Table Of ContentTewes
M&A and Privatisations in Poland
GABLER EDITION WISSENSCHAFT
Christiane Tewes
M&A
and Privatisations
in Poland
Key success factors of cross-border
acquisitions into the Polish market
With a foreword
by
Dr. Ruediger von Eisenhart-Rothe
Deutscher Un iversitats-Verlag
Die Deutsche Bibliothek -ClP-Einheitsaufnahme
Tewes, Christiane:
M&A and Privatisations in Poland: key success factors of cross-border acquisitions into the
Polish market / Christiane Tewes.
Mit einem Geleilw. von Ruediger von Eisenhart-Rothe. -1. AuA ..
-Wiesbaden : 01. Univ.-Verl., 2001
(Gabler Edition Wissenschaft)
ISBN 978-3-8244-7415-8 ISBN 978-3-322-99195-9 (eBook)
DOI 10.1007/978-3-322-99195-9
1 . AuAage Oktober 2001
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Foreword
This dissertation was a daring undertaking.
It takes a considerable amount of courage to write about a subject such as M & A,
which boasts of innumerable experts. It requires an even greater amount of courage
and perseverance to engage in this subject in an evolving and challenging environment
such as in Poland.
However, Christiane Tewes has proved the point again: nothing ventured, nothing
gained.
For several years now, she has been successfully leading numerous M&A and
privatisation projects in the Polish cross-border area and has circumnavigated the
multifarious challenges connected with this task. This experience, corroborated by her
postgraduate studies, enabled her to extract the key factors relevant for successfully
managing and completing M&A transactions in Poland.
The message is clear: only with a high degree of discipline, self-discipline and hard
work combined with patience is there a chance to be successful in a business as
"glamorous" as M&A is generally considered to be.
Business ideas are crucial; they form the foundation for success. Ultimately,
however, success depends on the "implementers", the "transactors", the "doers". They
are the ones who have to make the ideas work in different business and legal
environments with people of the most diverse upbringing, education, culture.
The most basic tool for conducting business of any kind - communication - already
presents a great challenge here: most of the parties involved are communicating in a
language that they have not grown up with and therefore the potential for undesirable,
wrong messages and equally misunderstood information is huge. Still, a foreign
language has to be used when conducting the essential valuation and due-diligence
phase, where further unknown obstacles may be encountered, and to negotiate the
subtleties of a purchase agreement, including the potential consequential changes in
operations with respect to the business entity in question.
In many ways such a business entity is like a living creature that has grown over the
years according to its own rules, most of them unwritten, i.e. in its own "corporate
culture" in a country which for more than a generation has conducted its affairs in
ways quite different to ours in the "West".
Christiane Tewes has shown, how fascinating the work of a "transactor" can be -
and how much aggravation has to be coped with. A professional transactor is
characterised by a very open mind for things that are different and a willingness to
VI Foreword
really learn about and appreciate and to absorb and to live with a large number of such
differences. Experienced professional will also agree: the proper mindset has to be
combined with a highly disciplined approach in order to ensure success - not only with
respect to the consummation of the acquisition. Ms Tewes correctly emphasises that
the same qualities are required in order to live successfully with the acquired company
for, hopefully, many years to come.
The readership targeted by this book will understand that the approach which has
been described is not only relevant to conducting business with our neighbour Poland.
The same set of issues, albeit with differing relevance and priority, will have to be
addressed in different political, economic, cultural and regulatory environments.
Dr. Ruediger von Eisenhart-Rothe
Executive Vice President
Commerzbank AG
Acknowledgements
I would like to express my special thanks to all who have contributed to the
completion of this dissertation. In particular, I would like to make the following
acknow ledgements:
This dissertation took an enormous amount of my private life during the last 12
months, and I would like to thank, above all, my family for their patience and
understanding during the ups and downs of that time.
As regards the completion of the work, I would like to thank, in particular, Justine
Pyka for her great support and advice. She was probably the person who motivated me
the most to lead this dissertation to a successful finish.
I would also like to thank all friends, colleagues and business partners who
contributed to the primary research. Only thanks to their readiness to share their great
experience and know-how this dissertation could be worked out.
Also special thanks to my tutor John Mannering for his valuable advice. Especially
in the end of the dissertation, his continuous availability as regards my great number of
questions was very helpful and very much appreciated.
I would also like to thank Sheryl Sundell for taking the time and care of proof
reading.
Finally, I would like to thank my boss Uwe Jenssen for his understanding and
motivation to complete this dissertation despite our very intensive advisory job.
Christiane Tewes
Executive Summary
The purpose of this dissertation is to describe the complexity of cross-border
mergers&acquisitions into Poland, linking the actual M&A transaction with the
sensitive privatisation processes and the specific political, economic and cultural
background of Poland, and to identify what the key success factors in M&N
privatisations are for the country. This dissertation is meant to serve as a focused
guideline on key success factors of M&A in Poland - from a Western point of view
for advisors, investors, colleagues, students andlor other individuals interested in that
area.
M&A and privatisation transactions in Poland are very complex and sensitive. To be
successful in Polish privatisations, investors not only need expertise in how to proceed
with an M&A transaction as part of a privatisation, but they also have to be aware of
the specific characteristics of Polish business culture. "Act locally" is especially true
in Poland.
