SORAINEN M&A and Private Equity  Legal Update No 8 - August 2010
  Dear clients and cooperation partners,

Since our last M&A and Private Equity Legal Update in May, several positive developments have occurred. Estonia got final approval to join the euro zone and will introduce the euro on 1 January 2011. The Baltic economies finally started recovering: Estonia and Lithuania hit the bottom in the first quarter and showed positive GDP growth in the second quarter (Estonia +3.5% and Lithuania +1.1% compared to 2009 2Q) and hopes are alive that Latvia will follow soon. In Belarus economic activities also appear to be starting to grow. These developments have nurtured investors’ confidence in our region. As a result, M&A activities in the region appear to be reviving, as also evidenced by the growing number of new transactions advised by SORAINEN (some are listed below). New venture capital funds launched in Lithuania and Latvia under the JEREMIE initiative should also contribute to this revival, as suggested in the report below.

Let me also use this opportunity to invite you to the first Baltic M&A and Private Equity Forum which we are organising on 26 August in Riga, Latvia (see the announcement below). It appears to be a very good time to gather the leading market players to discuss current trends and the future of M&A and private equity in the Baltic States so we trust that the forum will prove to be a success.

Enjoy reading and please let us know if you have any suggestions or comments.

Yours sincerely,

Laimonas Skibarka
Partner, Regional Head of the M&A and Private Equity Team

Toomas Prangli

Toomas Prangli
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Pärnu mnt 15
10141 Tallinn
phone +372 6 400 900
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Eva Berlaus

Eva Berlaus
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Kr. Valdemāra iela 21
LV-1010 Riga
phone +371 67 365 000
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Laimonas Skibarka

Laimonas Skibarka
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Jogailos 4
LT-01116 Vilnius
phone +370 52 685 040
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Maksim Salahub

Maksim Salahub
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ul Nemiga 40
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phone +375 17 306 2102
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Sale of Catella business in the Baltics
SORAINEN Estonia, Latvia and Lithuania offices advised Catella Foundation and Inter IKEA on the sale of Catella’s subsidiaries and business in Estonia, Latvia and Lithuania within the framework of a pan-European divestment transaction. Catella specialises in financial advisory services and asset management, operating with some 320 employees in 14 countries with headquarters in Stockholm. The deal resulted in creation of a financially sound, publicly listed European finance group: Scribona-Catella. The transaction involved cash payment of SEK 417 million (approx EUR 45 million) plus subscription options for the sellers.

Veolia Water acquires Tallinna Vesi
SORAINEN Estonia is advising Veolia Water, the world's leading water services operator, on its acquisition of several United Utilities operations in Europe. The deal includes a 26% stake in Tallinna Vesi, the largest water utility in Estonia  with  total  sales  of  nearly EUR 50 million in 2009. Total price for acquisitions in Europe is approx EUR 199 million which partly includes debt taken over from target companies. The deal, announced on 14 June 2010, is subject to usual conditions precedent (including review by competition authorities), so is not yet closed.

MAI Insurance Brokers acquires Pirmais Brokeris in Latvia
SORAINEN Latvia advised MAI Insurance Brokers on acquisition of a 100% shareholding in the insurance brokerage company Pirmais Brokeris from Latvia. As a result of the acquisition MAI Central Eastern Europe expanded its presence and market share in Latvia, also separating the insurance arm of the Latvian business from the re-insurance arm.

Sale of Baltija – biggest transaction in Lithuania this year
SORAINEN Lithuania advised Odense Steel Shipyard, part of the Maersk Group, on disposal of its two subsidiaries in Lithuania – Baltija Shipbuilding Yard, the largest shipbuilding company in Lithuania, and Baltic Engineering Centre, a unique company with deep orientation towards naval architecture and engineering, with a combined total of over 1,300  employees  and  net  sales  of over EUR 48 million (in 2009). Although the sale price is not disclosed, the deal currently stands as the largest acquisition of a Lithuanian company in 2010. SORAINEN advised the client throughout the sale, including data room preparation, deal structuring, organisational assistance plus drafting and negotiating transaction documentation. The transaction was closed in July 2010.

