1 Deal structure

1.1 How are private M&A transactions typically structured in your jurisdiction?

In terms of the structure of mergers and acquisitions, share deal acquisitions are the predominant structure in Slovenia. However, asset deal acquisitions also take place, especially more recently due to improved conditions in the construction sector.

Classic merger deals are rare, due to the small size of the Slovenian market, the economic culture and the fact that such deals are subject to full merger of companies' operations. In certain situations, two or more parties are more likely to pursue mutual cooperation through various forms of joint ventures – either specific project-based arrangements or through the establishment of a company, in most cases a limited liability company.

1.2 What are the key differences and potential advantages and disadvantages of the various structures?

Apart from publicly traded M&As, share deal acquisitions can be conducted without major difficulties if the ownership is consolidated. However, a broader number of shareholders may be involved which may have diverse interests. In such cases, various contractual clauses – such as tag-along and drag-along clauses – are commonly used to facilitate the transaction.

Share deals usually require scope due diligence on red-flag issues concerning, for example, particular assets or business units which may require the seller:

  • to carve out assets, groups of assets or even entire business units; or
  • as the case may be, to lower its purchase price ambitions.

Based on the findings of the due diligence, more time can be spent on the negotiation of all necessary terms of the share purchase agreement, which may be relatively complex and include, for example:

  • various conditions precedent;
  • representations and warranties;
  • change-of-control clauses; and
  • non-compete clauses.

In general, asset deals tend to be quicker, as the subject of the sale is limited and is not bound by the business relations of the company. As a result, contractual obligations can be simplified, as exposure to the company's debts and other obligations is reduced. Although buyers might also prefer asset deals due to the tax advantages (especially when purchasing highly depreciated assets), these can also be complex in terms of:

  • the specific legal limitations concerning the types of assets involved; and
  • the regulation of business relationships relating to such assets (eg, financial institutions, insurers).

Furthermore, any concessions or other licences pertaining to the target are not subject to transfer in asset deals and (where permitted) are subject to regulation.

1.3 What factors commonly influence the choice of transaction structure?

First, it is important to identify the initiator of the transaction process – either the buyer or the seller. In case of an expression of interest on the buyer's side, the target is usually located and analysed through publicly available financial data. Depending on interest and financial capacity, the buyer will aim to secure sole ownership or at least a majority or controlling stake in the target. To eliminate or minimise the competition, buyers strive to keep the transaction process as confidential as possible and thus often request a certain period of negotiation exclusivity.

In the case of seller-driven transactions, an additional factor is the specialisation of the products or services offered by the target. The more specialised they are, the less need there is for a public approach, because there are fewer potential buyers and they will generally be well known to the seller. In the case of less specialised products or services, or where the seller is aware of a wider range of potential buyers, the seller will usually opt for a more public approach in order to attract a larger number of potential bidders and thus build competition between them. Especially in cases where there is significant competition, transactions usually begin with a non-binding phase during which non-binding initial offers/bids are made, which are then narrowed down (subject to the seller's discretion) in a binding phase with binding offers.

1.4 What specific considerations should be borne in mind where the sale is structured as an auction process?

When selling through an auction, the seller will seek to attract a large number of competing bidders. To prepare for an auction process, the seller will usually need to undertake a considerable amount of work in the preliminary phase before the auction starts. In most cases, the assistance of financial, legal and other advisers (eg, accountants) should be obtained. This can be very helpful in establishing the strategy for the auction.

As the seller controls the scope of information that is disclosed to potential bidders (usually through a data room), careful preparation of the documentation and other information is crucial. This will enable the seller to disclose as little as possible, but still enough to ensure that bidders can make adequate assessments and bids.

Although a considerable amount of time and work must be spent in the preparatory stages, the main advantage of the auction process is its structure and speed. The procedure itself – including the timeline and deadlines – is set out in the process letter. However, an auction is not suitable where:

  • a company's business is structurally challenging or complicated;
  • the market sector is highly consolidated and limited; or
  • competition or regulatory issues, or third-party approvals or requirements, must be dealt with.

2 Initial steps

2.1 What agreements are typically entered into during the initial preparatory stage of a private M&A transaction?

Although Slovenia is not a big market, the standard documents that are used in international transactions have generally been adopted in practice. However, the scope of this documentation differs depending on the type of transaction.

In larger transactions where professional financial and legal advisers are involved, an auction is generally used. The standard documentation in the preparatory stages includes:

  • a confidentiality (non-disclosure) agreement;
  • a process letter; and
  • an information memorandum which includes sufficient information about the target, including a description of:
    • its business;
    • its history;
    • the industry and sector in which it operates;
    • its financial information, including future goals and projections;
    • its assets;
    • its management; and
    • key employees.

Depending on the seller's strategy, it is not uncommon to include a draft sale and purchase agreement in order to establish contract terms from the beginning, thus limiting the scope for negotiation. Where the seller's advisers conduct the due diligence, a vendor's due diligence report is also often part of the preliminary documentation.

Bearing in mind the costs involved in the preparatory stage, and depending on the market structure and especially its consolidation (ie, the number of potential bidders), small to medium-sized transactions are often conducted through direct bilateral negotiations with a smaller number of potential buyers. Although transactions are cost sensitive, especially smaller ones, sellers will be aware of the potential consequences of the transaction process, even if closing is unsuccessful; so a standard list of documents is becoming common practice. This usually starts with either:

  • an invitation to express interest (where the deal is initiated by the seller); or
  • an expression of interest (where the deal is initiated by the buyer).

