By Clemens Philipp Schindler, Schindler Attorneys
As a recent study in M&A Review (January 2016) reports, Austria saw approximately 330 deals in 2015, an increase of 37 per cent from 2014. This makes 2015 one of the top 10 years since 1988, with the period spanning 2000 to 2007 being the strongest, peaking in 2005 with over 500 deals. For both public M&A as well as private M&A activities an increase can be reported for 2015 and early 2016.
The statistics published in M&A Review show that more than one-third of all 2015 deals were domestic, and that in cross-border deals the number of foreign investors acquiring Austrian targets slightly exceeded the number of Austrian investors buying into the foreign markets. As in recent years, the most sought-after targets in 2015 were from the consumer goods and retail sector (although lower than in 2014), the financial sector and TMT. Also for paper and packaging it was a strong year (it more than doubled in number of deals). Important sources for the increase in deal volume were distressed situations as well as the continued restructuring of banks.
In private equity, deal activity was good and some major deals were concluded, which continues to be the case in 2016. Due to the limited number of big-ticket transactions, the major private equity funds are not as frequently seen in Austria as mid-cap funds but, as the transactions mentioned below show, the market does have certain targets that attract their attention. In 2015 local fundraising, after an all-time low of approximately €13 million in 2014, amounted to approximately €111 million, as the Austrian Private Equity and Venture Capital Organisation AVCO recently reported. It should be noted though, that approximately 75 per cent of this was secured by Austria-based Speedinvest, which is focused on early stage investments.
Also, the activity of business angels is steadily increasing, enhanced by such institutional programmes as the €22.5 million EAF Austria – aws Business Angel Fund, aimed at co-investments with business angels. This is a joint initiative of the European Investment Fund and the Austrian federal promotional bank Austria Wirtschaftsservice Gesellschaft mbH (aws).
In 2015 and early 2016, activity in the real estate sector was remarkable. International investors have shown interest in listed Austrian real estate companies already for some time. In recent years, however, local players often outbid international investors; but the opposite has been seen recently.
While a voluntary public bid based on a valuation of nearly €1.2 billion by Deutsche Wohnen for all shares in Conwert failed because the acceptance threshold of 50 per cent (under the Austrian Takeover Act) was not met, the Austrian Haselsteiner family sold its 24.7 per cent participation in the company to Israeli investor Teddy Sagi for close to €230 million in Q2/2015, who in turn sold the stake to the German real estate company Adler for €285 million in Q3/2015. Adler failed to change the majority of the existing board, but succeeded in having it increased by one member suggested by Adler. According to media reports, the Austrian Takeover Commission is investigating whether Adler and other shareholders were acting in concert, which would trigger a mandatory bid obligation under Austrian takeover law.
Also the listed real estate companies CA Immo and Immofinanz are in the spotlight. After acquiring in total 26 per cent in CA Immo through a combination of a block trade from Unicredit as well as a voluntary partial offer, Russian O1 Group this year agreed to sell its entire stake to Immofinanz for approximately €604 million. The acquisition of the CA Immo stake is a first step towards a planned full combination of Immofinanz and CA Immo by way of a statutory merger. Prior to the envisaged merger, Immofinanz is planning to demerge or sell its Russian asset portfolio. This is quite a spectacular response to events in 2015: With the backing of O1, CA Immo launched a voluntary partial bid for 15 per cent in Immofinanz for up to €423 million, which responded with the announcement of a reverse (voluntary partial) bid for up to 29 per cent in CA Immo for up to €530 million, after losing out to O1 in the auction for the 16.8 per cent stake in CA Immo sold by Unicredit. As a defence measure, Immofinanz lowered the threshold that triggers a mandatory bid obligation from the statutory 30 per cent to 15 per cent, while CA Immo increased the majority to remove supervisory board members to a 75 per cent majority, making it more difficult for Immofinanz to change the supervisory board of CA Immo, had they acquired up to the suggested 29 per cent. In response, Immofinanz dropped its plan for last year’s bid.
