M&A and Private Equity Legal Update - September 2013
  Dear friends,

After still shrinking during the first quarter of this year, the European economy is now starting to show the first, though still small, signs of recovery. Indeed, the investor’s view on developments in Europe is positive for the months to come, which has not been the case for a long time. Together with relatively blooming Baltic economies and Latvia’s planned accession to the Euro zone as of 1 January 2014, this has currently created dynamic days for the M&A and Private Equity markets in the countries where we operate. According to Bloomberg, deal volume in Eastern Europe grew 20.92% during the first quarter of 2013 and the numbers for the next quarters are expected to be not less. We definitely notice it in our practice as well as in our excellent rankings in Bloomberg and Thomson Reuters. At the same time the Belorussian market seems to be less active due to internal issues and the much larger impact of the Russian economy. On the other hand, as we report in this newsflash, steps are being taken to improve the transaction environment.

On  that  positive  note  this  newsflash  covers  important  developments  in  our markets – implementing the Alternative Investment Fund Managers Directive in Latvia, Lithuania and Estonia, improving the regime for alternative investment funds in Lithuania, the impact of amendments to the Latvian Commercial Law on M&A transactions, the first transactions by the Baltic Innovation Fund and, last but not least, news on privatisation and introduction of the concept of a “shareholders’ agreement”  in Belorussian law.

We will be very glad to answer any further inquiries you might have on this newsflash and, of course, we will be delighted to share our knowledge and experience by assisting you with any M&A and private equity transactions you might be planning in the region as an investor, seller, financial advisor or in any other role. We are here for you.

And don’t forget to register for the Baltic M&A and Private Equity Forum taking place this year in Riga on 24 and 25 October! Together with our co-organisers we have put a tremendous effort into creating an attractive programme with outstanding speakers and special focus, compared to previous forums, on development of private equity and venture capital in the Baltics. Inspired by feedback from participants in the Baltic M&A and Private Equity Forum of previous years, this time the forum programme has been extended to one and half days, allowing time for more content and, not less important, for more networking opportunities. As every autumn, this is an absolute must-have in your calendar!

We wish you success and hope to see you on 24 and 25 October in Riga.

On behalf of SORAINEN M&A and Private Equity Teams,

Eva Berlaus
Latvia Office Managing Partner, Head of the M&A and Private Equity Team in Latvia





International business news and market research agencies Bloomberg and Thomson Reuters acknowledge SORAINEN’s prominent position in the Eastern European region in terms of the number of transactions advised on. With over ten transactions valued at a total of EUR 143.52 million in the Baltic States in the first half of the year, SORAINEN is ahead of other Baltics-based law firms.

Bloomberg ranks SORAINEN 5th next to well-known international legal advisors such as Allen & Overy and Clifford Chance. In terms of transactions in the mid-market range (below EUR 380 million), Thomson Reuters places SORAINEN in 6th position among the top legal advisors in Eastern Europe. These are the highest ratings achieved in the first half of the year among Baltic law firms.

In the first six months of the year, SORAINEN advised some of the largest transactions in all three Baltic States. The law firm contributed to the merger of the Estonian, Latvian and Lithuanian subsidiaries of ERGO, one of the largest insurance groups in Europe, into a single European Company (“Societas Europaea”) ERGO Insurance SE.

In Estonia, SORAINEN participated in the EUR 6.53 million acquisition by Cathay Investments of a 100% stake in Wellmar Limited from Umeco Limited. In Latvia and Lithuania, SORAINEN advised private Lithuanian insurance brokerage company Balto Link UADBB, its Latvia-based subsidiary Balto Link SIA and Latvian insurance brokerage company A Dzīvība SIA on merger issues. The new company formed by merging the two Latvian companies has become the largest health and life insurance broker in Latvia and the third largest in the Baltics.

In Lithuania, SORAINEN advised on one of the country’s largest transactions in recent years, namely the transfer of EUR 2.06 billion worth of Ūkio bankas assets and liabilities to Šiaulių bankas. SORAINEN also advised Clement Power Venture on the acquisition of a 99.5% shareholding in Kauno termofikacijos elektrinė (Kaunas Heat and Power Plant) from major Russian gas company Gazprom and assisted Technopolis, a Finnish listed real estate rental company, in its acquisition of three Lithuanian companies (Domestas, Urban housing and Gama projektai) which own and manage new business centres in Vilnius. So far, this EUR 61 million transaction is the second-largest acquisition in Lithuania in 2013.