An invitation usually comes with a teaser as a simplified version of the information memorandum. The expression of interest on the buyer's side usually comes with an indicative preliminary offer. This is usually followed by the signing of a memorandum of understanding or a letter of intent, including:

  • a confidentiality clause (which can also be included in a separate non-disclosure agreement); and
  • potentially, an exclusivity clause (which the buyer will prefer).

2.2 Which advisers and stakeholders are typically involved in the initial preparatory stage of a private M&A transaction?

The specific individuals and parties involved can vary depending on the size and complexity of the deal. Given the complexity of transactions, legal advisers, financial advisers and accountants are typically engaged in the preparatory stages. Experienced M&A lawyers will:

  • provide legal advice on structuring the deal;
  • ensure compliance with regulations;
  • draft the transaction documents; and
  • conduct legal due diligence.

Where in-house counsel are present, they usually work alongside the external legal advisers. Financial analysts will assess the financial aspects of the deal and conduct financial due diligence. It is likely that the seller's investment bank will also be included, especially where:

  • the seller's business is closely tied to the bank; or
  • the bank can extensively survey the market to identify potential buyers.

Accounting professionals may be involved to assess the target's financial health and address tax considerations. Tax advisers help to optimise the transaction structure to minimise the tax liabilities for both parties. In asset deals involving real estate, agents can also be very helpful.

Regarding the presence of stakeholders, it is most often the case that majority stakeholders are actively involved in the transaction, as they are often the parties that initiate the deal and have a say in the decision-making process, and they may be involved in negotiations or vote on the deal. Institutional investors may also play a significant role in approving the transaction.

2.3 Can the seller pay adviser costs or is this limited by rules against financial assistance or similar?

The seller can and must pay the costs of its advisers, as it usually enters into the transaction process by signing letters of engagement with several advisers (eg, financial, legal). This does not represent an issue in terms of the rules against financial assistance. Depending on the agreement with the advisers, their costs:

  • can be paid either on an ongoing basis or after the transaction has closed; and
  • generally represent a marginal amount compared to the transaction amount.

3 Due diligence

3.1 What due diligence is typically conducted in private M&A transactions in your jurisdiction and how is it typically conducted?

Given the cost component, it is often the case that due diligence is conducted by potential buyers which have submitted non-binding offers and have been identified as prospective buyers. Due diligence is usually conducted through online data rooms.

Vendor due diligence is seldom conducted in the preparatory stage in Slovenia and is more associated with large transactions involving an auction process.

3.2 What key concerns and considerations should participants in private M&A transactions bear in mind in relation to due diligence?

The primary consideration is the type of transaction. In an auction, the seller controls the scope and process of disclosure, either through the submission of a vendor due diligence report or through an (online) data room. It will seek to disclose as little as possible, but still enough to enable potential bidders to make an adequate assessment and bid accordingly. In cases of bilateral negotiations, the potential buyer will usually send an information request list explaining the information and documents it needs to assess and evaluate the target, which is usually more comprehensive.

Not only from the seller's point of view but also in general, it is very important to engage legal and financial advisers in the due diligence process, in order to ensure that the disclosure does not get out of hand and is carried out as planned. It is to be expected that potential buyers may have questions beyond the predetermined scope of the disclosure scope; they may even make unauthorised contact with employees during management presentations and/or site visits. The presence of skilled advisers helps to avoid and resolve such issues in an effective and timely manner.

It is also useful to consider including a draft sale and purchase agreement to have a starting position for contract terms and to limit potential negotiations and redrafting.

3.3 What kind of scope in relation to environmental, social and governance matters is typical in private M&A transactions?

As elsewhere, environmental, social and governance (ESG) factors are becoming increasingly important in M&A transactions in Slovenia. A growing number of investors have a sustainable and responsible agenda, which is also reflected in their investment strategy. In general, there is no unified set of standards for the evaluation of ESG factors and the specific scope varies from deal to deal, mostly based on specific environmentally sensitive industries and the specific interests and focus of the parties.

In terms of environmental matters, due diligence usually includes assessing potential environmental liabilities and compliance with EU and Slovenian environmental regulations. With regard to sustainability and responsibility, the impact of the target's business and operations on the environment will also be a focus. Depending on the sector in which the target is active, it is also very important to identify and mitigate environmental risks, such as those relating to:

  • pollution;
  • waste management;
  • energy efficiency; and
  • remediation costs.

Social matters are an important part of due diligence analysis, as employees are the social core of every company. An employment review includes a review and analysis of:

  • employment contracts;
  • bylaws;
  • applicable labour union (collective) agreements; and
  • active and pending/potential labour disputes.

In labour-intensive industries and similar situations where employment contracts have standardised terms, a draft employment contract will be submitted for review. It is also becoming common to review the company's relationships with the (local) community and potential social responsibility initiatives in which it participates.

With regard to governance, a standard set of corporate governance matters will be analysed, such as:

  • the corporate structure;
  • the management and (if established) supervisory board composition;
  • decision-making processes; and
  • compliance with basic standards of corporate governance.

The legal assessment will focus on:

  • the general identification of potential legal risks; and
  • an evaluation of active litigation and other potential regulatory compliance issues.

