Poland - Market Insights

Private equity dominance: acquisitions with faster execution and lower risk

Poland has established itself as the dominant private equity (PE) market in Central and Eastern Europe, attracting a disproportionate share of the region’s PE capital and hosting the most active deal flow. The market benefits from a relatively large and diversified economy, a skilled workforce, EU membership, and a growing base of target companies across various sectors. While major international PE funds (including global buyout houses) are only occasionally involved in transactions when a Polish entity is the main target, an increasing number of regional players have aggressively pursued Polish targets, cementing PE’s leading position in the market.

Private equity firms have a disproportionately significant impact on Poland’s M&A market, even though they make up a minority of deals by volume.

Such an impact may be observed in two aspects of the Polish M&A transactions:

• PE firms have advantages over strategic buyers in M&A process, and such advantages translate into successful closings of the M&A transactions; and
• other players (in particular, private sellers and strategic investors) now see PE methods as the standard for how transactions should be structured, negotiated, signed, and closed.

PE firms have several advantages in M&A process

In Polish M&A transactions, PE firms win bids and are generally successful, for several reasons. Below, we summarise the factors we see most often in transactions in which we were involved.

Structured sell-side process

When selling, PE-backed companies typically present fewer problems for buyers. PE firms manage their portfolio companies professionally and identify issues early, often at the time of their original investment. This gives them more time to fix problems before a sale, unlike situations where issues only surface during a buyer’s due diligence. PE sellers routinely provide vendor due diligence reports or detailed legal fact books (sometimes already with a non-binding indicative offer for a W&I insurance policy).

Other sellers less frequently offer any of this, while such preparatory steps are obviously very much welcomed by the bidders and increase the attractiveness of the considered transaction in the first place.

Local management teams are usually less involved in the sale process, particularly during buyer due diligence. This means less disruption to day-to-day operations. The result is a faster, more organised due diligence and negotiation process.

Buy-side competitive advantages

When buying, PE firms typically complete due diligence and negotiations faster than strategic investors (especially those who do not regularly do M&A deals). Their decision-making is also quicker, allowing them to respond faster to sellers’ expectations, fit into auction process timelines and reduce “deal fatigue” for sellers. With growing geopolitical and regulatory uncertainty, this speed can be a major advantage.

Deal certainty

Quite complicated PE structures often trigger a need for competition authority approval of the transaction, even when the PE firm has no competing business in Poland. However, these filings are usually simpler and faster to process for the competition authorities than those involving strategic buyers. Conditional consents or blockade of the transaction is less likely, while growing competition authority scrutiny results generally in longer approval processes.

Unlike in certain other EU jurisdictions, a current foreign investment screening regime in Poland is not a critical issue, as it applies only to designated strategic sectors and only occasionally triggers reporting obligations for PE buyers.

Also, financial capabilities of PE may not be ignored. It seems that any financing-related condition precedents are less likely to be requested by a PE buyer than by a strategic buyer.

All in all, PE investors normally offer an expedited closing timeline.

Deal confidentiality

PE bidders are sometimes preferred by the sellers due to the mere fact that PE firms are not competitors to the sellers, and therefore many restrictions and concerns typical for strategic investors do not apply, thus reducing risks for the sellers if the transaction fails.

Opportunities with smaller targets

Poland has many small and medium-sized companies, often innovative and facing succession challenges. This creates good opportunities for PE firms to consolidate markets. We see many add-on acquisitions and market integration deals led by PE. Such deals offer target owners a way to exit their business without selling to a competitor or having to recruit external management where no family successor is available. For management and key employees, PE investment is often more welcome than a strategic buyer (especially a direct competitor).

PE firms usually want to keep the existing management team after a deal closes. This gives management and key employees job security and performance incentives. They do not need to worry about organisation cultural clashes, losing their jobs or having their roles moved to the buyer’s team, which is a common concern when a strategic investor buys the company. PE investors may also offer rollover equity or similar incentive schemes, as well as attractive exit strategies. These can be attractive to sellers and management because, if the combined business of the integration platform grows successfully, they may earn more than they would get from a strategic buyer.

PE is shaping M&A best practices

Strategic investors are increasingly adopting the PE methods and capabilities described above. This is a result of PE firms’ dominance in an area of professional handling of the M&A processes.

Clean exits

Following PE examples, sellers now tend to expect clean exits and greater certainty that deals will close, whether they are PE or venture capital (VC) funds or not. While bargaining power varies from deal to deal, in practice this means sellers expect, at least initially:

• a limited set of representations and warranties;
• W&I insurance in place and no or a limited possibility to claim damages for uninsured representations and warranties;
• no retained amounts or escrows;
• no or limited material adverse change/event clauses; and
• a quick closing (the more competitive the process, the more sellers expect buyers to commit to closing the deal — this includes accepting conditions imposed by competition authorities or agreeing to pay break fees if the deal falls through).

When PE firm is bidding

When a PE firm is bidding, strategic investors are normally motivated to compete harder. They may need to address regulatory hurdles that arise from their existing market position, for instance through offering break-up fees or similar safeguards. PE firms’ available capital also pushes other bidders to be more creative in how they structure their financing.

Summary

Transaction structures in Polish private M&A are becoming increasingly similar whether a PE firm is involved or not. Additionally, strategic investors can address certain PE firms’ advantages by combining deep industry knowledge with many of the strengths that PE firms offer. These include dedicated M&A deal teams, faster decision-making, and a lean buyers’ due diligence process.

Hence, PE dominance in the Polish M&A landscape is underpinned by several structural advantages: pre-arranged financing committed by limited partners, professional deal teams with extensive transaction experience, standardised processes and playbooks, and streamlined decision-making processes. These factors collectively give PE firms an edge both in competitive auction processes and in pursuing higher-risk transactions that strategic buyers may be unwilling or unable to execute.