Mergers & Acquisitions

Generally, private M&A transactions are either share deals (ie, the acquisition of shares in a company) or asset deals (ie, the acquisition of assets from a company or individual). Occasionally, deals are structured as:

• mergers (ie, either one company absorbs the other or both companies dissolve and form a new entity); or
• joint ventures (ie, a new company is established by the parties in order to pursue a particular project or develop a new business line).

With regard to public M&A transactions, the process is highly regulated. It can take one of the following forms:

• Takeover offer: The buyer makes an offer to the shareholders of a listed company to acquire their shares (such offer can be voluntary or mandatory, according to the law, if the buyer holds, directly or indirectly, at least 33% of the voting rights in that public company).
• Merger: Public companies can also merge, but the process is more complex due to the applicable regulatory requirements.

There is no perfect structure, as each M&A structure has its own set of complexities, so careful consideration of the financial, tax, regulatory and legal implications is required.

Acquiring shares is often simpler than buying assets, as it ultimately involves transferring the ownership (fully or partially) of the target. The business continues to operate without interruption, as all contracts, licences and permits remain with the company (with the observance of any potential change of control obligations undertaken by the target before the deal). However, the buyer inherits all of the company’s liabilities, including:

• (known and unknown) debts;
• legal issues; and
• contingent liabilities.

Moreover, if the acquisition is not for 100% of the share capital, dealing with minority shareholders might be an additional challenge for the acquirer.

In case of asset deals, the buyer can choose the specific assets it wants to acquire, avoiding unwanted past obligations and potential liabilities. On the other hand, asset purchases are more complex, requiring more detailed contracts – especially to individualise the assets (or class of assets) to be transferred from the seller to the buyer. Additional formalities may also be mandatory for the transfer of specific assets. For instance, in the case of real estate assets:

• the contract must be executed before a notary public; and
• certain publicity formalities must be performed.

For certain assets (eg, trademarks), one could argue on their valuation (for tax purposes), as they are intangible assets.

Usually, there are four main factors that strongly influence the structure of the deal:

• strategic/business factors;
• tax considerations (in most cases, tax efficiency is a key driver);
• the findings of the due diligence; and
• regulatory constraints (eg, if certain permits or authorisations cannot be transferred or can be transferred only through a lengthy and complex procedure).

During the initial preparatory stages of an M&A transaction, several key documents are typically prepared and entered into, such as the following:

• Non-disclosure agreement: Also known as a ‘confidentiality agreement’, this document is used to protect sensitive information that will be shared during the M&A process.
• Letter of intent: This document outlines the indicative terms and structure of the proposed transaction and can also contain exclusivity or confidentiality terms.
• Process letters, transaction roadmap, memoranda, presentations on the target’s activity and assets.

These documents serve as the foundation for the M&A process, providing a framework for the negotiation and due diligence stages that follow. However, the specifics can vary based on the individual circumstances of the companies involved in the M&A transaction.

Under Romanian law, break fees (by both parties) are permitted, but are rarely used. Under the Civil Code, the parties must act in good faith both when negotiating and concluding the agreement and throughout its performance. This obligation may not be waived or limited in any way.

A party that initiates, continues or breaks off negotiations contrary to good faith is liable for the damage caused to the other party. In determining such damage, the expenses incurred in the negotiations, the other party’s withdrawal of other offers and any similar circumstances will be taken into account. However, in practice, it is rather difficult to prove the exact amount of such damages.

Most transactions in Romania are financed through equity and loans contracted from financial institutions. Other form of financing (eg, bonds) are rare.

Legal, tax and financial advisers are most commonly involved in the preparatory stages of a transaction. Additionally, depending on the specifics of the transaction and the target’s business, technical or commercial consultants may be involved.

With regard to stakeholders, it is recommended to involve executives as well as business specialists who can spot potential red flags and take prompt decisions from a business perspective.

The target can pay its own advisers if such advisers have worked in the interests of the target during the transaction – for instance, for the execution of any pre-closing reorganisation or other endeavours.

However, the target must not pay the advisers of the buyer. This is prohibited by Article 273(c) of the Companies Law (31/1990), which regulates the notion of financial assistance. According to this legal provision, a target joint stock company cannot grant loans, make downpayments or create guarantees in order to facilitate the subscription or acquisition of its shares by a third party (ie, the buyer involved in the transaction).

