on the agenda for those operating in the Balkans. While political tension remains, less than 20 years on from the fall of Yugoslavia, the economic reality is that many companies operate across the region. The recent collapse of Croatia’s largest company, supermarket giant Agrokor, is an example of how connected businesses can be in the Balkans.
Agrokor owned a number of Croatian consumer brands and subsidiaries such as Serbian ice-cream company Frikom and Bosnian water bottling company Sarajevski Kiseljak, and in 2014 took over Slovenian retailer Mercator for €544m.
But earlier this year Agrokor filed for administration, faced with debts of around €6.7bn (£5.9bn) including €1.1bn owed to Russian bank Sberbank. The collapse has resulted in litigation across the region – and an application to the High Court of England and Wales – and asset sales in countries where Agrokor had subsidiaries. That work is set to keep lawyers in the Balkans busy for some time and emphasises the need for firms in the region to have the capability to work with colleagues in neighbouring states.
“Serbian and Croatian investors are spread over the Balkans but we share the same history,” says Bojović & Partners founding partner Marija Bojović.
“We now see Serbian investors or companies investing outside Serbia, in Croatia or Slovenia” Rastko Petaković
“It’s fair to say that when there’s something on in Slovenia there’s also something on in Serbia, Croatia and Bosnia,” adds Karanović & Nikolić managing partner Rastko Petaković.
Schoenherr partner Marko Prušnik says history has a lot to do with the economic structure of the region. Companies established in former Yugoslavia, which operated as a single jurisdiction, still exist with subsidiaries in several countries.
“Due to this heritage we still regularly see Slovenian companies with Croatian or Serbian subsidiaries and vice versa, which results in frequent multi-jurisdictional work,” explains Prušnik.
The one-stop shop
Schoenherr and Wolf Theiss, both offer a one-stop shop across the Balkans. Schoenherr runs this from the Slovenian capital Ljubljana with associated offices in the major Balkan countries, although there are not partners in all offices. The firm also has a working group seeking to expand cross-selling opportunities of the region.
“We are where the clients are, and a one-stop-shop model to them, which they appreciate” Bojan Brežan
“We are where the clients are, and a one-stop shop model to them, which they appreciate,” says Slovenia managing partner Bojan Brežan. “There are many benefits an integrated multi-jurisdictional office can offer as opposed to a network of firms. It’s not just accumulated know- how, but also logistical advantages and a uniform product, especially when it comes to multi-jurisdictional due diligence.”
“There’s a strong know-how exchange that comes with an integrated structure, not only based on joint projects, but also via centralised internal training,” adds Prušnik.
Schoenherr is advising Sberbank on the Agrokor administration, a mandate Brežan says the firm would not have picked up had it not been for its regional model. The work is coordinated centrally and teams from different countries are, says Brežan, “closely aligned”.
Schoenherr has expanded outwards from Vienna to Ljubljana and then south through the region. To date just one firm has started its operations elsewhere to spread out through the Balkan. Serbia’s Karanović & Nikolić originally worked with similar local firms in a network structure before abandoning that model to expand across the region on its own. It now has offices in six Balkan states, although Petaković admits that it focuses predominantly on Serbia, Croatia and Slovenia as this is where the majority of the work can be found.
At Wolf Theiss, corporate head Horst Ebhardt says the fact the firm has a single profit pool across its offices acts as an incentive to cross-refer clients.
“We share know-how on transactions and techniques and so can truly operate as an integrated firm,” he adds, noting that lawyers across the firm’s network meet regularly.
The balance of power
Both Petaković and Kinstellar Belgrade partner Branislav Marić say investment flows in the region are changing with the balance of power adjusting over time.
“It was happening more in the past that Croatian and Slovenian companies were investing in Serbia than the other way round – there was some political opposition from Croatia, in particular in investment from Serbia,” Marić says.
“Traditionally, Slovenian companies would be investing most outside the region but this has changed,” he says. “A lot of Slovenian companies have come to a plateau in terms of growth and supply chain. This can still be felt by Slovenian companies growing outside Slovenia.
“At the same time the Serbian economy has picked up. As the largest market it’s attracted fast-moving goods and investment. We now see Serbian investors or companies investing outside Serbia, in Croatia or Slovenia. We have seen this strongly in the past five years.”
This is borne out by the deals data. According to Thomson Reuters there have been no announced deals this year with a Serbian target, but five with a Serbian acquiror. Slovenian companies are the target for four of these deals, three of which have completed. One pending acquisition is in Montenegro.
Prušnik says banking and finance and corporate work are the most active practice areas when it comes to intra-region cross-border activity, while Ebhardt points to privatisation work as a theme amid a range of transaction types.
The challenge for Balkan firms looking to move into each other’s jurisdictions is political, with tensions still rife
The challenge for Balkan firms looking to move into each other’s jurisdictions is political, with tensions still rife. Earlier this year, for example, Serbia withdrew its embassy staff from Macedonia in a spat over the latter’s support for Kosovo’s proposed membership of UNESCO. There are also reports of tension between Croatia and Bosnia.