Immofinanz’s former subsidiary BUWOG also lowered the formal control threshold, but to only 20 per cent – again, as a takeover precaution. BUWOG was also one of the noteworthy IPOs in 2015, and is now listed in Frankfurt, Vienna and Warsaw. The IPO was implemented via a spin-off to the market, in the same way that Siemens placed Osram on the market. The Austrian Takeover Commission confirmed in a ruling that no mandatory offer was triggered in this case.
The largest property deal in 2014, with a purchase price of €315 million, concerned the Millennium Tower in Vienna. The current owners, Morgan Stanley and CC Real, after completing a major renovation and modernisation, are said to be putting the property on the market again. The expected deal volume shall amount to approximately €350 million. In late 2015 Morgan Stanley also acquired The Mall shopping centre from Bank Austria (Unicredit) for approximately €500 million, making it the property deal of the year. Another noteworthy property deal was the sale of IZD Tower by a joint venture of Signa Recap and the German insurance group R+V to CBRE Global Investors (which acted for Asian investors) in early 2016. Also in the hotel segment several deals can be reported: Starwood Hotels and Resorts sold 5-star hotel Imperial to Al Habtoor Group, a UAE based investment company, for approximately €70 million. A joint venture of Highgate Hotels and Goldman Sachs acquired K+K Hotelgruppe, with 10 hotels situated across Europe, from its Austrian owners. Currently Austrian insurer Uniqua is reported to be auctioning the Vienna Sofitel for an expected purchase price of approximately €100 million.
The sale of private companies often takes place by auction. There is no specific legislation for such auction processes. However, when a state-controlled seller is involved, as with sales procedures for nationalised banks, the process should be transparent and non-discriminatory to provide for a proper defence, under EU state aid regulations, against any argument of unsuccessful bidders that the seller effectively granted a subsidy by selling to the prevailing bidder. In late 2014, the south-eastern European operations of Hypo Alpe Adria Bank, which had been fully nationalised in 2009, were sold to a consortium formed by the private equity investor ADVENT and the European Bank for Reconstruction and Development (EBRD). In early 2015, UK based Attestor Capital and private investor Patrick Bettscheider agreed to acquire a 99.78 per cent stake in the formerly nationalised Kommunalkredit Austria AG from state-owned Finanzmarktbeteiligung Aktiengesellschaft des Bundes for a purchase price of up to €150 million. In a preliminary step toxic assets were spun off to the bad bank KA Finanz. The discussed sale of the retail division of Unicredit to former union bank BAWAG, which is majority-owned by Cerberus, did not proceed. BAWAG itself is an ongoing candidate to be sold. Further transactions in the banking sector included Wiener Privatbanken SE’s acquisition of the Austrian banking operations of Valartis Bank (Austria) AG through an asset deal. The EBRD invested €122 million in Raiffeisen’s Ukrainian subsidiary Bank Aval, which resulted in the purchase of a 30 per cent stake, with Austrian based Raiffeisen International’s stake being reduced to 67 per cent. Raiffeisen International further sold its Slovenian subsidiary Raiffeisen Banka to an Apollo-managed company.
The market has also seen various transactions with other financial institutions. For example the Austrian based credit card operator Card Complete Service Bank acquired DC Bank, another Austrian based credit card operator and issuer with operations in Austria, the Czech Republic, Poland and Slovakia, from its majority shareholder Unicredit. Daimler Group acquired a banking subsidiary providing insurance and financial services from the Austrian automotive dealer Wiesenthal, which was renamed Mercedes-Benz Bank and will directly provide financing services in Austria. BAWAG acquired VB Leasing Finanzierungsgesellschaft, a finance leasing service provider, from immigon portfolioabbau, the bad bank of Österreichischen Volksbanken-AG (ÖVAG). Another trend that continued was the ongoing consolidation in the banking sector, with Volksbank Wien acquiring further local Volksbanken banks, or retail banking group Sparda merging its two entities Sparda Banken Austria Nord and Sparda Banken Austria Süd.