The Polish political, economic and legal background set the framework for
acquisitions in Poland. Only 10 years ago, Poland experienced the recovery of political
and individual freedom, free presidential and parliamentary elections and subsequent
external political autonomy, and the introduction of a market economy. Despite
frequent changes in Government, Poland has managed to maintain political stability,
creating the basis for its economic development and encouraging foreign investors to
enter this large market with long-term perspectives. Poland, being a converging
economy, is the most attractive investment location in CEE today, and targets
European Union membership in medium term.
Poland's privatisation programme is a key element of the Government's economic
policy, ensuring a fast and long-term economic growth. Furthermore, privatisation is a
key condition for EU membership. The revenue from privatisations is allocated for the
implementation of various important economic and social programmes. Privatisation
methods comprise, among others, the crucial capital privatisation, which includes the
privatisation of large Polish companies (through commercialisation) by trade sale or
public offering to (generally strategic) investors. Investors must be aware of the
complex privatisation procedures so as to be able to fulfil all the legal requirements as
a basis to acquisition success.
Furthermore, investors require expertise at each step of an acquisition. A 5-phase
acquisition model has been shown to be an applicable theoretical framework for Polish
acquisitions, including strategy, search-and-screening, valuation, execution and post-
x Executive summary
acquisition integration. The findings from secondary and primary research identify a
large number of key factors in each of these acquisition phases to be successful in
cross-border acquisitions in Poland's privati sing industries. Key success factors are
linked to the actual M&A and privatisation activities, but also to investors' behaviour
within the sensitive privatisation processes.
With regard to the strategy-phase, it is essential that an investor's acquisition
strategy towards Poland meets corporate objectives of value-creation in the long term.
An acquisition is not a target in itself, but rather an instrument for reaching the
company's strategic objectives. Hence, the type of market entry, market entry
objectives, strategic positioning and the timing have to be well analysed. When
formulating the strategy for Poland, investors should consider the specific
characteristics of the local Polish market. The key to success here is to adapt to a
market which is completely different than that in Western Europe and to understand
the Polish way of doing business. Expertise and know-how in dealing with Polish
M&A and privatisations are keys to success, which are reflected throughout the entire
acquisition process.
As for any acquisition, the search-and-screening phase is the time to become
familiar with the local business, to investigate thoroughly and to assess specific
synergies. Here, the key to success is reliable and current information about the Polish
target and its market environment. Hence, investors have to identify appropriate
sources of information, which are - according to research results - industry insiders
and lobbyists who have established a crucial relationship-know-how-network to all
parties involved in a privatisation, from the Ministry of State Treasury as the seller, the
management of the Polish company, to employees and trade unions, and others. Given
the lack of any relevant data from Polish industries, primary research plays another
key role in the important process of information gathering. Obtaining reliable
information which can contribute to strategic decision-making and finding ways to
cope with the complexity and uncertainty of the rapidly changing markets present a
real challenge. A serious analysis of one's own strengths and weaknesses as compared
to local and foreign competitors helps in better evaluating the chances of success with
regard to a planned acquisition.
The valuation-phase serves to thoroughly evaluate the Polish company in order to
define the maximum purchase price according to valuation methods such as
discounted-cash-flow analysis. The key to valuation is reliable data about the target,
and assumptions must be based on local market knowledge. While the acquirer's
primary objective is to achieve a purchase price which is lower than the overall target
value in order to create an added value through the acquisition, the (high) bidding
price is crucial to succeed in a competitive tender, as price is the dominant key
Executive summary XI
criterion as regards the Government's evaluation of the offer. Generally, price
expectations on the part of the Polish business partners are much higher than investor's
perceptions of the value of the Polish company. However, competition is the driving
force in Polish price spirals, and the Polish "take-it-or-Ieave-it" approach calls any
serious valuation into question, as long as there are competitors who are willing to pay
more. Hence, the key question here is what the buyer is willing to pay for the targeted
market position. Overall, the final price is subject to negotiation.
The execution-phase is one of the most crucial and sensitive phases of an acquisition
in Poland. It is essential, on the one hand, to elaborate the right price-method package
and, on the other, to develop the right mix of action and patience, flexibility and
perseverance, and the right feeling for the diverging interests, expectations and
negotiation powers of all parties involved. Acquisition strategy and tactics are often
more a question of how to achieve a pole position in the overall race than of the pure
price-method package. In the crucial relationship network, contacts to the State
Treasury as the seller and to the management of the target company represent keys to
success. In this context, investors have to be aware that they may have to walk a
tightrope between legal and illegal activities as regards the so-called "other
incentives" .
Reliable information is another key to success in this phase. In practice, due
diligence does not always contribute to investors' overall evaluation of the company
due to time restrictions and inappropriate official procedures. Furthermore, proper
documentation is another important key to acquisition success.
Generally speaking, flexibility, perseverance, patience and time are key
characteristics which investors should have when entering the Polish market through a
planned acquisitionlprivatisation. While in private deals, efficient time management is
a key to success (the faster, the better), in privatisations, the key is not to be under time
pressure, as the possibility of influencing the process is very limited.
The post-acquisition phase should ensure that value-creation potentials - through
synergies and restructuring measures -have been reached. To process the strategic and
operative turnaround, it is essential to obtain the Polish management's co-operation. In
order to maintain focus, individuals should be assigned integration tasks and be given
responsibility, time frames and incentives to achieve their integration objectives. The
willingness to devote substantial resources to the integration is a prerequisite for
success.
Cultural differences have to be considered throughout the entire acquisition, but
especially during integration. A key message for investor's activities in Poland is that
all business is Polish. Hence, investors must walk the tightrope between the necessary