Especially given the enforcement of the EU General Data Protection Regulation, data privacy and cybersecurity are becoming notable subjects of review, involving an assessment of the target's:

  • data protection and security measures; and
  • general compliance with data privacy regulations.

4 Corporate and regulatory approvals

4.1 What kinds of corporate and regulatory approvals must be obtained for a private M&A transaction in your jurisdiction?

In Slovenia, corporate and regulatory approvals for a private M&A transaction will depend on:

  • the specifics of the transaction; and
  • the parties involved.

Competition Protection Agency (CPA): If the transaction results in a significant market concentration or could reduce competition in the relevant market, approval from the CPA may be required.

Notification of a concentration is legally required if:

  • the total annual turnover of all parties involved in the concentration exceeds €35 million; and
  • the annual turnover of the acquired company together with other companies in the group in the preceding financial year on the Slovenian market exceeded €1 million.

Where a joint venture is established which performs all functions of an independent enterprise with a longer duration, notification is required if the annual turnover of at least two undertakings involved in the concentration together with other undertakings in the group in the preceding business year on the Slovenian market exceeded €1 million.

If the above thresholds are not met, the CPA may also assess a concentration if the companies involved together with other companies in their corporate group have a market share of more than 60% on the relevant market in Slovenia. In such cases, the companies involved in the concentration must notify the CPA of such the concentration within 30 days of:

  • the conclusion of the contract;
  • the announcement of the public offer; or
  • the acquisition of control.

The CPA will assess the potential impact on competition and may impose conditions on the transaction to mitigate any anti-competitive effects.

Foreign investment review: If the transaction involves foreign direct investment (FDI) in a strategic sector above the threshold of 10%, it will be subject to FDI review by the Ministry of Economy. The rules on foreign investment reviews may change, so it is essential to check the most up-to-date regulations. Strategic sectors and industries include:

  • critical infrastructure, such as:
    • energy;
    • transport;
    • water;
    • health;
    • communications;
    • media;
    • data processing and storage;
    • aerospace;
    • defence;
    • electoral and financial infrastructure; and
    • sensitive facilities; and
  • land and real estate that is crucial for the use of such infrastructure or close to such infrastructure;
  • critical technologies, including:
    • artificial intelligence;
    • robotics;
    • semiconductors;
    • cybersecurity;
    • aerospace;
    • defence;
    • energy storage;
    • quantum and nuclear technologies;
    • nanotechnologies and biotechnologies; and
    • health, medical and pharmaceutical technologies;
  • access to sensitive information, including personal data, and the ability to control such information;
  • the supply of critical inputs, including:
    • energy and raw materials;
    • food security; and
    • medical and protective equipment; and
  • the freedom and plurality of the media.

Transactions that are subject to FDI control cannot be closed without a positive opinion of the Ministry of Economy, which will be issued no later than two months after the initial request.

Board and shareholder approvals: The board of directors of the acquirer and the target must typically approve the transaction. Shareholder approval may also be required, especially in the case of significant transactions or changes in ownership. The specific requirements will depend on the company's articles of association and applicable laws.

Other regulatory and sector-specific approvals: Depending on the industry and the specifics of the transaction, additional regulatory approvals may be necessary. For example, in regulated sectors such as banking or telecommunications, approval from the relevant regulatory authorities might be required.

The specific requirements and processes can vary depending on:

  • the nature and size of the private M&A transaction; and
  • changes to relevant laws and regulations.

It is highly recommended to consult with legal and financial advisers to ensure compliance with all necessary approvals and legal requirements.

4.2 Do any foreign ownership restrictions apply in your jurisdiction?

Slovenia does not generally have strict foreign ownership restrictions that apply to private M&A transactions, as it is a member state of the European Union, which promotes free movement of capital and investment within the European Union.

However, laws can change over time and foreign investment rules may evolve, especially in relation to national security, public health or economic considerations. Therefore, it is strongly suggested to consult with legal experts to ensure compliance with any new or revised regulations.

4.3 What other key concerns and considerations should participants in private M&A transactions bear in mind in relation to consents and approvals?

Participants in private M&A transactions in Slovenia should bear in mind the following additional key concerns and considerations regarding consents and approvals:

  • Employee and labour relations: Changes in ownership or control may trigger consultations with employee representatives or labour unions, especially if they affect employment conditions or contracts.
  • Creditor notification: Some contracts may contain change of control provisions that require creditor consent.
  • Tax and accounting approvals: The potential tax implications of the transaction are also very important. The companies involved should:
    • obtain approvals and clearances from the tax authorities; and
    • ensure that financial and accounting aspects of the transaction comply with regulations.
  • Environmental approvals: If the target's operations have environmental implications, potential environmental approvals or assessments may be required.
  • Debt financing approvals: Approvals from any lenders or banks providing financing will need to be obtained.
  • Data protection and privacy: The data protection authorities will need to be contacted where necessary.

5 Transaction documents

5.1 What documents are typically prepared for a private M&A transaction and who generally drafts them?

Depending on their structure and the parties' requirements, private M&A transactions involve several documents which are typically drafted by the parties' legal advisers and which have their own specific purpose in the process.

The content and complexity may vary depending on:

  • the type of transaction;
  • the industry involved; and
  • the negotiations between the parties.