Bloomberg and Thomson Reuters are noted business news agencies providing high-quality market research services to companies and professionals.

More detailed information is available in the Bloomberg Mergers & Acquisitions Rankings H1 2013 and Thomson Reuters Small Cap M&A Review and Mid-Market M&A Reviews.




BPT Baltic Opportunity Fund acquires Domus Pro Retail Park
Baltcom acquires IZZI
Marginalen acquires leading Lithuanian consumer financing company
Civitta becomes the largest local capital based consultancy in the region
Water Street Healthcare Partners invests in CCBR-SYNARC
VCA Baltic Retail Fund sells a top quality retail property in Riga
Amrop Latvia acquires Amrop Estonia
Singapore-based port operator acquires majority shares in Riga Universal Terminal
Divestment of PPF Group shareholding in Generali PPF Holding
LitCapital invests in Lithuanian optics and laser company Altechna
SORAINEN advises two major start-up accelerators in Estonia
Bank of Moscow acquires control of Krediidipank
Acquisition of new office campus in Vilnius – second largest acquisition in Lithuania in 2013
AFINUM Management acquires majority stake in Fixtec
CVCI managed fund acquires 15.7% shareholding in Tallink
Balto Link and A Dzīvība merge to become the leader of the Latvian health insurance brokers’ market
UP Invest acquires majority holding in Semetron

For other recent transactions please click here.




In summer 2011, the European Parliament and the Council adopted Directive 2011/61/EU on Alternative Investment Fund Managers (Directive) and created a new legal framework to harmonise the national laws of all 28 European Union (EU) countries applicable to legal persons who manage various investment vehicles, including hedge funds, venture capital funds and private equity funds. All EU countries had a duty to adopt national laws complying with the basic principles of the Directive by 22 July 2013. Only 12 EU countries, including Latvia, were able to meet the deadline whilst others such as Estonia and Lithuania are still in the process of adopting national legislation.

For the Baltics the most important issue is the impact of the Directive on the operations of the local venture capital industry. It is worth noting that in all three countries the industry is still in the initial stages of development and venture capital funds are only now starting to become more visible and step by step increasing their investment portfolios. By way of illustration, several members of the Latvian Venture Capital Association (LVCA) manage assets with a value in the range of EUR 10 million to EUR 30 million, but the total value of assets managed by all LVCA members equals EUR 60 million.  This shows that due to the scale of the industry its members will opt for becoming registered alternative investment fund managers (AIFM) which are subject to a less demanding legal regime than licensed AIFMs. Accordingly it was essential for the industry to ensure that the Latvian legislator uses the freedom granted in the Directive and creates as beneficial a legal regime for registered AIFMs as possible. The same is equally true for Estonia and Lithuania.

The Alternative Investment Fund and Their Manager Law (AIFL) requires all LVCA members by 8 August 2014 either to terminate their activities or apply to the Latvian Financial Capital Market Commission (FCMC) to become registered AIFMs. Registered Latvian AIFMs will be subject to the supervision of the FCMC. They will also have a duty to comply with provisions of the Law set for management of  alternative investment funds. In Latvia, these are traditionally limited partnerships (in Latvian: komandītsabiedrības). By way of illustration, investment units can be offered not only to professional investors but also to non-professional investors if their investments exceed EUR 20,000 and other preconditions specified in the AIFL are met. The main preconditions are that risks must be explained to the investor and the manager should verify the sufficiency of the investor's free capital for investment in the fund. In addition, AIFM has a duty to provide the potential investor with a certain amount of information starting with investment strategy and ending with the annual accounts of the alternative investment fund.

In Estonia, to date only the rules under the Directive regulating incoming AIFMs have been implemented. The rest of the Directive will be implemented by the new Estonian Investment Funds Act (IFA). The draft of the new IFA is still being prepared, so that uncertainty exists as to future regulation. Based on the preliminary draft it is likely that the new IFA will set an authorisation requirement for all Directives managing funds organised as pools of assets or public limited companies, not dependent on the size of assets under management. A three tier system will be introduced, under which AIFMs authorised under the Directive will be most regulated and supervised. The second tier will comprise smaller Directives managing investment funds organised as pools of assets or public limited companies, which will be subject to a lighter authorisation requirement and some supervision. In addition, as the third tier the new IFA will recognise and allow the existence of investment funds not organised as pools of assets or public limited companies (eg investment funds organised as limited partnerships (in Estonian: usaldusühing)), unlike the current regulation. The new IFA will not regulate such funds but will establish a registration requirement for their managers.