Generali Holding Vienna acquired a 37.5 per cent stake in Bonus Pensionskassen from listed Swiss Zurich Insurance Group, so that now each holds 50 per cent in the Austrian target which provides pension fund management services. Bonus Pensionskassen itself acquired all shares in Victoria-Volksbanken Pensionskassen and Victoria-Volksbanken Vorsorgekasse from a group of sellers including German insurer ERGO, immigon portfolioabbau, Niederösterreichische Landeshypothekenbank and Austrian private bank Schoellerbank.
Another prominent deal was CEESEG, the parent of the Austrian Stock Exchange as well as the Austrian Control Bank (OeKB) selling its 68.8 per cent stake in the Budapest Stock Exchange to the Hungarian National Bank.
After a failed auction a few years ago (mainly due to problems that surfaced in relation to a French subsidiary of the target, Lejaby), a group led by private equity fund Quadriga Capital sold 100 per cent in the lingerie manufacturer and retailer Palmers to Austrian investors. Before that auction of the core business, the cosmetic division had been carved out by the sale of p2 Kosmetik GmbH to France-based cosmetic and perfume manufacturer Maesa. Pfeiffer Holding, the purchaser of the food discount retailer Zielpunkt, sold its wholesale business Pfeiffer C+C to Transgourmet, a subsidiary of Swiss retail giant Coop. REWE International Group purchased 25 former Zielpunkt branches across Vienna and Lower Austria out of the Zielpunkt insolvency. German Unilever sold its frozen food activities to Austrian-based Meisterfrost. SIGNA Retail, which acquired several retail companies including the KaDeWe Group and Karstadt, acquired a 60 per cent stake in Outfitter, an online sports fashion retailer. For approximately €200 million 70 stores of struggling DIY-retailer Baumax were purchased by a consortium of German DYI-retailer OBI and the Austria-based developer Supernova Management. The Austrian-based automotive spare parts and accessories retailer PS-Mark acquired its Austrian-based competitor Forstinger Handel und Service from a private investor. The car industry was another area of activity, including New Country’s acquisition of Wiesenthal’s US operations. Another transaction in the car industry was the sale of Auto Frey, one of Austria largest car dealerships, to Catharina Pappas Group, another large Austrian car dealership.
Packaging is one of the industries that has seen high deal volume. The most prominent deal involved France’s Wendel Group, which acquired a majority stake in Constantia Flexibles in late 2014. Throughout 2015 it sold a stake of 25 per cent to Herbert Turnauer Foundation for €100 million and a stake of 10 per cent to Munich private equity investor Maxburg Capital Partners for €100 million. It is being reported that Wendel will continue to search for potential minority investors. Constantia Flexibles itself reported the successful takeover of the South African packaging company Afripack as well as the acquisition of Vietnamese aluminium manufacturer Oai Hung. One Equity Partners and private investor Christine de Castelbajac (the daughter of Herbert Turnauer) successfully sold the packing company Duropack to the listed British packaging company DS Smith for approximately €300 million, representing a post-synergy EBITDA multiple of 5.7. Other deals in the packing industry include Dunapack Packaging, which is part of the Austrian Prinzhorn Group, purchasing Greek Viokyt Packaging, or the acquisition of the European tobacco packaging and general packaging divisions of MeadWestvaco to Swedish AR Packaging.
In 2015 and early 2016 the public M&A activity had been substantial. Some of the transactions are covered above. Also the increase in partial takeover bids was notable. These aim to stay below the formal control threshold of 30 per cent (unless lowered in the articles of association as implemented by several Austrian companies), which triggers a mandatory bid obligation for all shares in the target, or are even limited to only 26 per cent, which is the ex-lege cap of exercisable voting rights (unless another shareholder holds voting rights in excess of that threshold or a bid is launched). Often, though, they are followed by subsequent bids, which usually trigger a mandatory offer. The following deal was different, however: In 2015 Airports Group Europe, an indirect subsidiary of IFM Global Infrastructure Fund, launched a voluntary partial bid to acquire 29.9 per cent in Flughafen Wien AG, the operator of Vienna International Airport, and successfully acquired shares just below the 30 per cent threshold. Now in 2016 it launched a voluntary partial bid to acquire a further 10 per cent for up to €210 million, not following the rules of a mandatory bid, based on the argument that despite exceeding the formal control threshold of 30 per cent no mandatory bid obligation is triggered since two shareholders are acting in a syndicate, that in total controls 40 per cent of the voting rights.