It is essential to engage legal and financial advisers with expertise in M&A transactions to draft, review and negotiate these documents effectively to protect the interests of the parties involved.

The key documents typically prepared for a private M&A transaction include the following:

  • Letter of intent/term sheet: A non-binding document that outlines the basic terms and conditions of the proposed transaction, including:
    • the purchase price and payment terms;
    • the buyer and seller;
    • confidentiality and exclusivity provisions; and
    • the basic deal structure (eg, asset purchase or share purchase).
  • The target's representation and warranties.
  • Due diligence scope and timeline.
  • Conditions to closing: These serve as a framework for the negotiations and can be drafted by either of the parties.
  • Confidentiality agreement/non-disclosure agreement: A legally binding document that ensures confidentiality and restricts the sharing of sensitive information during the due diligence process. In a seller-initiated process, this is typically prepared by the seller; in other cases, it is prepared by the buyer.
  • Due diligence checklist/information request list: A list of documents and other information requested from the seller to facilitate the due diligence process. This is typically drafted by the buyer.
  • Share purchase agreement (SPA)/asset purchase agreement: The core document that outlines the terms, conditions and legal agreements governing the transaction. It includes details on:
    • the purchase price;
    • the payment terms;
    • representations and warranties;
    • covenants; and
    • closing conditions.
  • In an auction, it is initially drafted by the seller; in other cases, this will be subject to agreement by the parties, but is often initiated by the buyer. It can take a considerable amount of time to negotiate the final wording between the parties.
  • Disclosure schedules: If applicable, these provide specific exceptions to the representations and warranties made in the SPA. They disclose any known issues, liabilities or contingencies and are typically drafted by the seller.
  • Employment agreements/non-compete agreements: If applicable, these agreements outline:
    • the terms under which key employees will be retained; and
    • any restrictions on the sellers from competing with the business post-sale process.
  • They are negotiated by the parties, but typically initiated by the buyer.
  • Deed of transfer/short transfer agreement: This is a legal document that transfers ownership of the assets or shares from the seller to the buyer. The draft is usually attached as appendix to the SPA and is typically prepared by the buyer.
  • Transition services agreement: While seldom used, this outlines the services or support that the seller will provide to the buyer during the transition period. It is jointly drafted and negotiated by the parties.
  • Escrow agreement: This plays a very important role in private M&A transactions by securing and facilitating the exchange of assets, funds and contractual obligations between the parties. It is jointly drafted and negotiated by the parties.
  • Financing documents: If financing is involved, these documents outline the terms and conditions of the loan or financing arrangement. They are typically drafted by the lender or financial institution.
  • Regulatory approvals and notifications: Where regulatory approvals or notifications are required and detected by the buyer or its legal advisers (eg, competition clearance, sector-specific permits), the documentation required is typically drafted by the buyer and includes assistance from legal and financial advisers.
  • Notarial deed: This is executed by a notary public and is the form in which the request for transfer of shares or assets must be submitted to the Commercial Court or Land Registry for registration. Usually both the deed of transfer/short transfer agreement and the SPA are executed in the form of a notarial deed.
  • Closing documents: Various documents to be executed at the closing of transaction in order to formalise the transfer of ownership (eg, affidavits, resolutions, certificates).

5.2 What key matters are covered in these documents?

Please see question 5.1.

5.3 On what basis is it decided which law will govern the relevant transaction documents?

The choice of law governing the relevant transaction and its documents is typically determined between the parties through the negotiation process. There are various factors that may influence the choice of governing law, as follows:

  • The parties' agreement: This is the most common basis for determining the governing law for the interpretation and enforcement of the contract. It is typically included in the SPA or other transaction documents.
  • Location of the target: The governing law clause may also be influenced by the location of the target. If the target is a Slovenian entity (and especially if the target's assets and operations are based in Slovenia), it is more likely that Slovenian law will be chosen as the governing law.
  • Location of the parties: The parties may choose the governing law of a jurisdiction with which they have a strong connection. If the buyer and seller are both based in Slovenia, it is expected that they will choose Slovenian law due to familiarity and convenience.
  • Sector-specific regulations: In some cases, the choice of law may be influenced by sector-specific regulations or industry practices where norms for governing law have been established in sector-specific transaction documents.
  • Best practices: These are especially relevant in international M&A transactions involving international corporations, with the aim of adopting a well-established and/or neutral legal system as the basis for the application of contract terms.
  • Recommendations from legal advisers: Based on their knowledge and experience, legal advisers can advise on the pros and cons of different legal systems.

6 Representations and warranties

6.1 What representations and warranties are typically included in the transaction documents and what do they typically cover?

The representations and warranties included in M&A transaction documents can vary based on:

  • the negotiations between the parties;
  • the specifics of the transaction; and
  • the industry involved.

