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Economic conditions significantly influence transaction documentation. High investor activity means more seller-friendly contract terms.

According to Grant Thornton „M&A Market in Poland” report there were nearly 350 acquisitions closed in 2022 and it is the highest number of completed transactions since 2010.

New trends in investment agreements in Poland

In 2022, we have seen the following trends in business sale agreements:

  1. Shorter liability periods – investors are willing to accept sellers’ expectations as to their liability for warranty breach regarding the business in the 12–24 month range;
  2. Lower thresholds of liability for warranty breach – in the vast majority of transactions, the sellers’ liability for warranty breach as to the state of the business is less than 50% of the transaction value, and it is not uncommon for sellers to seek liability threshold in the 10%–25% range;
  3. Increased popularity of flexible price settlement mechanisms – as usual in turbulent times, investors will expect price settlement based on mechanism providing for a price adjustment in terms of selected parameters as at the date of closing of transaction (closing accounts). Division of the price into tranches and settlement of part of the price based on future results (earn-out) are also gaining popularity;
  4. Growing importance of sellers’ responsibility for ESG (Environmental, Social and Governance) compliance – Investors attach great value to the compliance of the acquired business with law, both in the pre-transaction due diligence and in the investment agreement; issues related to sanctions, money laundering and environmental protection are becoming increasingly important;
  5. Popularity of force majeure and material adverse change (MAC) clauses – mindful of March 2020 and the tense review of contracts in search of an opt-out from closing the deal, investors are making sure that their commitments to close deals are sufficiently flexible in the event of another pandemic or war.

Investment agreements reflect the state of the M&A market in Poland

The legal terms of the transaction, like the financial terms, are subject to the law of supply and demand. Markets with high levels of investor activity can be expected to remain more open to relatively favourable provisions regulating the sellers’ liability for the state of the business up to the closing date – including but not limited to shorter liability periods and lower limits of the sellers’ liability, which means the latter can sleep more peacefully after closing of transaction.

On the other hand, the prevailing uncertainty in the markets will probably mean that in the months to come investors will be more likely to expect that the investment contracts provide for flexible price settlement mechanisms (price adjustment, earn-outs, payment by instalments) and arrangements enabling them to withdraw from the transaction in the event of adverse extraordinary circumstances, such as another pandemic or war (force majeure clause, material adverse change clause). It can also be expected that investors will be increasingly concerned to ensure that the target business complies with applicable laws (regulatory compliance) and stringent standards of corporate social responsibility (ESG). The range of issues of primary concern in transactions will include risks related to environmental protection, money laundering, sanctions and adaptation of contractual provisions with counterparties to allow for a highly volatile environment.

If you are thinking today about selling your business, it is prudent to see to these areas in advance so that you can then sign the investment contract with confidence.

For more information check out our report „M&A Market in Poland”:

REPORT: M&A Market in Poland
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