In addition to the private equity deals mentioned above, the following are noteworthy. Private equity firm Ardian acquired Austrian-based Gantner, a leading provider of RFID system solutions for the fitness industry, from Identec Group, as well as the Austrian based agro chemicals (ES) and fine chemicals (IM) business activities of DPx Holdings, a holding company that resulted from a US$2.6 billion transaction between JLL Partners and Royal DSM. After acquiring Lenzing Plastics, an Austrian manufacturer of thermoplastic products, in 2013, INVEST AG, Oberösterreichische Beteiligungsgesellschaft and Tyrol Equity sold the company in 2015 to German private equity firm Nord Holding. UK-based Walstead Group, owned by private equity investor Rutland Partners, acquired Let’s Print Holding AG, the largest web offset printing company in Austria, at €175 million, creating the largest independent printing company in Europe. Another deal in the printing industry was the acquisition of Austrian based druck.at by Netherlands based and listed Cimpress from the Austrian printing house DPI Holding for €23 million. Austrian-based HANLO Group, active in prefabricated housing construction, had been purchased by a private investor, after it filed for insolvency. HANLO group had been a portfolio company of HIG Capital, which acquired it from its founder a few years ago. An Austrian based global player in the design and manufacture of sensors, ams, acquired Belgian CMOSIS for €20 million from the private equity firm TA Associates Management. In an earlier transaction it acquired Dutch CMOS sensor business from NXP Semiconductors. OrbiMed Advisors, VIVO Capital and Ecor1 Capital, the US-based private equity firms and Boxer Capital, the US-based private equity fund of Tavistock Life Sciences, have acquired an undisclosed stake in Nabriva Therapeutics, an Austria-based biotechnology company that discovers and develops antibiotics, in a Series B financing, for US$120 million. Munich-based Bavaria Industries Group sold Austria Druckguss to Chinese automotive supplier Zhongding Group. German private equity firm Equity Management sold a 95.5 per cent stake in Leobersdorfer Maschinenfabrik, a manufacturer of high-pressure compression systems, to a Hong Kong based strategic investor. The Austrian drilling equipment manufacturer Schoeller-Bleckmann Oilfield Equipment acquired a 68 per cent in Houston-based Downhole Technology for approximately US$103 million from the private equity firm Pelican Energy Partners.
In general, we see an increased appetite of private equity firms to invest in smaller jurisdictions such as Austria, which is also true for some of the private equity heavyweights. Many prominent names in the industry are looking at Austrian targets and even if some of them have not concluded reported deals yet, we will definitely see more in the coming years.
In the construction sector, Strabag announced the takeover of the remaining 42.74 per cent in its German subsidiary Ed. Züblin from the Lenz family, while Austrian construction group HABAU purchased Bilfinger MCE from German Bilfinger Berger in 2016, which in turn acquired MCE from Deutsche Beteiligungs GmbH in 2009 for €350 million. In 2015 HABAU also acquired the Austrian construction company LEN-BAU. Earlier in 2015, the latter acquired the renovation unit of the Austrian based real estate developer DURST-BAU. As regards to related industries listed CEMEX, a Mexican group specialised in building materials, sold its Austrian and Hungarian subsidiaries for approximately €160 million to German Rohrdorfer Group. Listed Austrian crane company Palfinger acquired a 75 per cent stake in Spanish crane distributor Mycsar Mulder from its founders, who remain shareholders with 25 per cent.
By comparison to other sectors, energy had not been as active as in prior years: Électricité de France sold its 25 per cent stake in Energie Steiermark AG to Australian investor Macquarie for approximately €270 million, which is substantially less than EDF paid when acquiring the stake. Austrian energy blue chip OMV acquired all shares in its gas trading subsidiary Econ-Gas from its former co-shareholders EVN, Wien Energie and Energie Burgenland.