Legal advisers play a very important role, as they draft these provisions to protect the interests of their clients. The most common types of representations and warranties which cover various aspects of the target and the transaction are as follows:

  • Organisation and existence: Representations confirming that the target:
    • is duly organised and validly exists under the laws of Slovenia; and
    • has the necessary authority to conduct its business.
  • Capitalisation: Representations relating to:
    • the share capital;
    • the shares;
    • the ownership of shares; and
    • any outstanding options or securities.
  • Financial statements: Statements about the accuracy and completeness of the target's financial statements, including:
    • balance sheets;
    • income statements; and
    • cash-flow statements.
  • Tax matters: Representations regarding:
    • the correctness and completeness of tax returns;
    • tax liabilities; and
    • compliance with the Slovenian tax laws.
  • Contracts and liabilities: Representations regarding:
    • the existence and status of material contracts;
    • compliance with contractual obligations; and
    • the absence of undisclosed liabilities under Slovenian law.
  • Employment and labour matters: Representations about:
    • employee benefit plans (eg, retirement plans, health insurance);
    • compliance with Slovenian employment laws;
    • labour disputes; and
    • the absence of pending claims or litigation related to employment matters.
  • Real property: Representations about the ownership, condition and any encumbrances on real property owned or leased by the target in Slovenia.
  • Intellectual property: Statements regarding:
    • the ownership and validity of IP rights such as copyrights, patents and trademarks under Slovenian law; and
    • any known infringement claims.
  • Environmental matters: Statements about:
    • compliance with Slovenian environmental laws;
    • the absence of environmental contamination; and
    • known environmental liabilities.
  • Regulatory and compliance: Representations about:
    • compliance with Slovenian laws and regulations, licences and permits;
    • environmental matters; and
    • the absence of pending or threatened regulatory actions.
  • Litigation and claims: Representations regarding pending or threatened litigation, government investigations or other legal disputes involving the target in Slovenia.
  • Material adverse changes: Representations about any material adverse changes or events affecting the target in Slovenia since a specified date.
  • Insurance: Statements about the nature and scope of insurance coverage, including any claims history and pending insurance claims, applicable under Slovenian law.
  • Compliance with anti-corruption and anti-bribery laws: Representations about compliance with anti-corruption and anti-bribery laws, such as those applicable in Slovenia and at the EU level.

6.2 What are the typical circumstances in which the buyer may seek a specific indemnity in the transaction documentation?

In Slovenia, as in other jurisdictions, a buyer may request the inclusion of specific indemnities in M&A transaction documentation to protect against certain identified risks, contingencies or potential liabilities associated with the target. The specific circumstances in which a buyer may seek a specific indemnity can vary based on:

  • the characteristics of the transaction;
  • the due diligence findings; and
  • the negotiations between the parties.

However, common circumstances that may lead a buyer to request specific indemnities in Slovenia include:

  • known, existing liabilities;
  • breach of representations and warranties;
  • specific contingencies;
  • regulatory or compliance issues;
  • tax liabilities;
  • employee or labour issues;
  • environmental liabilities;
  • contractual obligations;
  • supplier or customer disputes; and
  • warranty or product liability claims.

The specific terms of the indemnities – including the scope, duration and financial limits – will be negotiated between the parties and documented in the transaction agreements to allocate risk appropriately. Legal advisers play a crucial role in structuring these indemnities to protect the interests of their clients and ensure clarity and enforceability under Slovenian law.

6.3 What remedies are available in case of breach and what is the statutory timeframe for bringing a claim? How do these timeframes differ from the market standard position in your jurisdiction?

The remedies for breach of a share purchase agreement (SPA) in Slovenia include the following:

  • Specific performance: The primary remedy for breach of an SPA in Slovenia is often specific performance. This means that the court can order the breaching party to fulfil its obligations under the SPA, such as transferring the shares as agreed in the contract.
  • Rescission: In some cases, it may be possible to request rescission of the SPA. This will effectively void the contract and the parties will be restored to their pre-contractual positions.
  • Damages: If specific performance is not possible or practical, the non-breaching party may be entitled to claim damages (replacement of specific performance claim with damages claim). The damages are intended to compensate the non-breaching party for the financial loss it has suffered as a result of the breach. A specific performance claim and a damages claim can coexist (in cases of damages due to delay in performance).

The statutory timeframe for bringing a claim in Slovenia can vary depending on:

  • the nature of the claim; and
  • the specific circumstances.

The statute of limitations for contract claims in Slovenia is three years from the date on which the claimant had the right to demand fulfilment of the contractual obligation. A claim for compensation for damages caused by a breach of contractual obligation becomes time barred within the time specified for the limitation of a contractual obligation, again starting from the date on which the claimant had the right to demand fulfilment of the obligation – in this case, when the claimant found out about the damage and the perpetrator.

The standard market position for remedies and statutory timeframes in Slovenia can be influenced by common practices and industry standards. However, these standards may vary by industry and the specific terms of the SPA.

6.4 What limitations to liability under the transaction documents (including for representations, warranties and specific indemnities) typically apply?

In Slovenia, limitations to liability under the transaction documents – including for representations, warranties and specific indemnities – are typically negotiated between the parties and are included in the SPA and related contracts. They serve to allocate risk and define the extent to which the parties are responsible for various types of liabilities and potential breaches. The specific limitations to liability can vary based on:

  • the negotiations;
  • the nature of the transaction; and
  • the parties' preferences.

Legal advisers play a decisive role in helping the parties to define and negotiate these terms to align with their risk tolerance and objectives.

Typical limitations to liability in Slovenia include:

  • a liability cap;
  • deductibles;
  • time limitations;
  • excluded liabilities;
  • liability thresholds ('baskets');
  • materiality qualifiers (excluding minor or insignificant breaches);
  • no double recovery clauses; and
  • other special provisions for specific indemnities.