The Directive has not yet been implemented in Lithuania. However, a draft law implementing the Directive has been delivered to the Lithuanian Parliament. On the other hand, the Lithuanian Parliament adopted the Law on Collective Investment Undertakings for Informed Investors on 18 June 2013 (in force as of 1 July 2013). Legal regulation of alternative collective investment undertakings for informed investors (investors who meet certain criteria) was established under this law, which is both liberal and conforms with international practice of regulation of alternative collective investment undertakings.

To summarise, the Directive has changed the legal environment of the Baltic venture capital market via introducing additional obligations towards investors and increasing the administrative burden. However, only time will tell whether this is for better or worse. In addition, significant other changes in fund regulation have been made and are ongoing, which will likely have an impact on the Baltic venture capital market.

Helen Ratso

Tomas Talutis
Senior Associate
SORAINEN Lithuania




The Baltic Innovation Fund (the BIF), the EUR 100 million fund of funds under the auspices of the European Investment Fund (the EIF) kick-started last autumn, has created considerable market interest since its inception. This year, the BIF has already announced two capital commitments: to BPM Mezzanine (expected fund size, with additional institutional investors, EUR 60 million) and BaltCap (expected fund size, with additional institutional investors, EUR 75 million).

Overall the BIF has received over 20 enquiries and over the course of four years the BIF expects to invest in four further funds. The long-term goal of the BIF is to create a regional functioning private equity and venture capital market in the Baltics, boosting equity investments in local enterprises.

The BIF is a unique structure in Europe, created as a cooperative effort between Estonia, Latvia, Lithuania and the EIF, and as such its developments are being closely observed in order to ascertain whether such a structure might provide a working framework elsewhere in Europe as well.



Under the banner of preventing acts of raiderism (which are understood in Latvia as illegal takeover of shares in companies, mainly through  forgery  of  documents),  amendments  were  introduced  to  the  Commercial  law  which  came   into   effect   on 1 July 2013. In essence, the new amendments require notarisation of certain documents necessary for registering with the Latvian Company Register corporate changes typical of M&A transactions and which could previously be executed without involving a notary.

For example, from now on the signatures of the buyer and seller of shares in a private limited liability company (SIA) as well as the signatures of the management board members on the internal shareholders register of a SIA will have to be notarised. If changes to the articles of association or the composition of the boards of a company (either a SIA or a public limited liability company (AS)) are envisaged as part of an M&A transaction, the signatures on corporate decisions required from the shareholders or boards in this regard will likewise have to be notarised.

The amendments also introduce much more formalistic requirements with respect to the form and contents of the internal register of shareholders in a SIA. For example, from now on the register of shareholders will have to consist of separate folios with each new folio reflecting chronological changes to the composition of shareholders. In addition, the amendments introduce a concept whereby bona fide third parties are entitled to rely on the information regarding the shareholders of a SIA kept in the files of the Company Register. In the context of M&A transactions this means that in order to avoid the risk of shares being sold further by a bad faith seller, acceptance of the register of shareholders by the Company Register should become an important step in closing any M&A transaction. Given the reputation of the Company Register for sometimes lacking uniform practice as well as preferring form over substance, the increased level of formalism introduced by the amendments to the Commercial law might in practice easily translate into delays and unpleasant surprises for any buyer of shares who treats these matters with insufficient care.

Finally, the amendments introduce more detailed regulations concerning the procedure for exercising rights of first refusal in a SIA as well as an entirely novel concept of redemption rights in the context of share transactions in Latvia. From now on the parties to a transaction will have to notify not only the management board of a SIA but also each shareholder regarding the intended sale of shares by delivering a written notice together with the executed Share Purchase Agreement or an approved copy. So long as rights of first refusal have not expired or been waived, the terms of the SPA cannot be amended. If the procedure for exercising rights of first refusal is not observed, an injured shareholder will have the right to redeem the shares in question. The right is exercisable within a month from the day the injured shareholder discovers the violation but not later than a year following the day the updated folio of the register of shareholders is accepted by the Company Register.

