25 (120) 2016
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Polish companies are willing and able to buy foreign companies

by Bartosz Marcinkowski, partner at Domański Zakrzewski Palinka Law Firm
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Poland’s market economy has been developing rapidly over the last 30 years.

During that time, many Polish entrepreneurs have developed their businesses to grow from small initiatives to impressive sizes. Along with development, many companies began to experience limitations on further growth resulting from market saturation with their product or service. So increasingly, domestic companies are looking for growth opportunities on foreign markets. One of the solutions is to acquire a foreign entity. This method provides an opportunity for growth to surge and to foster diversified and sustainable development, both geographically and in terms of product and customer base.

Where to invest

Many Polish entrepreneurs think about expansion by limited acquisition and plan specific actions to be taken. DZP’s experience shows that domestic investors pay special attention to the Balkans, particularly Slovenia, Croatia and Serbia, as well as Slovakia, the Czech Republic, Greece, Turkey and Kazakhstan. Although the south-eastern direction of investment is natural, due to the size of those markets, the level of their development and their location in terms of Poland, one should not forget about the investment opportunities in the 15 old EU states, like Germany or France, as well as in the African countries and China.
Foreign investment may raise understandable concern. Scant knowledge of local business and cultural conditions, lack of knowledge about the legal and tax systems, and the logistics and issues to do with running a company in a foreign country are, on top of financing, the main hindrances to investing outside Poland.

So what should we do to successfully carry out an international company M&A project?

The merger/acquisition process should be well planned. It consists of several stages.

  • Selection of the (target) company

The first step is to choose the right company (target) and an initial agreement with the representative of its owner as to further stages of the transaction.

It’s desirable at this stage to sign a letter of intent or a document summarising the positions of both parties. The document must include a negotiation exclusivity clause so that the Polish investor has the comfort that it will be the only entity involved in the process during this exclusivity period.

  • Due diligence

This stage allows the parties to estimate the company purchase and shape the legal mechanisms protecting the interests of the buyer. The findings of the due diligence also influence any possible price settlements made in the future already after transaction closing.

Considering the international aspect of the transaction, the due diligence must involve specialists (particularly lawyers and tax advisors) familiar with the regulations in force in the country of origin of the target company. However, the role of Polish experts remains crucial as it’s the Polish lawyers who coordinate the process, being responsible to the Polish investor for the schedule and the settlement of subsequent stages of the transaction. And it is the Polish lawyers who verify the findings of foreign advisers by explaining various issues and checking their compliance with the Polish or EU regulations. Thus, the Polish lawyers or tax advisers act like a professional liaison officer, helping the Polish investor to understand and assess any possible nuances of foreign regulations and the company's situation.

  • The agreement

Given the international nature of the transaction, a necessary condition is to determine the law governing the acquisition agreement.

Basically, there are three options: the Polish law (the optimal solution for the Polish investor), the law applicable given the location of the acquired company (an option usually preferred by the seller), and the law that is ‘neutral’ from the point of view of the transaction participants, i.e. the law of another state (in practice, this is often English or Swiss law). If law other than the Polish law is chosen, assistance from a lawyer familiar with the law governing the agreement should be provided. A similar choice may have to be done with regard to the court or arbitration that will settle disputes arising from the agreement.

In many transactions, given the nature of the business field or market conditions, an important issue for the buyer is that the operation of the acquired company may be continued by persons that have been doing this so far. To this end, it is worth binding the seller or members of the management board of the target company under non-compete clauses or a commitment to operate or jointly operate the business of the acquired company for a specified period.

  • Other aspects of the transaction

In addition to proper selection of advisors, an important issue for any business transacted on an international scale is project logistics, which includes assistance from specialised translators and experienced support staff. Although today we rely mainly on electronic communication, direct relationships and contacts are still important. When planning to purchase a company abroad, you should visit the registered office or branches of the acquired company and engage in a round of direct negotiations, also with the participation of Polish and local advisors. This also triggers the need to determine the language in which talks will be held and the transaction documents will be drawn up. English is the contemporary lingua franca in all business relationships, although sometimes translation of documents into the language(s) of the transaction participants would be required. It may result for instance from local legal requirements.

In such a situation, an optimal solution for the Polish investor is to have advisors from a Polish law firm who coordinate the entire process and reliable specialists from the country where the company is being purchased. Participation of local advisors also plays a key role in understanding and overcoming barriers that result from formal and legal differences and from cultural diversity.

The success of the Go Global activities depends on several factors and the key issues in a successful transaction are a well-thought out business strategy, and partnership with experienced advisors.

In our practice, we’ve noticed that the number of Polish companies that decide to expand abroad is growing, and that Polish capital has a reputation of being reliable, as it comes from a stable economy. The form of development described above is certainly worthy of consideration and an option to benefit from.

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