6.5 What are the trends observed in respect of buyers seeking to obtain warranty and indemnity insurance in your jurisdiction?

The use of warranty and indemnity (W&I) insurance in M&A transactions is influenced by factors such as:

  • market condition;
  • regulatory changes; and
  • the preferences of the parties.

However, it is possible to detect some general trends regarding W&I insurance in Slovenia:

  • As the number of M&A deals grows, W&I insurance is gaining wider acceptance. Although only a few insurance providers offer these policies, increased competition is likely to lead to more favourable terms and pricing for parties.
  • The W&I insurance market is slowly growing and maturing, which will probably lead to:
    • more comprehensive coverage options; and
    • increased familiarity with the product among legal and financial professionals.
  • Bearing in mind these trends, parties are increasingly customising W&I insurance policies to regulate specific risks and concerns arising from a specific transaction.
  • W&I insurance can also serve buyers as a tool to make their offers more attractive in competitive bidding process. On the other hand, it gives sellers greater certainty that the transaction will close smoothly.

6.6 What is the usual approach taken in your jurisdiction to ensure that a seller has sufficient substance to meet any claims by a buyer?

The approach taken in a specific transaction depends on various factors, including:

  • negotiation leverage;
  • the seller's financial stability; and
  • general market practices.

There are several common methods through which the seller can demonstrate that it has sufficient substance in order to meet the buyer's claims:

  • Retained funds and holdbacks: A certain percentage of the purchase price is withheld by the buyer at transaction closing. This amount is held by the buyer until certain conditions in the SPA are met, often related to the resolution of potential claims or contingencies.
  • Escrow accounts: Similarly to holdbacks, a certain percentage of the purchase price is held in escrow by a neutral third party (eg, a bank, notary public, lawyer). This amount serves as security against potential claims by the buyer. If the seller breaches certain representations and warranties in the SPA, the withheld funds can be used to compensate the buyer's claims.
  • Guarantees: Where the seller has insufficient substance to meet potential claims, it can provide a certain form of guarantee. This can include a third party providing a guarantee or a seller's personal guarantee.
  • Indemnities: The SPA often includes indemnification provisions, whereby the seller agrees to indemnify the buyer for any losses or damages resulting from breaches of representations and warranties. In this case, the seller is financially obligated to compensate the buyer for valid claims.
  • Earn-out: Depending on the agreement between the parties, part of the purchase price can also be established as an earn-out. In such cases the seller will receive additional payments based on the future performance of the business.
  • Warranty and indemnity (W&I) insurance: W&I insurance can be used to provide coverage for potential breaches of W&Is.

6.7 Do sellers in your jurisdiction often include restrictive covenants in the transaction documents? What timeframes are generally thought to be enforceable?

This varies on a case-by-case basis, but in general it is quite typical for sellers in Slovenia to include restrictive covenants in transaction documents as a way to protect their legitimate interests (eg, confidentiality, preventing competition, safeguarding the value of the business). Such restrictive clauses include:

  • non-disclosure clauses;
  • non-solicitation clauses; and
  • non-compete clauses.

The enforceability of restrictive covenants is subject to legal restrictions and can vary depending on:

  • the duration of the covenant;
  • the nature of the covenant; and
  • other factors.

The enforceability of non-compete and non-solicitation covenants is determined based on whether they are considered reasonable in scope, duration and geographic coverage. Non-disclosure clauses are generally more enforceable and are not limited to specific timeframes.

6.8 Where there is a gap between signing and closing, is it common to include conditions to closing, such as no material adverse change (MAC) and bring-down of warranties?

M&A practice in Slovenia makes no distinction in this regard, as it is very common to include conditions to closing in transactional documents in such situations.

A MAC clause as an exit option is very common, as it protects the buyer and allows it to refuse to close the transaction if there has been a MAC in the business or financial condition of the target between signing of the SPA and the closing date. The content and criteria in a MAC clause are subject to negotiation and agreement in each transaction.

It is also quite common to include a bring-down of warranties, under which the seller must confirm the accuracy and truthfulness of its representations and warranties in the SPA as of the closing date.

6.9 What other conditions precedent are typically included in the transaction documents?

The transaction documentation in Slovenia often include various conditions precedent to ensure that the transaction goes smoothly. The content of conditions precedent is subject to negotiation and agreement in each case and will depend on:

  • the nature of transaction;
  • the industry; and
  • the parties.

However, the most common conditions precedent concern the following:

  • due diligence;
  • third-party consent;
  • regulatory approval;
  • the MAC clause;
  • financing;
  • verification of title and ownership;
  • tax matters;
  • employment matters;
  • closing deliverables; and
  • compliance.

7 Financing

7.1 What types of consideration are typically offered in private M&A transactions in your jurisdiction?

The type of consideration in private M&A transactions in Slovenia depends on:

  • the size of the transaction;
  • industry practices;
  • business synergies; and
  • other factors.

It can range from cash-only to a combination of cash and shares, or also assets and other securities. Unlike cash-only transactions, shares make the deal more closely connected and confirm that the buyer is interested in the target for the long term. Especially where there are potentially high growth targets, earn-outs are also quite common, as realised growth is also reflected in additional payments. Depending on the financial situation of the target –especially its outstanding debt – and the interests of the parties, other forms of financing may also be appropriate.