Pan-European Marguerite Fund launched
SORAINEN advised the pan-European Marguerite Fund on various matters related to offering the fund’s shares to professional investors in Lithuania. The Marguerite Fund is a pan-European equity fund which aims to act as a catalyst for infrastructure investments implementing EU policies in the areas of climate change, energy security and trans-European networks. The Marguerite Fund is the first joint initiative of Europe’s leading public and private financial institutions such as the European Investment Bank and KfW and is also one of the largest fund raising exercises in Europe in 2009-2010. The fund was launched with initial capital of EUR 600 million and is expected to raise EUR 1.5 billion for final closing in 2011.

IFC acquires stake in Belarusky Narodny Bank
SORAINEN Belarus acted as local counsel for International Finance Corporation (IFC) in its acquisition of a 19.99% stake in Belarusky Narodny Bank for USD 8.2 million (approx EUR 6.4 million). Belarusky Narodny Bank is a commercial bank controlled by the Bank of Georgia. The SORAINEN team was involved in structuring the transaction and commenting on transaction documents in the light of mandatory Belarusian laws, advised on local securities and tax regulations and issued a legal opinion on the validity and enforceability of the transaction documents.


Private equity activities in the Baltics appear to be recovering, following trends across Europe. Six new venture capital funds recently launched in Latvia and Lithuania could well contribute to the revival.

These funds were created in implementation of the JEREMIE (standing for Joint European Resources for Micro to Medium Enterprises) initiative in Lithuania and Latvia. JEREMIE is a joint initiative by the European Commission (EC) and the European Investment Fund (EIF) in the context of European Union (EU) Structural Funds allocation 2007-2013 for EU Member States and regions. Several Member States and regions have formalised their cooperation with EIF, with eight national and three regional agreements signed to date. Latvia and Lithuania were among the first countries to join the initiative in July 2008 and October 2008 respectively.

Although the JEREMIE initiative is primarily aimed at increasing the growth of small and medium enterprises (SMEs), it involves private equity market players which act as financial intermediaries between the EIF and SMEs in implementing the programme by  raising and managing venture capital funds supported under JEREMIE. All this leads to increasing the general cash pool for private equity investments in participating countries. As noted by Richard Pelly, EIF Chief Executive: “Through the JEREMIE Holding Fund, the Lithuanian Government has wisely established a platform which will stimulate the growth of the venture capital industry in Lithuania.” This equally applies to Latvia.

Six funds – three Latvian and three Lithuanian – have signed agreements with the EIF and now manage a venture capital pool totalling approx EUR 100 million. The formation stage is complete and the investment stage is now starting.

Funds operating under the JEREMIE initiative may be classified into two types: venture capital funds and business angels funds. Funds operating under the angel investment scheme usually invest only together with business angels (individual investors) who also contribute in choosing and managing the target. Venture capital funds have, alongside the JEREMIE Holding Fund, institutional and private co-investors whose role is similar to investors (limited partners) in usual venture capital funds. Irrespective of the type of each particular fund, their managers have been facing a challenging task – to raise private capital for their funds or investments in a very difficult market environment.

Below is a summary of funds created under the JEREMIE initiative in Lithuania and Latvia:

Table 1

Lithuania SME Fund I and BaltCap Latvia Venture Fund (both managed by BaltCap) are examples of venture capital funds operating under the JEREMIE programme. Both funds are focused on SMEs demonstrating exceptional growth potential and having established operations, with rather limited interest in micro companies and start-ups. The standard investment holding period for the funds is three to six years. The two funds generally target SMEs from various industries (excluding real estate and a few other sectors). Kornelijus Čelutka, Investment Director at BaltCap, commented that the funds will provide not only capital but also strategic support for growth companies. Portfolio companies will also be able to leverage the pan-Baltic expertise and presence of BaltCap. Notably, BaltCap was the first venture capital fund manager to successfully complete private fundraising under the JEREMIE initiative in Europe, attracting a stable blue chip investor base including leading Baltic financial institutions.

