Special aspects of negotiating with German medium-sized businesses for Polish investors

last updated on 22 February 2022 | Reading time: approx. 2 minutes

What special issues await polish entrepreneurs when they take over or acquire a stake in an owner-managed company in germany?

Takeovers of German companies by Polish investors are no longer rare, although the number of transactions is smaller compared to the still flourishing investments of German entrepreneurs in Poland. The number of Polish entrepreneurs expanding into the German market is steadily increasing. This is not surprising, given the steadily growing and close economic cooperation between the two European neighbours. Apart from the obvious advantages that the German market offers to foreign investors, such as high legal certainty and good payment practices of German business partners, it is access to Germany's large sales market that is particularly attractive to Polish investors. Investors who decide to invest beyond Poland's western border often already have a well-established economic position in Poland and quite frequently also company locations and shareholdings that can demonstrate financial success in many other countries outside Poland. In recent years, it has been increasingly observed that Polish capital has been used to help German family businesses that are in a difficult situation for various reasons (e.g. due to the lack of succession). It is much easier to invest in an established German company and take over its stable market position, brand, sales markets and business partners than to build one from scratch. Finally, the geographical proximity and strong similarity of the Polish and German legal systems encourage cross-border M&A transactions, which follow a very similar process in each of the two countries. Nevertheless, there is a difference in corporate culture and – which should not be underestimated – mentality.

Polish companies that decide to expand into Germany are often experienced investors who are supported by Polish legal advisors specialising in international M&A business, have a very good knowledge of German and know the specific legal conditions in both countries. What often surprises Polish investors is the German system of employee co-determination (which does not exist in Poland) and the fact that safeguarding the interests of different groups of stakeholders in companies, including employees, by the company owner is a very essential element in negotiations. Polish investors are usually positively surprised by the very good preparation of German business owners for the transaction, knowledge of relevant facts and figures, the open and fair conduct of negotiations, the rational and quick making of business decisions, and by the fact that what is said at the negotiating table can actually be trusted to be delivered.

What aspects should polish companies take into account when negotiating with german medium-sized businesses?

In Poland, greater attention is paid to formalities during negotiations and to ensuring that interim results of negotiations are always recorded in writing and confirmed in writing as binding by the parties involved, even during the ongoing process. Formal and detailed safeguards in the first phase of talks when exchanging the letter of intent also play a major role in Poland. During the due diligence phase, Polish investors in Germany can be confident that circumstances relevant to the transaction concerning the target company will be presented in a well-prepared manner and disclosed honestly. However, such a disclosure principle does not exist in Poland. It is also not uncommon in Poland that the issue of adjustments of the purchase price will be raised repeatedly during a long transaction process, even though the other party had assumed that agreement had already been reached on this. In Poland, it is simply not uncommon to assume that until the purchase agreement is signed, previous agreements are not binding and can, therefore, be changed at any time. It is also not uncommon that intense negotiations take place again in the last hours before the signing, when new facts about the transaction are presented shortly before the agreement is signed, which is a part of a customary negotiating tactic.

Understandably, this often leads to considerable irritation among German counterparts, who place particular value on a certain predictability and confidence in the investment process and on good preparation. It is also important to make Polish entrepreneurs aware of a certain peculiarity of German medium-sized family businesses, whose existence often bases on the work of the whole family that is passed from generation to generation. It is particularly important to take this into account in the post-merger integration phase.