7.2 What are the key differences and potential advantages and disadvantages of the various types of consideration?

In the case of cash-only M&A transactions, the payment is straightforward and generates immediate liquidity for the seller. However, without any earn-outs or similar instruments, the seller is excluded from potential future growth post acquisition. On the buyer's side, a cash-only payment can lower the price; however, such investment also limits the buyer's general liquidity.

On the other hand, shares, securities or a combination thereof allows the seller to share in potential future growth. However, volatility in the value of shares can also lead to the seller receiving less than anticipated.

In the case of earn-out payments, the interests of both parties to the transaction are more aligned, as the seller receives additional payment in case of future positive performance and growth. In such cases, the role of the legal and financial advisers is very important, as they must regulate in the transaction documentation how the performance will be calculated, measured and applied in order to avoid potential disputes.

In case of lower liquidity on the buyer's side or simply the buyer's careful approach to the target in terms of expected future positive performance, debt and financing arrangements are more appropriate, as these are more strategic. On the other hand, financing arrangements can be very complex and can include additional financial obligations and risks, especially in terms of debt servicing.

7.3 What factors commonly influence the choice of consideration?

Several factors may influence the choice of consideration. The size of the transaction (in terms of purchase price) and the financial health of the target are very important, especially when discussing other payment options besides cash-only due to mitigating liquidity on the buyer's side. Furthermore, the goals of both parties will also play a significant role – if the seller is not exiting fully and still wants to be involved, earn-outs and shares or a combination thereof will be most suitable. Such decisions are also connected to risk tolerance, as shares and earn-outs offer upside potential, but also a downside curve. The tax implications on both sides are another vital consideration, as the tax treatment and valuation of the potential choice of consideration can have a significant impact on the value of the transaction. The target company valuation and business synergies are also important in this regard. In case of a significant gap between the actual and expected value, a mix of consideration is highly likely to be applied. General market and industry conditions and the regulatory environment should further be considered.

7.4 How is the price mechanism typically agreed between the seller and the buyer? Is a locked-box structure or completion accounts structure more common?

The price mechanism will depend on various factors (eg, transaction size, industry practices); but generally speaking, both structures are used based on the preferences and negotiations between the parties. Where a locked-box structure is used, the purchase price is commonly fixed:

  • on the date of the last audited accounts; or
  • subject to agreement, on the date of other interim accounts.

Where the completion accounts structure is used, the purchase price is based on financial documents and other documents that are as close to the completion date as possible. This gives the buyer more up-to-date insight into the target's financial situation.

7.5 Is the price typically paid in full on closing or are deferred payment arrangements common?

Again, the payment dynamics are subject to negotiations and the agreed terms in the SPA. Especially in relatively smaller transactions (pricewise) or transactions with a smaller liquidity effect, full payment on closing is common. In other situations, deferred payment arrangements may also be favourable. They are commonly structured either as instalment payments or (performance) milestones payments (ie, earn-outs). Deferred payments are pursued by the buyers not only to mitigate risk and liquidity, but also to tie the payment to company's future performance.

7.6 Where a deferred payment/earn-out payment is used, what typical protections are sought by sellers (eg, post-completion veto rights)?

When a portion of payment is delayed, sellers safeguard their interests through various contract clauses, such as:

  • post-completion veto rights;
  • non-compete and non-solicitation clauses;
  • escrow accounts;
  • retained control or involvement;
  • milestone and/or performance clauses; and
  • audits.

7.7 Do any rules on financial assistance apply in your jurisdiction, and what are their implications for private M&A transactions?

In Slovenia, the prohibition on financial assistance applies only to joint stock companies. Where this prohibition is breached, a strict sanction is applied: the nullity of the deal. In the case of impermissible acquisitions, the legal obligation between the parties is null and void and the purchase price can be demanded back with a corporate condition/return claim.

7.8 What other key concerns and considerations should participants in private M&A transactions bear in mind from a financing perspective?

Other key concerns and considerations from a financial perspective include:

  • the optimal financing structure (debt/equity financing);
  • the feasibility of providing security or collateral;
  • complex financing documentation;
  • currency and interest rate considerations;
  • compliance (regulatory and environmental);
  • public relations; and
  • management.

8 Deal process

8.1 How does the deal process typically unfold? What are the key milestones?

The M&A process in Slovenia is very similar to that in many other countries. While the specifics vary depending on the initiating party and the size and the nature of transaction, key milestones generally include the following:

  • In the preliminary planning phase, the initiator (seller, buyer):
    • prepares the strategy;
    • defines the objectives; and
    • identifies potential targets/buyers.
  • For the documents prepared in the preliminary phase, see question 2.1.
  • The next phase is usually the due diligence. Depending on the strategy and the type of process, the seller might conduct vendor due diligence, but primarily it is the potential buyers that conduct the due diligence.
  • If the due diligence is favourable, the buyer(s) draft a letter of intent or a non-binding offer including key conditions.
  • The next stage is usually negotiation on the deal terms, including:
    • the purchase price and payment terms; and
    • all other relevant terms and conditions of the share purchase agreement (SPA) and accompanying transaction documentation.
  • If the negotiation is successful, the next stage involves the drafting and signing of a binding SPA or a binding asset purchase agreement.
  • Depending on the size and nature of the transaction, approval from the Competition Protection Agency may be required. It is obligatory to notify the concentration where two conditions – legal and economic – are met cumulatively.
  • Depending on the applicable industry and sectoral legislation, approvals from other regulatory bodies might also be required.
  • Closing takes place when the purchase price is paid and the transfer of ownership is performed.
  • Post-closing activities include potential operational integration of the target to the buyer's structure.