The target also should not pay the fees of the seller’s advisers. More precisely, the Companies Law prohibits a founder or an executive officer from using the funds of the company in its own interest.

Both infringements mentioned above are considered criminal offences, according to the Companies Law. If the parties wish to make arrangements regarding the payment of advisers’ costs, these should be reflected in the price of the deal.

The scope of work usually depends on the business of the target and the envisaged structure of that transaction. However, the following aspects are usually involved in most due diligence exercises.

(a) Corporate

• Title over the shares, including the seller’s capacity to sell the shares and rights of third parties that might affect the transaction (eg, mortgages);
• Constitutional and corporate documents of the target, including shareholders’ agreements, as well as compliance of the documents with the applicable laws; and
• The target’s filings with the Commercial Registry Office and potential errors in the target’s records.

Some of this information is available through the web portal of the Commercial Registry Office.

Commercial

• Key terms and conditions of commercial agreements, especially any unusual or unbalanced clauses, such as non-compete clauses or excessive penalties;
• Risks and liabilities stemming from default situations; and
• Change of control or other clauses that may have an impact on the transaction (eg, material adverse change or hardship clauses).

(b) Financial

• Key terms of financing agreements;
• Shareholder loans, intra-group loans and cash-pooling agreements;
• Upstream, downstream or cross-stream guarantees, as well as joint liability with entities which will not be part of the group after closing; and
• Default situations and associated risks and liabilities (eg, acceleration of debt, increased financial costs and loss of collateral).

Part of the relevant information regarding mortgages over immovable assets is available in the public records kept by the competent Land Book Office; while information regarding mortgages over movable assets can be found online on the website of the National Registry of Movable Property.

(c) Litigation

• Litigation in which the target is involved and the likelihood of success, as well as the target’s exposure;
• Threatened or potential lawsuits or claims; and
• Pending investigations or inquiries from public authorities.

Limited information (ie, docket number, parties, object of the dispute, summary of the court decision, if available) regarding litigation if available on the website of the Romanian courts.

(d) Tax

• The historical tax compliance of the target;
• Past, existing or threatened tax audits or disputes; and
• Tax liabilities and contingencies, as well as tax exposures.

(e) Employment

• Unlawful (collective) dismissals or internal restructurings;
• Key employee relationships; and
• Non-compete clauses, golden parachutes etc.

(f) IP and IT

• Material documentation of IP portfolio (patents, trademarks, designs), whether owned or licensed by the target;
• Fulfilment of necessary registration formalities to secure IP rights; and
• Changes of control in IP agreements and conditions for the transfer of IP rights.

Usually, where the target is a software development company, the IP section of the due diligence is critical. Therefore, the buyer should pay close attention to the rights of the target to ensure that it can use, develop and obtain proceeds from the software developed by the target.

(g) Data protection

• Data processing and handling practices of the target, including data collection, storage, use and disposal;
• The target’s policy and procedures on data protection, operational infrastructure and data security measures;
• Data transfer mechanisms; and
• Privacy impact assessments performed by the target.

(h) Cybersecurity

Due diligence on cybersecurity is mostly carried out from a technical perspective, assessing the processes, solutions and practices used to secure the target’s information, assets and data, as well as the incident history of the target, in order to identify and remediate any weaknesses.

From a legal perspective, the due diligence should point out any non-compliance with the provisions of the applicable laws relating to the security of networks and information systems – in particular, Law 362/2018, which transposed the First Network and Information Systems (NIS) Directive 2016/1148 – applicable to operators of essential services and digital service providers – into national law. However, specific regulations may apply to certain situations.

Romania is currently in the process of transposing the new EU NIS2 Directive, which:

• expands the scope of application of its predecessor, NIS1 to a wider range of sectors; and
• increases the regulatory oversight.

Accordingly, future due diligence analyses should consider the measures implemented by a target to adhere to this new set of rules.

(i) Real estate

• Ownership title and potential issues which may affect it;
• Encumbrances on real estate assets (eg, mortgages, liens);
• Fulfilment of the required land book formalities for the real estate owned/used by the target; and
• Leases concluded by the target, including landlord-tenant matters (eg, relationship, obligations, payment terms).