Another example of a JEREMIE venture capital fund is LitCapital, managed by LitCapital Asset Management. Following its growth capital investment strategy, it has a stronger orientation towards more mature companies with significant potential to rapidly develop towards market leadership. However, LitCapital I does not plan buy-outs or similar share acquisitions from existing shareholders, only subscription to new shares to finance expansion of the enterprise. “Companies of low growth potential and those in financial difficulty will be out of scope as well”, says Šarūnas Šiugžda, managing partner of LitCapital Asset Management and chairman of the Lithuanian Venture Capital Association. He adds that the fund will focus on medium size companies operating in the FMCG sector, IT, services (B2B, B2C) and the medical industry (goods and services). Investment duration is expected to be around three to four years.

Latvia-based Imprimatur Capital manages two specialist technology seed and start-up funds – Imprimatur Capital Seed Fund and Imprimatur Capital Technology Venture Fund. These funds aim at providing early-stage (seed and start-up) financing for innovative micro, small and medium size companies engaged in innovative technologies. International growth potential is seen as an advantage for the target to be selected. These funds are particularly focused on companies operating in communications and networking, food technology, internet, life science, medical devices, materials science, nanotechnology, new energy and the environment, optics, software and IT. Jānis Janevics, a partner in Imprimatur Capital Fund Management, revealed that the first investment is scheduled for August-September 2010 and will be related to nanotechnologies.

Business Angels Fund I managed by MES Invest and Strata is an example of the angel investment strategy. The fund will invest in smaller amounts, usually in micro or small enterprises in the early stage of development with attractive business strategies and growth potential. The peculiarity of the fund is in its investment concept – investment may only happen in equal parts with business angels. Therefore, the fund managers are seeking to establish and expand an active business angels network to play an essential role in the activities and success of the fund. A candidate target company has to be active in the market for at least 1.5-2 years, with a clear business expansion plan oriented to export markets plus a strong, successful management team. The fund is mainly oriented towards innovative technologies, telecommunications, IT, biotechnology, production of high added value components and the like, although companies in “traditional industries” such as food, textiles and metal processing may also become investment targets. Arvydas Strumskis, fund manager of Business Angels Fund I, was happy to note that the fund has already completed its first investment in a young but promising Lithuanian company creating and developing IT solutions for the agricultural sector – ART21.

The funds created in Latvia and Lithuania under the JEREMIE initiative have been successfully raised and are just starting their investments. Though it may appear that currently a wide choice of investment targets should be available, fund managers are working hard on careful selection of suitable targets, so selection and investment takes time. However, all participants in the JEREMIE initiative are optimistic – they hope to invest their funds well and in time so that the Lithuanian and Latvian economies will definitely benefit from the initiative. The funds are required to implement investments by 31 December 2013, which will probably be a good milestone to check the results.

Sergej Butov
Senior Associate
SORAINEN Lithuania


Commercial pledges on shares are sometimes used as security in M&A transactions. But what happens if the creditor needs to enforce a commercial pledge on shares in Latvia? Is the enforcement procedure efficient enough?

Even if the pledge documentation has been drafted in line with legal requirements, the practicalities of selling pledged shares can be rather burdensome.

As a market standard in commercial pledge agreements, the creditor has a right to sell pledged shares at a free price without court proceedings or auction. However, creditors do not often use this possibility, especially if the pledge is registered on the shares and the potential value of the shares is rather high. The main reason for this is the legal requirement that the creditor must sell pledged shares at the highest possible price at the time of sale which does not delay the sale. Thus, if the sale price is disputed by the pledgor (owner of the shares), the creditor has to prove that the price satisfies the above criteria and to compensate any losses of the pledgor if that is not the case.

With those risks in mind, creditors often choose to use non-disputable compulsory enforcement of obligations through court proceedings. Although compulsory enforcement through the court is a relatively simple and rapid procedure (the court is required to rule on the application within seven days), the whole process of executing the court decision and completing the sale of pledged shares can last for years, particularly if the pledgor acts in bad faith, for example by challenging the creditor’s claim, disputing actions by the bailiff, or objecting to the initial price for the pledged shares.

In addition, the management of the company whose shares have been pledged may often be loyal to the pledgor. As a consequence, sale of pledged shares can also be encumbered from the management side by not providing information necessary for valuing the company and the pledged shares. Even if the pledged shares are sold, transfer of title to the shares must be first recorded in the shareholders’ register kept by the management board and thereafter also registered in the Commercial Register. If the management board fails to record the changes in the shareholders’ register, the only way out is to apply to the court to recognise the buyer’s title to the purchased shares. In this case the final decision of the court will serve as the basis to register the buyer as a shareholder in the shareholders’ register of the company and the Commercial Register – but this may take considerable time and effort.