The potential of these amendments to the Commercial law to actually prevent acts of raiderism is highly questionable. However, the practical conclusion is that entrepreneurs who are planning M&A transactions in Latvia should expect them to be more formalistic than before, thus requiring more careful transaction planning.



Three new risk capital funds of ZGI Capital, Expansion Capital and FlyCap have started investment activities in Latvia. As previously announced, under the state support programme developed in cooperation with the Ministry of Economics in 2012, the Latvian Guarantee Agency announced  a tender for choosing new risk capital fund management teams to facilitate capital financing for innovative micro-, small and medium-sized enterprises and for promoting new risk capital fund formation in Latvia. These risk capital funds are financed from the European Union structural fund activity “Holding fund for the investment in guarantee, high-risk loans, and venture capital funds and other financial instruments”. The three teams mentioned above won the tender.

The plan is for ZGI-3 fund to provide financing: (i) in seed capital (financing is available from EUR 10,000 to EUR 200,000); (ii) in start-up and expansion capital with existing cash flow and successful product placement (available financing is EUR 1.5 million). ZGI Capital financing will be available to companies whose products/ideas have a strong competitive advantage and high growth potential.

Expansion Capital Fund is oriented toward exporters that do not depend on domestic consumption and have high growth potential. Financing will be provided for company growth to start viable production and pursue a more aggressive marketing and product sales strategy. The fund intends to invest in up to fifteen companies.

FlyCap Investment Fund I will provide financing for start-ups with proven business models and verified product viability and existing companies with a profitable business model. Funds will be allotted to manufacturing, IT, healthcare, pharmacy and business services.



As of 1 July 2013, the new Law on Collective Investment Undertakings for Informed Investors (the Law) came into force in Lithuania. The Law establishes legal regulation of alternative collective investment undertakings for informed investors that is more liberal and conforms with best international practices. As a result, a better regime is now available in Lithuania for alternative investment funds.

Prior to adoption of the Law, collective investment undertakings for informed investors (investment undertakings) have not enjoyed special treatment and were either subject to general regulation under the Law on Collective Investment Undertakings (the LCIU), or operated under general rules of company law (without supervision). The new Law relaxes the legal framework for those undertakings and at the same time allows them to be supervised.

The Law expands the choice of legal forms available for an investment vehicle. In particular, an investment company can be established not only as a private or public liability company, which was allowed under the LCIU, but also as a general or limited partnership. In Lithuania the legal form of limited partnership is commonly used by non-regulated private equity and venture capital funds (including all funds established under the JEREMIE initiative).

In addition, the Law provides for simpler authorisation requirements – fewer documents to file, a shorter period for the supervising authority to respond. Further, if units/shares of the investment undertaking are not publicly offered, it is possible to apply for authorisation after the start of a non-public offering, which should enable prior arrangements with potential investors. The Law also does not set special capital adequacy requirements for a management company or investment company.

Further, requirements for investment objects and diversification of investment portfolios are simplified. Investment undertakings can invest in investment objects specified in their founding documents and the Law does not set specific limitations. The Law also does not set specific portfolio diversification requirements, but only a general requirement to sufficiently diversify investment risks (this requirement does not apply to undertakings that make only venture capital investments).

The conditions for safe-keeping the assets of an investment undertaking are also simplified. The financial assets of an investment undertaking must be entrusted to (and accounted in the account(s) opened by) a custodian and kept separately from the custodian’s property. However, the Law eliminates the requirement that the investment undertaking should appoint the depository. Only a commercial bank entitled to provide investment services in Lithuania or in other European Union Member State(s) and has its registered office or subdivision in Lithuania can act as a custodian.

This new regime may be enjoyed by investment undertakings intended for informed investors. The Law also defines an informed investor: this is wider than the definition of a professional investor. In addition to professional investors, it also includes:

  1. individuals without the status of professional investors but who confirm their informed investor status and additionally satisfy one of these alternative conditions: (i) commit to invest or invest at least EUR 125,000, or (ii) their knowledge and experience in the investment area is assessed and their status is approved in writing by a licensed market professional; and
  2. entities without the status of professional investors but which confirm their informed investor status and commit to invest or invest at least EUR 125,000 (some additional requirements are also established by the Bank of Lithuania).