Multiple public sources are commonly examined as part of the due diligence exercise in Romania, as follows:

• Commercial Registry Office: The database of the Commercial Registry Office contains information on companies, such as:
• • identification details;
  • legal form;
  • status;
  • registered office;
  • shareholders;
  • corporate bodies;
  • share capital;
  • ultimate beneficial owners; and
  • financial information (eg, turnover, number of employees, gross profit or loss).
• Some of this information is free of charge, while other information is available for a fee (around €6).
• Insolvency Proceedings Bulletin: This contains information on companies in the course of insolvency proceedings, such as:
• • communications;
  • creditors’ meetings;
  • court rulings; and
  • other procedural documents issued in this type of proceedings.
• National Registry of Movable Property: This can be accessed to verify:
• • the priority of different securities on movable property; and
  • the publicity formalities of different legal documents and operations in connection with movable property.
• Land Book: This contains information on real estate, such as:
• • technical details;
  • identification details of the current and previous owners;
  • limitations applicable to that asset, such as easements or mentions in relation to the pertaining of the assets within special categories, which may require the completion of some legal pre-emption procedure;
  • legal procedures or different liens in connection with a certain immovable asset (eg, lease agreements, mortgages).
• Ministry of Finance website: This contains simplified financial information (eg, the value of the target’s assets, receivables, cash on hand, debt, turnover, profit or loss), based on year-end financial statements.
• Online registers kept by the State Office for Inventions and Trademarks in fields of trademarks, designs and patents at a national, European or international level: These contain information such as:
• • the registered IP rights;
  • the name of the owner;
  • the registration/grant date; and
  • the period of validity.
• In relation to trademarks, independent research can also be conducted through the websites of the EU Intellectual Property Office and the World Intellectual Property Organization.
• The Romanian courts’ web portal: This provides information on finalised or pending litigation in the Romanian courts, such as:
• • the parties;
  • the subject of the litigation;
  • the status of the case;
  • dates for hearings; and
  • court rulings.
• Bucharest Stock Exchange website: This contains information on public companies, such as:
• • details of different events whose disclosure by issuers is mandatory; and
  • certain financial information.

The simple answer is no. Usually, the buyer conducts the due diligence with a team (consultants) of its choice. However, the seller sometimes prefers to prepare a vendor due diligence report (in order to streamline a potential transaction or bring more potential buyers to the negotiation table). From the seller’s perspective, vendor legal due diligence also has the benefit of identifying beforehand any issues that may lead to a decrease in the price or derail the deal. This gives the seller the chance to mitigate (in whole or at least in part) such risks. Where vendor due diligence is prepared, the reliance and liability cap are negotiated on a case-by-case basis.

Depending on the parties involved in the deal (eg, revenue, sector of activity), one or more regulatory approvals may be needed for the transaction to close. The most common regulatory approvals provided for under Romanian law include the following.

Competition clearance: Competition clearance is required if the following cumulative thresholds (in lieu equivalent) are met in the year preceding the completion of the deal:

• The cumulative turnover of the involved parties exceeded €10 million; and
• At least two of the parties involved in the transaction individually earned a turnover of more than €4 million in the territory of Romania.

In order to determine the equivalent in lieu, the exchange rate is that communicated by the National Bank of Romania for the last day of the year preceding implementation of the transaction.

FDI screening: Most transactions (both share and asset deals) will be subject to foreign direct investment (FDI) screening. This procedure is carried out by the Commission for Examination of Direct Foreign Investments (CEISD). FDI must be notified if:

• it affects the fields of activities set out in Article 2 of Decision 73/2012 of the Supreme Council of National Defence (CEISD) (eg, energy security; transport; supply of vital resources); and
• its value exceeds €2 million, calculated based on the exchange rate communicated by the National Bank of Romania for the last day of the financial year preceding implementation of the transaction.

However, FDI which does not exceed the threshold of €2 million may also be subject to examination and approval by CEISD if, based on its nature or potential effects, it might have an impact on security or public order or present a risk in that regard. This provision means that the scope for FDI screening is vast, making almost every investment eligible for screening (in order to avoid potential fines).

National Bank of Romania: Share deals, spinoffs and mergers involving Romanian credit institutions are possible only if prior written approval is obtained from the National Bank of Romania.

Financial Supervisory Authority: Mergers involving public companies and those active in the fields of private pensions and insurance require prior approval from the Financial Supervisory Authority. However, the specifics of a transaction in this field must be assessed on a case-by-case basis.