Brežan thinks Schoenherr has an advantage in being Austria-headquartered and therefore politically neutral.
Petaković admits politics has been Karanović’s major challenge when opening in new jurisdictions.
“It was our policy from the day the firm was founded that we don’t align ourselves with any sort of politics other than we want companies to trade together, want trade as free as possible, and regulation as free as possible too,” he says.
Despite this, the firm was still viewed with a degree of suspicion when it started to move into the other Balkan states.
“The biggest political hurdle we had to overcome was going into Sarajevo,” says Petaković. “We were able to go there and give a message that it’s not about politics; it’s about people thinking that one of the better ways to co-operate is through one firm serving clients across the region because clients have stopped thinking about the war and other people need to stop thinking about it.”
The one-office shop
So far, no other firms have followed Karanović’s lead and most ‘national champions’ prefer to use a network model for cross-border activity. Serbia’s Bojović is one such firm. Having previously worked with the established SEE (South Eastern Europe) Legal network at her former firm, in June last year Bojović set up the South East Legal Alliance (SELA) to work with colleagues in neighbouring countries. Founders included Bojović, Bosnian’s Dimitrijević & Partners and Croatia’s Žurić i Partneri. In November SELA added Macedonian firm Apostolska & Aleksandrovski, followed by Slovenia’s Kirm Perpar in February 2017 and Bulgarian firm Dimitrov Petrov & Co in September.
“We want to align our policies,” says Bojović. “If we’re referring our clients to each other we want to make sure we align the quality as well.”
SELA is co-operating closely on policies and training, exploiting each member firm’s expertise to improve the whole network’s offering. A few months ago the network gathered in Belgrade for a session on project finance which, with significant regional PPP activity, is a key area.
Bojović is conscious of the importance of getting the network right to pick up instructions across the region.
“The region for us is important because that’s what the Balkans are,” she says. “We have the same history, we understand each other and we have quite a similar mentality. We have to improve quality and make sure we’re truly one point of contact and can deliver one product.”
Networks are not the only way to manage a one-office model in the Balkans. Central & Eastern European (CEE) firm Kinstellar, which has offices across the wider CEE and CIS region but in the Balkans only Serbia, is for the moment content with its presence. The Belgrade office was opened in 2010.
“From the beginning we’ve been doing a lot of regional work,” says Marić. “There’s no region of former Yugoslavia where we haven’t done something. We’re diversified, we cover a lot of different areas and our experience in former Yugoslavia is in a multitude of areas.”
He says work can be done from Belgrade across the region both by using a Serbian team and by turning to local counsel.
“Our international clients like to trust us with the work in a number of jurisdictions and they’re used to getting a certain type of results and feedback” Branislav Marić
“Our international clients like to trust us with the work in a number of jurisdictions and they’re used to getting a certain type of results and feedback,” Marić believes. “They don’t care if we use somebody locally, they care that they get the same quality and assistance across the board.”
However, neither Bojović nor Marić rule out moving to a more integrated pan-Balkan model. Bojović says local bar issues present challenges but can see more firms going down the one-stop-shop route.
Marić thinks Croatian and Slovenian offices “could be interesting” for Kinstellar at some point, but expansion depends on the health of the region.
“The crisis in 2008 had an effect on the entire region – it was a dire situation,” he says. “In the past three or so years things have been improving, but the region is fragile and can be influenced by global negative infrastructure easily.”
The Agrokor situation is an example of that, and while it will provide plenty of work for lawyers in the near future, the health of all the Balkan states will guide law firms’ expansion – and the success of the integrated and network models.
International firms have, by and large, steered clear of the Balkans. It is, after all, just 16 years since the end of the Yugoslavian wars and none of the economies in the region are big enough to support many large law practices.
In fact, just two of the Global 200 have offices in the Balkans: CMS and German multidisciplinary firm Rödl & Partner. Of the two, CMS is by far the biggest with 22 Balkans partners listed compared with three for Rödl. CMS has offices in all the major Balkan states although it does not have partners in all of them. For example, Slovenia is run from Austria, and Montenegro from Serbia. Bulgaria is its largest Balkans office with seven partners and there are six in both Croatia and Serbia, two in Bosnia and one in Albania.
Rödl has offices in Bulgaria, Croatia, Serbia and Slovenia although again it does not house lawyer partners in all those offices.
Combining the two firms, corporate is the largest practice area in the region with 10 partners, nearly half of the total of all CMS’s and Rödl’s Balkan partnerships. A further five partners specialise in litigation and three in tax.
The only other firms present in the Balkan states but headquartered elsewhere are the Austrian firms, with Schoenherr and Wolf Theiss both maintaining fairly large practices in the region.
Other international firms tend to rely on referral networks to refer work to the Balkans, either formal or informal.