tag: M&A

After six years, Hungary may finally be about to retire the exceptionally broad foreign direct investment (‘FDI’) screening rules introduced during the pandemic. According to the draft legislation now open for public consultation, Hungary’s dual FDI regime could come to an end, with most foreign corporate acquisitions falling outside the scope of the special notification requirement. This is welcome news for the Hungarian M&A market, and long overdue – although a few question marks remain for the time being.

For international investors, acquiring or establishing a business in Hungary involves more than negotiating commercial terms. Mergers, acquisitions, and joint ventures may require approval from the Hungarian Competition Authority (“HCA”) before they can be completed. Failure to comply with merger control rules can result in significant fines, delays, or even the prohibition of a transaction.

Including an earn-out provision in a corporate sale transaction can be an effective way to ensure a smooth and efficient transfer of a company. However, it may also introduce significant tax challenges. As such, it’s important to approach the inclusion of such a provision with careful consideration.

A shareholder’s ownership percentage does not always reveal who truly controls a company. In an acquisition, joint venture or minority investment, influence depends as much on negotiated governance rights as on the shares held. This is particularly relevant for foreign investment in Hungary. An investor may want existing management to run the business while retaining a say over decisions that could materially affect its investment. The aim is to protect the investment without slowing the company down.

Since COVID, we have been living with a rule that makes the acquisition of ownership by foreigners in certain Hungarian companies operating in strategic sectors subject to government approval. Although we can no longer speak of a state of emergency, the rule is expected to stay with us for long – albeit with several modifications along the way, as happened in January this year.

More than two years ago as a transitional rule, the acquisition of ownership interest in Hungarian companies by foreigners became subject to authorisation. The rule seems to have become permanent in the meantime, though many questions of legal interpretation remain unanswered. Some market players are following the process with resignation, others with serious reservations.

More than two years ago as a transitional rule, the acquisition of ownership interest in Hungarian companies by foreigners became subject to authorisation. The rule seems to have become permanent in the meantime, though many questions of legal interpretation remain unanswered. Some market players are following the process with resignation, others with serious reservations.

When the idea of selling the company matures in the mind of a business owner, there’s still a long way to go before the company can be successfully sold. There are many legal and tax matters to be seen to as part of the process – and these should not be left to the last minute. We discuss a few of these here.