Approvals related to permits held by the target: Permits held by the target must be reviewed to determine whether:

• their validity is affected by a potential change of control; or
• certain procedures (eg, pre-closing approval, post-closing approval from the issuing authority) must be carried out before or after finalisation of the transaction.

For example, holders of environmental permits must inform the Environmental Authority of the proposed change of control before and after closing of a transaction.

The authorities which are most commonly involved in M&A transactions in Romania include the following:

• The Romanian Competition Council oversees all transactions with the potential to impact a normal competitional environment. It decides whether proposed transactions are compatible with a normal competitive environment.
• The CEISD supervises and carries out the screening procedure for FDI.
• The National Bank of Romania is consulted and, depending on the particularities of the transaction, is requested to issue a positive approval of transactions involving credit institutions.
• The Financial Supervisory Authority is the responsible authority in case of transactions involving private pensions and insurance companies.

Depending on the sector of activity of the target, other authorities may also have supervisory powers. For instance:

• the National Agency for Mineral Resources oversees transactions involving targets active in the mining field; and
• the National Energy Regulatory Authority supervises electricity and natural gas-related transactions.

Certain factors must be taken into consideration when it comes to taxation. For example, it is important to clarify matters such as whether:

• the involved parties are natural or legal persons;
• the deal is an asset or share deal;
• the parties are Romanian tax residents; and
• any double taxation exemption treaties apply.

Capital gains earned by Romanian natural persons as a result of a share transfer are subject to a 10% tax. For resident legal entities, capital gains are subject to a 16% tax and are included in their ordinary revenue/profits. With respect to non-resident legal entities, the taxation of capital gains must be performed in accordance with the applicable double taxation exemption treaty. Share transfers are outside the scope of value added tax (VAT), so no VAT will be levied.

In case of asset transfers, VAT at a rate of 19% also applies. However, no VAT should be invoiced if the asset transfer qualifies as the transfer of a going concern.

In general, share and purchase agreements (SPAs) contain the following categories of warranties:

• fundamental warranties, which usually refer to the seller’s capacity, authority and title over the sold shares or asset; and
• business-related warranties, which include:
• • the target’s good standing from a tax perspective;
  • the target’s compliance with applicable law (with a special focus on regulatory requirements);
  • the target’s good standing in relation to contractual partners;
  • employment matters; and
  • litigation.

Specific indemnities are also usually included in SPAs. Such indemnities mainly cover tax risks and those risks identified by the buyer during the due diligence which are unacceptable to the buyer, albeit that the possibility of those risks materialising is not certain at the time of closing.

Customarily, the breach of a warranty in the period between signing and closing may entitle the non-culpable party to withdraw from the transaction. After closing, if a breach of a warranty occurs, the damaged party may claim the loss in accordance with the terms of the agreement.

Limitations commonly apply to warranties, but in general do not apply to specific indemnities. The following limitations are usually negotiated by the parties:

• the maximum liability of the seller for breach of the seller’s warranties (expressed as a percentage of the purchase price or precise amount);
• time limitations (different thresholds apply to fundamental warranties from those applicable to business-related warranties);
• the minimum value of claim(s); and
• no possibility of double recovery, meaning that no party is entitled to recover more than once in respect of any losses, irrespective of whether such loss is the result of a breach of more than one warranty.

However, the most effective liability limitation remains disclosure. Typically, the underlying matters disclosed to the buyer allow the seller to disclaim liability for a corresponding breach of warranties.

While it is possible for buyers to take out insurance to cover potential damages caused by a warranty or indemnity breach, this practice is not common.

There are several methods, depending on the structure of the transaction. If the seller sells only some of its shares in the company, the parties may agree on a pledge on the remaining shares of the sellers. The parties also commonly agree on an escrow account mechanism or even for the buyer to retain part of the price. Such mechanisms have limited validity – usually between six and 24 months.

The most common restrictive covenants are:

• non-compete covenants, under which the seller is generally forbidden from competing with the target; and
• non-solicitation covenants, under which the seller is generally forbidden from:
• • soliciting or endeavouring to solicit business from any clients of the target; or
  • soliciting, employing or enticing away, or attempting to employ, solicit or entice away, key employees of the target.

These restrictive covenants may also apply to the affiliates of the seller.

With respect to timeframes, restrictive covenants must comply with the applicable legal framework. Non-compete covenants should always adhere to the applicable competition legislation and a restrictive timeframe of one to two years is customary. The same timeframe is usually used for non-solicitation covenants.