An example in the electronics sector was the transaction in which Singaporean Delta Electronics International, a subsidiary of Delta Electronics, a listed Taiwan-based company, acquired a 85 per cent stake in Austrian LOYTEC electronics, an Austria-based developer, manufacturer, and distributor of network infrastructure solutions for buildings and real estate automation and Innocontrol electronics GmbH, an Austria-based provider of building management and control solutions. In the IT sector Austrian gaming company Novomatic agreed to purchase approximately 53 per cent in listed Ainsworth Game Technology from Len Ainsworth, the founder and majority shareholder, for approximately €307 million.
As to metals, voestalpine’s special steel division acquired Shanghai based Advanced Tooling Tek and the Spanish Sermetal Group, specialised in the processing and sale of special steel products for tool and mould-making. In chemicals Austrian Treibacher acquired 100 per cent of Tribotecc, a leading manufacturer of metal sulphides, from US Rockwood Specialities Group.
In the food and beverages sector Austrian based S.Spitz sold 49 per cent of its subsidiary Power Horse Energy, an energy drink producer, to UAE investors Vis Mundi and Levant Capital. Orkla Foods, through its wholly owned subsidiary FELIX Austria, acquired 100 per cent of the shares in the Austrian bio food company Bioquelle. Also the Austrian subsidiary of BRF Brazil Foods had been involved in several deals.
For sports and leisure, notable transactions include Red Bull acquiring a 50 per cent stake in Beach Majors from its founder. The target is a sports promoter responsible for the Swatch Beach Volleyball Major Series. Another interesting deal was Swiss Sportradar acquiring the core operations of The Sportsman Media Holding, such as the sport rights and marketing agency, the betting and gaming business, the Internet-channel Laola1.tv and the production unit Unas Media. From the Nordics, Swedish SkiStar AB purchased 68 per cent in the Austria ski resort operator St. Johanner Bergbahnen.
Examples from the service sector include DHR International acquiring the Austrian HR consultant and executive search specialist Neumann Leadership Holding from NYSE listed executive search firm CTPartners for US$26 million. GFKL Lowell strengthened its market position in Austria and Switzerland by acquiring collection and credit agency IS Inkasso Service from Hannover Finanz.
In the distressed field, recently there was less activity than in 2013 (then mainly in relation to the €2.6 billion bankruptcy of Austrian construction company Alpine). One trend to continue from recent years, however, was that of bank-driven restructurings that resulted in the auctioning of non-core or non-performing assets. In most cases, these restructurings related to the retail sector. The number of cases where banks push for auctions of borrowers before the insolvency stage also increased. Examples for such deals follow. After taking over Bene in early 2015 through a purchase of a 90.24 per cent stake in the company (for which no mandatory bid obligation was triggered due to an exception under Austrian takeover law) and following a squeeze-out of the minority shareholders in late 2015, a vehicle of Austrian private investors named BGO purchased Neudörfler Office Systems. Other private investors purchased the Austrian office furniture manufacturer Swoboda. Another deal in that sector was the acquisition of the business of Gruber + Schlager, which had been subject to insolvency proceedings, by Hali Büromöbel, an Austrian-based office furniture manufacturer. Other examples are the above mentioned DIY-retailer Baumax or the shoe retailer group Leder & Schuh, which auctioned its German operations.
The new economy is becoming an increasingly sought-after target for strategic investors. The most notable transaction relating was adidas’s acquisition of all shares in Runtastic, the Austrian mobile fitness app maker, based on an enterprise value of €220 million, from the majority shareholder Axel Springer (which acquired its stake in 2013 based on an enterprise value of €22 million), as well as the target’s founders and business angel Hansi Hansmann. Another prominent deal had been the acquisition of a 60 per cent stake in Aktionsfinder GmbH, an Austrian online distribution platforms for leaflets, to the listed Austrian blue chip Österreichische Post. The sellers were the founders, who remain invested with 20 per cent each, as well as Axcit Capital Partners, which acted as business angel to the target. Novomatic also purchased the price comparison engine Idealo Internet from Axel Springer.
