Five things you should know before you buy a company in Poland Ewa Torosian For a number of years now, Poland has ranked high among Central and Eastern European countries in terms of its investment attractiveness. Our main advantages, which invariably appeal to foreign investors, include stable economic growth, strong internal demand, proximity to major European markets, access to highly qualified employees, and the ever-increasing quality of infrastructure. When it comes to the value and number of M&A transactions, Poland takes the second place among other Central and Eastern European countries, placing after Russia (whose economic attractiveness rests on a completely different economic model).However, favourable macroeconomic conditions do not always guarantee a successful transaction. Grasping the specific nature of the local market and its business operators has a material impact on the success of an acquisition. My experience in transactional advisory shows that every country implements its own particular investment policy, Poland being no exception. In the next section, I discuss five main characteristics of the Polish M&A market in the private sector. 1. High quality of the Polish capital marketIn September 2018, Poland, as the first country in the region, had its market rank changed by FTSE Russell index agency, moving up from “emerging” to “developed”. Even though there was no sudden increase in foreign investors’ interest in our country following the announcement, and Polish stock exchange is experiencing stagnation, it clearly indicates the maturing character of the Polish economy and the rising capital market quality.Many significant private equity investors are operating on the Polish market, with nearly all renowned consulting and law offices having established their presence. The leading Polish banks successfully adhere to the best international standards and in some areas, such as electronic banking, they have even become market leaders. Within 30 years of its existence, the Polish capital market has achieved a very high professional level and created the full infrastructure for effective execution of significant and challenging M&A projects. Based on my long-term experience of many successful transactions conducted in different countries, I believe that M&A project service in Poland is of outstanding quality when it comes to efficiency and competence.2. Traditional management model in Polish private companiesAcquisitions of family firms with 20-30 years of market experience are gaining importance among all business acquisitions carried out in Poland. Those smaller companies often offer great business opportunities because of their established market position, modern production facilities (mostly supported by funds from the European Union), low operational costs, and the improving quality of their work force.However, it is worth noticing that this modern way of operating usually comes together with a traditional ownership management model. Thus, the key success factor is not the efficiency of the entire company, but rather the manager’s business acumen and accuracy in decision making. Polish private businesses usually prove to be more non-orthodox and flexible regarding their clients’ and contractors’ needs. Frequent changes in the market environment, legislative amendments and tax changes are their day-to-day practice, with the best way to protect their business being to improvise, adapt, and make decisions fast.On the other hand, such a management model may be a key risk factor for the investor who considers acquiring a company operating in this way. So, one of the most significant elements related to the acquisition of a Polish private company is early planning of management techniques to be implemented after the company is acquired, as well as implementation of modern IT systems, and integration between the merged companies.3. Demanding negotiation processM&A transactions executed by private, Polish entrepreneur-owned businesses accounted for more than a half of all such transactions performed in Poland in 2018. The number of such transactions will increase in the following years because of the generational change and the increasingly important issue of succession.These companies are usually owned by their founders who started their business from scratch and had the chance to benefit from the fast growth in the early years of operating. Therefore, they tend to be optimistic about their company’s value and see mostly market opportunities, believing that the upward trend could still persist in the future. Even if these companies are facing financial problems, most Polish businessmen will consider them temporary and assume buoyant growth in the upcoming years in their business plans. Consequently, it is fairly common that the company’s value is rather overestimated by the owner. Related to that is the emotional aspect of the selling of the self-founded company, whose owner may experience feelings of doubt, loss, or resentment.Communication with the seller is particularly important in M&A transactions. Mutual trust and understanding are the main factors crucial for success. Even if the initial financial expectations are significantly different, finding a common ground is still within reach – but only if both parties explain to each other their approach and the rationale behind the price. In most cases, only a professional Polish advisor is able to help facilitating effective communication between the two parties.4. Focus on the national marketStatistically, the value of Polish export is showing strong growth. However, it is fuelled mostly by foreign investors who have founded or acquired Polish companies and opened foreign markets for them. A vast majority of Polish private companies have focused on the national market or sub-supplied for global corporations in the international supply chain.This situation results from a number of factors, starting from the notable size of the Polish market. With a population of over 38 million, strong internal demand, and the growing affluence and acquisition power of Poles, Polish businesses were first able to expand within their own national market. The expansion on foreign markets, which requires a different approach to operational costs, was less important. This direction of economic development was also attributable to the traditional business management model in which the owner, who felt comfortable on the familiar national market and did not understand the mechanisms of running a business outside of Poland, had a dominant role in the company. Additionally, the owner usually did not know any foreign languages, especially English, which made communication more difficult.This situation is changing gradually, and therefore, whenever a foreign investor acquires a Polish company, it is important to investigate the possibility of introducing it on international markets. Many companies show significant dormant potential which can have a positive impact on transaction viability.5. Increase of women’s role in businessDespite the rather conservative nature of Polish culture and people’s mentality, important socio-cultural changes have been taking place in the country. For example, despite the traditional perception of gender position and status, approximately 30% of all Polish companies are now run by women. Although there is still no full gender equality in Poland, women are playing an increasingly important role in business.It stands to reason that the growing open-mindedness and modern thinking of gender role should be taken into account while planning to acquire a company in Poland. Research indicates that businesswomen tend to employ slightly different methods of management, with an impact on human resources and decision making. They often promote tolerance and independence, and their management techniques are based on cooperation. This approach to business management may contribute to building positive rapport both during the planned acquisition and later on, when cultural and organisational adaptation issues become important.