If transactions have a timeframe between signing and closing, it is common practice to include a MAC clause in the SPA and for the warranties to be repeated on the closing date (after they have already been offered by the seller at signing). Most SPAs also include clauses that regulate the rules of management of the business between signing and closing (so-called ‘interim covenants’).

While the preliminary steps in a public transaction are similar to those applicable in private deals (ie, preliminary financial and market analysis; identification of potential targets; initial approach of the target), public deals are subject to more stringent regulations and require adherence to specific requirements.

Public offers in the capital markets are broadly categorised into two main types:

• takeover bids (initiated by a bidder which offers to buy shares of the target); and
• public offers for sale (ie, the sale of existing shares by major shareholders or the company itself to the public). These can be:
• • voluntary (usually used by shareholders or the company to raise capital and improve liquidity); or
  • mandatory (required by regulations to ensure compliance with minimum public shareholding norms or other regulatory requirements).

The key milestones for both types of public offers are as follows:

• Approval from the Financial Supervisory Authority (FSA): The offer document and the preliminary announcement in case of a takeover bid, or the prospect in case of a public offer for sale, are subject to the approval of the FSA. As a general rule, the documentation is approved by the FSA within 10 days of registration.
• Publication: Subject to and following the approval of the FSA, the offer document and the preliminary announcement or the prospect are published, as this is the moment when the offer becomes irrevocable.
• Validity period of the offer: The public offer remains valid for the period specified in the documentation. In case of a takeover bid, the offer period must be valid for no less than 10 working days and no more than 50 working days. In case of a public offer for sale, the offer period must not exceed 12 months. The offer period may be closed in advance or extended, if necessary and allowed by the relevant regulations and documentation.
• Acceptance and closing conditions: During the offer period, the acceptance level is monitored. If the conditions of the offer (eg, minimum acceptance level) are met, preparations for closing may commence.
• Regulatory and competition approvals: Depending on the size and nature of the transaction, additional regulatory approvals, such as those outlined in question 4.1, may be required.
• Settlement and transfer of shares: Upon successful closing of the offer, the settlement process begins, which includes the transfer of shares and payment to the tendering shareholders. This process typically takes a few days post-closing.
• Post-transaction filings: After the transaction is completed, notifications of the transaction’s completion must be submitted to the relevant authorities, including the FSA. Additionally, the results of the offer must be publicly announced to inform all stakeholders of the outcome.

Stake-building is allowed, subject to the following requirements:

• Notification of major holdings: Where a buyer’s stake reaches, exceeds or falls below certain thresholds (5%, 10%, 15%, 20%, 25%, 33%, 50% or 75% of the voting rights), the buyer must notify the FSA and the target. This disclosure must be made in writing and without delay, but no later than four days after the acquisition or disposal of shares. As an exception, in specific situations, such notification is not mandatory (eg, where the shares are bought by the parent company or in case of a privatisation process).
• Mandatory takeover bid: A mandatory takeover bid is triggered where a shareholder acquires more than 33% of voting rights in a company. The said shareholder must then make an offer to purchase the remaining shares in order to protect the minority shareholders. The mandatory takeover bid must be issued as soon as possible after reaching the threshold and in any event within two months of that date.
• Offer documentation: All acquisitions must be transparently reflected in the public offer documentation submitted to the FSA and disclosed to the market. This ensures that all shareholders are aware of the buyer’s intentions and actions;
• Proper conduct: Compliance with insider trading and market abuse regulations is essential.

The squeeze-out of remaining minority shareholders and their corresponding sell-out rights are well defined under the Romanian capital markets law.

Squeeze-out right: This right may be exercised if, following a public offer addressed to all shareholders of a target and for all of its shares, the bidder:

• holds at least 95% of the voting rights of the target; or
• acquired at least 90% of the target’s shares during the public offer.

Within three months of closing of the public offer, the majority shareholder may request the minority shareholders to sell their shares at a fair price. The process involves:

• obtaining the FSA’s approval;
• ensuring compliance with legal requirements; and
• protecting minority shareholders’ interests.

On completion of this procedure, the shares will be withdrawn from trading.

Sell-out right: The sell-out right may be exercised if the thresholds specified above for the squeeze-out rights are met. In such case, the minority shareholders can initiate the sell-out process, requiring the majority shareholder to purchase their shares. Similar to the squeeze-out provisions, the price in a sell-out must be fair and reflect the shares’ market value.