Experience shows that certain restrictions under Austrian corporate law often come as a surprise to foreign investors structuring a deal, particularly financing and intra-group transactions after consummation of the transaction. Austrian law generally prohibits the return of equity to shareholders (ie, upstream and side-stream transactions) of both a limited liability company and a stock corporation (and are applied by the Austrian courts by analogy to limited partnerships with only a limited liability company or stock corporation as unlimited partner). Based on this principle, Austrian courts have established that a company cannot make any payments to its shareholders outside arm’s-length transactions except in the following instances: For the distributable balance sheet profit; in a formal reduction of the registered share capital; or for the surplus following liquidation.
The prohibition on return of equity covers payments and other transactions benefiting a shareholder where no adequate arm’s-length consideration is received in return. To the extent a transaction qualifies as a prohibited return on equity, it is null and void between the shareholder and the subsidiary (and any involved third party if it knew or should have known of the violation). It may result in liability for damages.
Austrian courts have developed case law suggesting that a subsidiary may lend to a shareholder, or guarantee, or provide a security interest for a shareholder’s loan if it receives adequate consideration in return; or if it has determined (with due care) that the shareholder is unlikely to default on its payment obligations, and that, even if the shareholder defaults, such default would not put the subsidiary at risk, and that the transaction is in the interest of the Austrian subsidiary (corporate benefit).
In addition, the Austrian Stock Corporation Act prohibits a target company from financing or providing assistance in the financing of the acquisition of its own shares or the shares of its parent company (irrespective of whether or not the transaction constitutes a return of capital). It is debated whether this rule should be applied by analogy to limited liability companies. Transactions violating this rule are valid but may result in liability for damages.
Another area in which capital maintenance problems may arise is that of deal and management fees charged by private equity funds to the Austrian target or an Austrian acquisition vehicle. Again, the arm’s-length standard is relevant to determine the compliance with Austrian law. The same applies to other intra-group transactions.
Furthermore, (foreign) ownership restrictions are another area of interest to many investors (besides the relatively low merger control thresholds in Austria).
In regulated industry sectors (eg, banking, insurance, utilities, gambling, telecoms or aviation) the acquisition of a qualified or a controlling interest is typically subject to advance notification to, or approval of, the competent regulatory authority. Sanctions for failure to notify or obtain approval in advance range from monetary penalties to a suspension of voting rights or a partial or total shutdown.
The acquisition of ownership and certain lease interests in real estate by non-EEA nationals or the acquisition of control over companies owning such interests is subject to notification or approval by the local real estate transfer commission. What interests are covered and whether notification or approval is required varies among the legislation of the nine states in Austria. Where the real estate is used for commercial rather than residential purposes approvals are usually granted.
Under the Foreign Trade Act, the acquisition of an interest of 25 per cent or more, or a controlling interest in an Austrian business by a foreign investor (for purposes of this law, that is an investor domiciled outside of the EU/EEA and Switzerland; if the investor is resident in that region, no advance approval is required, but ex officio investigations can be initiated without time limit) is subject to advance approval by the Austrian Minister of Economic Affairs where that business is involved in internal and external security (for example, defence and security services) or public order and security, including public and emergency services, such as hospitals, emergency and rescue services, energy and water supply, telecommunications, traffic or universities and schools. Transactions subject to approval cannot be completed pending approval. Failure to obtain approval is subject to imprisonment and criminal penalties.
The outlook for the rest of 2016 is rather difficult due to macroeconomic developments (eg, Brexit) that may change the current investment environment in Europe and internationally. Generally, the first half of 2016 was active, so based on the assumption that the economy remains stable, the Austrian M&A market should continue its strong performance. This is also supported by the fact that, in particular, private equity firms hold substantial cash reserves to be invested and many of their portfolio companies are overdue to be sold again.