Belarus M&A Deal Points Study 2019

Belarus M&A
Belarus M&A

The Belarus M&A Deal Points Study 2019 aims to explore current practices in the Belarusian M&A market, as well as to detect directions and opportunities for further development. The Study was organised by the joint efforts of ten leading Belarusian law firms, with due account taken of analogous projects in the Baltic states. The Belarus M&A Deal Point Study 2019 is based on information about 59 M&A deals closed between January 2016 and December 2018.

Transactions falling within the scope of the Study share the following characteristics: The transaction is an M&A deal; The target is a Belarusian business (company, joint venture, assets); The transaction value exceeds EUR 500,000 or equivalent at the time of closing; The transaction was closed between 01.01.2016 and 31.12.2018.

While providing data for the Study, the participants were bound by confidentiality obligations and client-attorney privilege. For this reason, the findings of the Study are based on analysis of fewer deals than the total examined in the framework of the Study.

In most cases (47%), the Target operates in the technology, food processing, or agriculture sectors. All Targets operating in the spheres of logistics, energy, industrial production, as well as most of the Targets in the food industry are located outside the capital city – Minsk. All Targets specialising in financial services and technology are located in Minsk. A Target operating abroad is most often operating in Russia.

Usually the Seller is of Belarusian origin (44%). The significant number of Cypriot Sellers (16%) may be due to use of Cypriot companies in structuring the Seller’s company group.

In one-third of cases, Belarus is the Buyer’s country of origin; Cyprus also has a significant share (13%). In all other cases, investors were from 18 other countries.

Geography of Seller and Buyer

14% – internal transactions (transactions where there was at least one Belarusian resident on each of the Seller’s and the Buyer’s side)

19% – transactions involving a foreign Seller

29% – transactions involving a foreign Buyer

39% – transactions between foreign Sellers and Buyers

General Characteristics of an M&A Deal

Most often, transactions are based on the results of negotiations and provide for acquisition of a majority share

Merger clearance was required in slightly less than 50% of transactions. In all cases when merger clearance was required, consent had to be obtained from the Belarusian antimonopoly authority. Only in one case was consent of foreign antimonopoly authorities (Macedonia and Serbia) also required in addition to the Belarusian authority.

In over 50% of transactions, the law of the Republic of Belarus applies to the main contract. Use of the law of one of the UK’s legal systems is also widespread. The law of other states is used in isolated cases, usually in connection with participation of a resident party of the state concerned.

Belarus language of the agreement most often, the main contract is drawn up in Russian and/or English (94%). If the contract is in two languages, English is usually prevalent.

Arbitration is the most popular dispute resolution mechanism, with parties preferring institutional arbitration. The most popular arbitration institutions are the London Court of International Arbitration, the International Arbitration Court at the BelCCI, and the ICC International Court of Arbitration. None of the transactions resulted in disputes.

Purchase Price Purchase price rarely exceeds EUR 25 million and is usually in the range of EUR 1 to 5 million. Purchase price does not clearly depend on Buyer type.


In all transactions, only cash was used as a form of payment. Installment payments (46%) are widely used, with the parties often agreeing on installment payments of over 30% of the purchase price (73%). The most common reasons for installments are the financial constraints of the Buyer and the need for risk allocation.

The parties rarely use the opportunity to adjust the price at closing (22%). The available data do not yet provide a prevailing basis used for price adjustment, although net debt is used slightly more often than others.


*The Locked Box mechanism is not yet popular in Belarus. It has only been used in 3 transactions, with details only available for 2 of them: • In the first transaction, 3 months passed between reporting and the closing and permitted leakage was not provided. • In the second transaction, 3 to 6 months elapsed between reporting and closing, and permitted leakage included transactions in the ordinary course of business.

*A mechanism providing for calculation of the purchase price based on financial statements prepared on the agreed date prior to the signing of the contract, whereby the Seller guarantees the Buyer protection against a “leakage” of business value between the date of the financial statements and the closing date, except for “permitted leakage” agreed with the Buyer. When using the Locked Box mechanism on the closing date, only the presence of “leakages” is checked, while accounting reporting and price adjustments are not required.

In a relatively large number of cases the contract does not include representations and warranties (14%). If representations and warranties are used, they always include title representations and warranties.

*General knowledge qualification of the Seller’s representations and warranties *A general knowledge qualification of the Seller’s representations and warranties means that the Seller’s representations and warranties apply only to circumstances that are known (actual knowledge) or should be known (constructive knowledge) to the Seller. General knowledge qualification is used rarely.