Finally, investment undertakings that were not offering their securities publicly before 1 July 2013 may decide either to carry on their activities under the Law and accordingly be supervised, or remain unregulated and operate under general rules of company law. This means that undertakings which were not offering their securities publicly need not apply for authorisation. Close-ended special undertakings for professional investors which already operate under the LCIU or investment companies that are carrying out relevant activity may either (i) further operate under the LCIU, or (ii) choose to operate under the Law.

All in all, the new Law provides a more flexible legal regime for investment undertakings intended for informed investors. This is definitely a positive step towards further development of an attractive environment for private equity and venture capital funds in Lithuania. It remains to improve the taxation regime for these investment undertakings and their investors. Hopefully, this will not be delayed for too long.



In 2012, the President of Belarus announced the intention to shift from a three year plan-based privatisation campaign to “selective privatisation”. Only a handful of small enterprises covered by the 2008-2010 privatisation plan were sold. The plan for 2011-2013, which included approx 370 companies, resulted in the sale of over 30 enterprises in 2011 alone with an average sale price of approx USD 0.5 million (EUR 0.37 million). As a result, the effectiveness of three-year privatisation plans was questioned and it was decided to centralise the privatisation process under the President again.

To implement this approach, new legislation was adopted in the last quarter of 2012. The main changes in privatisation laws are the following:

  • Three-year privatisation plans with approved lists of enterprises are cancelled.
  • The State Property Committee may now decide neither on decrease of the sale price of state-owned shares sold at privatisation auctions nor on additional issue of shares of strategic companies.
  • Municipal authorities continue to enjoy pre-emptive rights to acquire shares of privatised companies but must adopt an exhaustive list of those companies to make the process more transparent.

According to clarifications by the State Property Committee, investors are welcome to select privatisation targets themselves and send brief letters of interest to the Committee, the Council of Ministers, or a branch ministry. However, this way the investor will initiate the privatisation tender procedure with regard to the enterprise, ie finally find themselves bidding along with competitors.  On the other hand, direct sale without holding a tender is not ruled out, but that often takes a special decision of the President.

According to statements by the President in May 2013, any enterprise in Belarus may be privatised, while certain social and other commitments are expected of the private investor. Belarus seeks investors that will secure extension of the commodity market, establish modern manufacturing, develop new technologies and ensure adequate employee salaries.

Karyna Modnik
Legal Assistant




Significant changes are expected to Belarusian corporate legislation. In June 2013, the House of Representatives of the National Assembly adopted a draft law amending the Law On Business Entities and the Belarusian Civil Code at its first reading.

Among other changes, the draft law for the first time provides regulation over the concept of a shareholders’ agreement and an agreement on the exercise of the rights of company shareholders (together referred to as a “shareholders’ agreement”). These corporate tools aim to support shareholders in coordinating their activities as to participating in the management of a company, exercising their rights more efficiently and protecting their legitimate interests.

Under the draft law, a shareholders’ agreement is an agreement on the implementation of rights certified by shares and/or on peculiarities of exercise of rights to shares. A shareholders’ agreement is concluded in respect of all shares held by a party to a shareholders’ agreement. The company itself cannot be a party to a shareholders’ agreement. Breach of a shareholders’ agreement cannot be a ground for invalidating decisions of company management bodies.

A shareholders’ agreement may provide for the following obligations:

  • to vote in a certain way at a general meeting of shareholders;
  • to coordinate a voting option with other shareholders;
  • to acquire or dispose of shares at a predetermined price and/or subject to occurrence of certain circumstances;
  • to refrain from disposing of shares before the occurrence of certain circumstances; and
  • to perform other concerted actions associated with the management of the company, company activities, reorganisation and liquidation of the company.

Obligations of a party to a shareholders’ agreement to vote according to the instructions of the management bodies of a company in respect of which the agreement has been signed cannot be the subject of a shareholders’ agreement.

Although these amendments represent a remarkable step forward in corporate regulation, certain issues are not addressed in the draft law and would have to be developed further either by practice or through subsequent amendment of the legal framework. Such matters include, for instance, eligibility of arbitration under shareholders’ agreements plus the possibility to govern a shareholders’ agreement by a foreign law where one of the parties is a foreign individual or company.

Karyna Modnik
Legal Assistant


Toomas Prangli
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