Rights of minority shareholders: Some of the most important rights of minority shareholders in a traded company are as follows:

• Right to information: Minority shareholders have the right to receive comprehensive information about the company’s financial status, management activities and major transactions. This includes access to annual and interim financial reports, board meeting minutes and other relevant documents.
• Rights in relation to general meetings of shareholders: Shareholders holding at least 5% of the share capital have the right to:
• • ask the general assembly to convene a general meeting (if such right was granted by the constitutive deed); and
  • propose new items for the agenda.
• Right to request additional reports: Shareholders holding at least 5% of the voting rights are entitled to request the target’s financial auditor for additional reports on certain operations of the target. The auditor must comply with the request within 30 days.
• Protection against abusive actions: Minority shareholders are protected against actions of the majority that may be deemed oppressive or unfairly prejudicial. This includes the right to challenge resolutions that are unlawful or harmful to their interests.
• Legal remedies: Minority shareholders can seek legal remedies in cases of misconduct, fraud or breach of duties by the company’s management or majority shareholders. This includes the right to file a suit on behalf of the company.

In case of a takeover bid, the file submitted to the FSA must also include proof of a guarantee deposit. This deposit must:

• represent at least 30% of the total value of the offer; and
• be deposited in a bank account of the intermediary.

Alternatively, a letter of guarantee issued by a credit institution within the European Union or by a non-bank financial institution listed in the special register maintained by the National Bank of Romania can be provided. This letter of guarantee must:

• cover the entire value of the offer;
• be issued in favour of the intermediary; and
• remain valid until the settlement date of the transaction related to the offer.

The delisting of a company may occur in four scenarios, the most common of which are as follows:

• Delisting as a result of the extraordinary general meeting of shareholders’ decision: In this scenario, the following conditions must be cumulatively met:
• • In the 12 months preceding the date of the convening notice, no more than 50 transactions were recorded and the traded shares represent no more than 1% of the total shares of the target; and
  • The shareholders opposing the delisting must be granted the right to withdraw from the company and receive appropriate compensation for their shares.
• Delisting as a result of the squeeze-out procedure: See question 6.3.

While bumpitrage is a recognised tactic in various global markets, it is not yet common in public offers in Romania. However, in case of a takeover bid, any person may launch a counteroffer for the same shares, subject to the following conditions:

• The counteroffer must have as its object at least the same number of shares or aim to achieve at least the same participation in the target’s share capital; and
• The price mentioned in the counteroffer must be at least 5% higher than that in the initial offer.

The counteroffer must be submitted to the FSA within 10 business days of publication of the initial offer and the FSA will issue its decision within 10 business days of registration.

If it approves the counteroffers, the FSA will set:

• the same closing date for all offers; and
• a deadline by which price increases in competing offers can be submitted for authorisation.

The consideration under a takeover bid must meet the following minimum levels, depending on the type of the takeover bid (ie, voluntary, mandatory or counteroffer), in order to ensure fairness and protect minority shareholders:

• In a voluntary takeover bid, the price must be at least equal to the highest of:
• • the highest price paid by the bidder or persons acting in concert with the bidder in the 12 months prior to submission of the takeover bid to the FSA;
  • the average trading price over the 12 months preceding the takeover bid documentation submission; or
  • the net asset value.
• Mandatory takeover bid:
• • Highest price paid: As a general rule, the price must be at least equal to the highest price paid by the bidder or the persons acting in concert with the bidder for the shares of the target in the 12 months prior to submission of the takeover bid to the FSA.
  • Alternative valuation methods: If neither the bidder nor persons acting in concert with it have acquired shares in the target in the 12 months prior to the submission date, or if the FSA determines that the highest price paid does not accurately reflect the fair value of the shares, the price should be at least equal to the highest value determined by an authorised evaluator appointed by the bidder, considering one of the following:
  • • the average trading price;
    • the net asset value; or
    • the expert valuation.
• In case of a counteroffer, the consideration should be at least 5% higher than the consideration offered in the initial offer.

Although conditional takeovers are not expressly set out in the Romanian capital markets law, bidders can include MAC clauses in the offer documentation, although such clauses are subject to the FSA’s approval. Nonetheless, such clauses should:

• be clearly disclosed in the offer document, in order to ensure that shareholders understand the circumstances under which the bidder might withdraw the offer;
• be objectively determinable; and
• not affect the market integrity.