Taking into account current legislation and the problems described, before accepting a commercial pledge as security, creditors should seriously evaluate the possibilities of enforcing their security and take reasonable additional steps to protect their interests.

Renāte Purvinska
Senior Associate


The Belarusian State Property Committee (the national privatisation authority) has scheduled privatisation auctions in August - September 2010 for five industrial enterprises that are leaders in their industries.

These enterprises are:

Table 2

The privatisation auctions in Belarus are on the largest scale since the early 2000’s, when the Belarusian Government unsuccessfully attempted sale of the largest petrochemical enterprises. Notably, for the first time the government has engaged so-called investment agents in preparation for the auctions, including Ernst & Young, KPMG and UNITER, a Belarusian investment bank.

The State Property Committee adds that in the near future a further 30 companies will be put up for auction, again with assistance from investment agents.


SORAINEN is always proud to contribute to the success stories of our clients. Sometimes things start from a good idea and eventually evolve into a successful global venture. In this issue, we present an article by Mr Heikki Haldre, CEO of our client, a technology company based in Estonia with a great global perspective. SORAINEN has been assisting in closing previous rounds of venture capital investment.

SORAINEN helps form the future of the “next Estonian Skype” – has previously closed a round of funding, bringing total funding to EUR 1.3 million. SORAINEN was the key in guiding us throughout the negotiation process. The law firm benefited us not only by ensuring a sound agreement, but their understanding of our business processes and needs was the most important factor in forming our future. ( is a technology company from Estonia that the media has referred to as “a new Skype”. We are solving the single biggest problem for online clothing retail – lack of a fitting room. Technology, based on bio-robotics, enables customers of online clothing shops to try on clothing before buying, thus increasing sales and reducing costs for retailers by significantly reducing returns of clothes – almost all due to poor fit. Virtual Fitting Room will be one of the reasons why analysts estimate that one in every four bricks-and-mortar clothing shops will close by 2018 as sales shift to internet channels, a trend observed today with travel agencies and book shops.

Innovation is not a new idea or invention – innovation only happens when this idea is made available to consumers. Hence, innovation only happens when it’s commercialised. technology is being developed in two universities in Estonia and a research facility in Germany – the funds raised have ensured that development milestones were met on time and equally importantly that can focus on making the technology commercially available. In March, was the winner of the European Web Technology Award in Brussels, at Plugg. Virtual Fitting Room went live in the UK in May.

Innovation is about taking risks – risks that well calculated can make companies change the world. The entrepreneurs’ job is to take risks – the lawyers’ job is to minimise risks. SORAINEN understands this difference well. The firm guided us in seeing the potential risks, helped to see possible future scenarios and formed well-founded strategies to avoid pitfalls. is targeting venture capital round of EUR 6 million early next year.

  • Heikki Haldre
    CEO of


SORAINEN organises the first Baltic M&A and Private Equity Forum on 26 August in Riga, Latvia

For the fourth year in a row SORAINEN and leading Latvian business newspaper Dienas bizness are gathering specialists from various industries in August to share their experience and know-how in the dynamic area of mergers and acquisitions (M&A). At the same time, this year will be the first annual Baltic M&A and Private Equity Forum.

With this new approach and by attracting the leading business newspapers from Lithuania and Estonia (Verslo žinios and Äripäev) as co-organisers, it has been possible to invite top level specialists from all Baltic States as speakers. The forum will also feature such international players as AXA Private Equity, the European Venture Capital Association, the International Monetary Fund and the European Investment Fund.

To find the full conference programme and to register, please click here.

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Please note that this legal update is compiled for general information purposes only, free of obligation and free of legal responsibility and liability. It does not cover all laws or reflect all changes in legislation, nor are the explanations provided exhaustive. Therefore, we recommend that you contact SORAINEN or other legal advisor for further information. Electronic versions of SORAINEN Legal Updates are available and can be subscribed to on the SORAINEN website –

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