Standard of Knowledge… If the general knowledge qualification is applied, the parties define knowledge in 50% of cases. Most often the definition is based on the standard of constructive knowledge.

Other limitations on representations and warranties of the Seller, including limitations based on the results of the due diligence or in accordance with the disclosure letter, are also used infrequently (in total in 29% of cases). A Disclosure Letter is a document in which the Seller discloses to the Buyer information about itself and the Target for limiting representations and warranties.

Timing of Closing Most closings took place in the second half of 2018. At the same time, the fact of a greater number of closings does not necessarily indicate higher M&A activity in the period.

In most cases (84%), closing is subject to conditions precedent. These conditions usually do not include the requirement of accuracy of representations and warranties. If such a requirement is present, it is most often relied on only by the Buyer.

The contract sets a long-stop date in about half of cases (47%). The closing period is relatively short and in most cases less than 2 months from the signing date (62%). At the same time, the parties often do not provide for liability for failure to comply with the conditions precedent (60%). (The long-stop date is a moment in time set for fulfillment of the conditions precedent. After the expiry of the closing period the obligation of the parties to close the transaction is terminated, and the parties are entitled to withdraw from the contract if the closing conditions have not been met.)

The parties rarely include the MAC/MAE condition (79%) in the contract, but if it is present, it can usually be relied on only by the Buyer (92%). Material Adverse Change / Material Adverse Effect – MAC/MAE entitles one party to withdraw from the contract before closing in the event of circumstances that have a significant negative impact on the Target or the transaction as a whole.

79% 21% Does the contract contain a MAC/MAE condition? No Yes 92% The parties generally do not establish a survival period of representations and warranties, and do not change the standard time for claims arising out of their breach (71%). If such a period is established, it will most often be 1-2 years (48%).

Carve-outs to general survival period of representations and warranties / claims established by the contract are also rare (17%) and most often apply to tax matters and to representations and warranties with respect to the title (referred to in 56% of the contracts providing for carve-out to the general term).

Baskets and De Minimis Baskets and de minimis were applied only in 19% of all transactions. When using baskets and de minimis, the parties usually agree on the possibility of collecting the full amount of claims, without deducting the size of the basket / de minimis. (De minimis is a limitation on the amount of the Buyer’s claims, setting the minimum allowable amount of an individual claim. Basket is a limitation of the total minimum amount of all claims that can be made against the Seller.)

Taking into account the small number of transactions in which baskets and de minimis were used, it is not possible to establish an objective pattern of use of certain amounts of basket and de minimis.

The parties usually do not agree on the maximum limit of the Seller’s liability (71%). If this limit is set, it is most often 100% of the purchase price, although a limit of less than 25% of the purchase price is also common. Exceeding the upper limit of the amount of liability can be admitted in case of intentional breach of representations and warranties or gross negligence by the Seller.

Sandbagging means the Buyer’s right to hold the Seller liable for breach of representations and warranties, even if the Buyer is aware of any inaccuracy or breach of representation or warranty at the time of signing or closing. It is not yet common in Belarus to include in the contract ‘sandbagging’ provisions limiting the Seller’s liability in the event of the Buyer’s knowledge.

Security for Seller’s Obligations Security for Seller’s Obligations was used only in 22% of cases. The most popular security measures were pledge (38% of transactions) and surety (31% of transactions). The parties never resorted to representations and warranties insurance.

A shareholder’s agreement was concluded between Seller and Buyer in relation to 24% of transactions. In 50% of cases, the parties preferred to submit a shareholders agreement under the law of one of the United Kingdom’s legal systems. This may be partly due to participation of the EBRD in some of the projects.

SHA Provisions

14% 14% 21% 29% 43% 43% 43% 43% 50% 57% 57% 64% 64% 64% Covenants. Non-Compete Obligations were included in the contract in 22% of cases. The normal duration of a non-compete obligation is 2-3 years (58%).

The obligation of non-solicitation is even rarer than the non-compete provision (14%) but is more common in transactions where the Target operates in the technology sector (50%). The normal duration of such obligation is 1.5-2 years. (Non-Solicitation Obligations -a provision under which the Seller and other persons (usually key employees of the Target) undertake not to solicit employees, customers, or suppliers from the Target or the Buyer after signing or closing.)

Usually a transaction lasts for 3-6 months from the beginning of active negotiations to the closing date (37%). In about 50% of cases, the start of active negotiations is marked by signing a letter of intent (47%).

Target due diligence is usually carried out only by the Buyer (67%); vendor’s due diligence is not so common (3%). The most frequent types of due diligence are legal (87%) and financial (61%).

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