The corporate and M&A practice of Ilaw Lextal has been very busy working on employee option share investment schemes and overall transactional work, primarily driven by and likely to increase due to rising inflation and interest rates, according to Partner and practice Head Dziuginta Balciune.
“There is a rising possibility of sales of distressed assets right now, with companies attempting to cope with their financial obligations,” Balciune says. “We see this as an opportunity for the M&A sector in terms of boosting transactions. We’re not there yet, but there is increased interest, with companies that have seen their profitability decrease, like those trading in raw materials and metals, and are on the edge of profitability might end up being bought by bigger players,” she reports.
According to Balciune, there are three key drivers of work for Ilaw Lextal’s Corporate and M&A practice. “All of these are rooted in the current economic realities: record-high inflation rates of over 20% in the Baltics; insolvency rates doubled compared to last year; and increasingly rising interest rates that drive the cost of money up,” she explains. The inflation rate directly impacts M&A processes, with “any postponement and deferred payment clauses disappearing,” making it increasingly difficult to calculate prices, she reports.
While six months ago, insolvencies were as low in Lithuania as they had been before the 2008 crisis, according to Balciune, “that number has been growing fast – not necessarily indicating a recession, but a slowdown of the economy, certainly.” She also points out that many businesses in Lithuania are accustomed to financing their operations from credit institutions – “with money becoming more expensive, the impact could be high for companies working with a lot of debt.”
Balciune adds there is an expectation of an “overall M&A sector slowdown in terms of transaction volumes, compared to the last few years when there was a boom in the Baltics.” On the other hand, she shares that the “SME sector, as of yet, has not been as much impacted by the overall slowdown, and we presume that it will keep going strong for the following 12 months as well.”
Turning to Ilaw Lextal’s recent work, Balciune reports a few transactions of note. “A company of a German group – TUV Nord – acquired the remaining 50% of Tuvlita, one of the biggest companies providing compulsory vehicle inspection in Lithuania. It was an inbound investment that led to high levels of work in our Corporate and M&A practice,” she says. “Also, the Netherlands-based company Blis Digital acquired HIPER Consultancy, a Lithuanian software development company co-located in the Netherlands and Lithuania, that helps its clients with improving software and digital products. Furthermore, UAB Synopticom shares were sold to an Estonian company Rait Group OU. Synopticom is one of the largest Lithuanian companies providing market and public opinion research.”
As a highlight, Balciune reports that Ilaw Lextal has seen a lot of activity in the field of corporate option shares. “Various companies, ranging from huge factories to fintech startups, are offering option shares to their employees instead of traditional bonuses. Our firm has been busy working on various employee incentive schemes for groups as well as negotiations for options agreements for sole employees,” she explains. This became a trend in Lithuania, according to her, since the country “introduced tax incentives for those option shares, making option shares for employees absolutely tax-free. They are very popular."
Finally, speaking about her firm and her team, Balciune says Ilaw Lextal is growing fast and currently transitioning from a mid-sized firm to a large one. “That, of course, has led to new hires in the Corporate and M&A practice: we’ve nearly doubled in size, from new Partners to Junior Associates. So we’re developing the practice and everyone’s skills – attending numerous foreign conferences, and making up for time lost during the lockdown.”