In Romania, the use of irrevocable undertakings in public takeovers is not as customary as in some other jurisdictions. However, such irrevocable undertakings may be strategically used to demonstrate committed shareholder support, thereby enhancing the credibility and attractiveness of the offer.

The phenomenon of hostile takeovers, while well established in the United States and other mature markets, is less common in Romania. Currently, no distinction is made between hostile takeovers and voluntary takeovers in the Romanian legislation.

However, this situation might change given that Romanian companies are now listed on both national and international stock exchanges and are attracting more attention from foreign investors, including large institutional investors and hedge funds, that may consider takeover strategies. In addition, the regulatory framework in Romania, as it continues to align with EU standards and best practices, may create a more favourable environment for mergers and acquisitions, including hostile takeovers.

Hostile takeovers are subject to the general rules set out in question 7.1.

Defensive measures which may be taken before or after a bid is launched include:

• setting higher decision-making limits in the company’s articles of association;
• including certain benefits in management contracts (eg, ‘golden parachutes’);
• using authorised capital to carry out a share capital increase or a share buy-back programme; and
• identifying another investor (‘white knight’) that can make a competing offer.

However, the management’s actions must be in the interests of the company, which prevents them from acting for the sole purpose of avoiding a possible takeover bid (eg, by transferring assets or restructuring the target to frustrate the possible takeover bid).

Based on public information, approximately 240 M&A transactions were conducted on the Romanian market in 2023 with a total estimated value of $7.1 billion. On a year-on-year basis, this represents a 6.1% increase in estimated value ($6.6 billion in 2022), but a 6.2% reduction in the number of deals conducted (257 in 2022). In contrast to both regional and global markets, the Romanian M&A market continued to increase in 2023 and this trend remains ongoing into 2024.

Strategic investors have maintained their predominant role in the local M&A market, accounting for 88% of transactions in 2023 by volume.

The most active sectors are energy, industrial products and services and real estate, which together accounted for more than 50% of the volume and value of transactions announced in the first quarter of this year. Notable M&A transactions in the last 12 months included:

• the acquisition of Profi Rom Food by Ahold Delhaize, a major player in the global food retail market, from private equity fund MidEuropa LLP for $1.4 billion;
• the acquisition of Enel Romania by Greek energy group Public Power Corporation for $1.3 billion;
• the acquisition of Alpha Bank’s Romania unit by Italy-based Unicredit for $319 million;
• the acquisition by M Core Property HQ of 25 retail parks owned by Mitiska REIM for $236 million – one of the largest transactions ever recorded in the local commercial real estate sector; and
• the acquisition of Vel Pitar by Grupo Bimbo for $210 million.

The Romanian market has demonstrated remarkable resilience and adaptability in 2024, continuing its upward trajectory from previous years. The year commenced with significant activity across various sectors, including notable transactions in the industrial, real estate and energy sectors.

Additionally, an important consideration for investors is that Romania’s M&A market is still relatively young and stable, presenting more appealing investment prospects than those available in more mature markets.

The most significant change in relation to foreign investments for 2023 was the expanded scope for the approval of foreign direct investment in Romania, which now also covers EU investors that meet certain criteria. This implies that any investment exceeding the specified threshold in a sensitive sector (the list of sensitive sectors remains unchanged) will now require notification, regardless of the investor’s country of origin.

The smooth closing of M&A transactions requires meticulous planning, clear communication and a comprehensive understanding of the deal’s complexities.

Here are some top tips for ensuring a smooth closing process:

• Expert assistance: Engage experienced M&A advisers, lawyers and accountants who can navigate the complexities of the transaction and provide valuable insights.
• Due diligence: Conduct thorough due diligence (financial, legal, operational and strategic examination of the target) to identify any potential issues early in the process.
• Detailed documentation: Ensure that all agreements, contracts and necessary documents are meticulously drafted, reviewed and understood by all parties.
• Integration planning: Develop a detailed integration plan that addresses cultural, operational and strategic aspects of combining the two entities. This should be initiated well before closing.
• Closing checklist: Create a comprehensive closing checklist that outlines every step and document required for closing.
• Closing meeting: Organise a well-structured closing meeting, whether virtual or in person, to finalise the transaction and address any last-minute issues.