8.2 What documents are typically signed on closing? How does this typically take place?

To formalise the transfer of ownership and ensure that all conditions precedent have been met, several key documents are usually signed on closing. They can vary based on:

  • the nature of the deal (share or asset purchase); and
  • other negotiated terms.

Signing of the closing documents typically takes place in person, with the parties meeting to execute the necessary documents. The signing may take place at the offices of one of the law firms involved or another agreed location (most often the offices of notary public).

The following documents are usually signed on closing:

  • Transfer documents, closing deliverables: These facilitate the transfer of ownership (share transfer agreements, stock certificates and deeds).
  • Employment and non-compete agreements: These are signed with key personnel.
  • Escrow agreements: These specify the conditions under which funds held in escrow will be released.
  • Board and shareholder resolutions: These are the resolutions of the boards of directors and shareholders of the buyer and the target approving the transaction
  • Closing statements: These detail the financial aspects of the transaction (including the final purchase price, adjustments and any other relevant financial information).
  • Debt and indemnity agreements: These relate to outstanding debts or indemnity provisions.

8.3 In case of a share deal, what is the process for transferring title to shares to the buyer?

After conducting due diligence on the target and finalising the SPA, the parties execute the share transfer documents. These serve as evidence of the transfer of ownership and must be notarised in order to ensure the validity and enforceability of the transaction.

The share transfer must be registered in the Commercial Register. This involves submitting the necessary documentation, including the share transfer instrument, to the relevant authorities. To complete the financial aspect of the transaction, the buyer makes the agreed payment to the seller. The transaction may also need to be reported to the tax and competition authorities.

In the post-closing phase, the parties fulfil post-closing obligations outlined in the SPA (eg, possible transfer of specific assets, resolution of outstanding issues, fulfilment of conditions precedent).

8.4 Post-closing, can the seller and/or its advisers be held liable for misleading statements, misrepresentation, omissions or similar?

Liability in such cases can arise from various sources, including:

  • contractual liability;
  • tort liability (eg, fraud, negligent misrepresentation); and
  • potential liability under securities regulations when the sale involves the sale of securities.

As the SPA is the main document in the M&A transaction process, it generally includes representations and warranties made by the seller regarding the seller and the target. In case of misleading statements, misrepresentations, omissions or similar, the seller may be held liable for breach of contractual provisions. It is thus vital for the parties to carefully negotiate the terms of the SPA and consider including indemnification provisions that allocate responsibility for certain risks and potential liabilities.

If a dispute arises, the resolution mechanisms outlined in the SPA – such as arbitration or litigation – will be followed.

8.5 What are the typical post-closing steps that need to be taken into consideration?

After the closing of a transaction, several steps must be taken to ensure a smooth transition and the integration of the acquired company. The specific steps will vary based on:

  • the nature of the transaction; and
  • the terms negotiated in the agreements.

Generally, it starts with integration planning, covering areas such as:

  • finance;
  • human resources;
  • customer relations;
  • operations; and
  • IT systems.

It is important to communicate the transaction to:

  • employees (the integration, changes to potential benefits and employment terms);
  • customers; and
  • suppliers.

Financial reporting, tax, legal and regulatory compliance with Slovenian laws and regulations is also vital, as it may require contracts (including vendor and customer contracts), permits and licences to be updated. As synergy allocation is often one of the reasons for the deal, it is very important to start implementing the identified synergies as soon as possible, including cost-saving measures.

9 Competition

9.1 What competition rules apply to private M&A transactions in your jurisdiction?

The primary competition rules governing private M&A transactions in Slovenia are regulated in the Prevention of Restriction of Competition Act, which includes provisions regarding merger control. M&A transactions that meet certain criteria, such as reaching specified turnover thresholds, trigger a requirement to notify the Competition Protection Agency (AVK). Parties involved in a concentration must notify the AVK before completing the transaction if both legal and economic conditions are met, as follows:

  • The legal condition is met the concentration involves a permanent change of control of the company.
  • The economic condition is defined in Article 66 of the Prevention of Restriction of Competition Act and is met if:
    • the total annual turnover of (all) participants in the concentration together with other companies in the group in the previous financial year on the Slovenian market exceeded €35 million; and
    • the annual turnover of the acquired company together with other companies in the group in the previous financial year on the Slovenian market exceeded €1 million.

9.2 What key concerns and considerations should participants in private M&A transactions bear in mind from a competition perspective?

While the parties to private M&A transactions seldom neglect the importance of competition law, it is crucial to carefully consider all competition law implications to ensure compliance and minimise potential risks. Key concerns and considerations from a competition perspective include the following:

  • Merger control obligations: It is important to assess and evaluate whether:
    • the thresholds for mandatory notification to the AVK are met; and
    • the transaction requires approval from the AVK before completion.
  • It is also important to submit the necessary documentation to the AVK well in advance of completion, as the AVK must have sufficient time to review and assess potential competition concerns;
  • Competition assessment: From both the economic and legal standpoint, it is important to evaluate the potential impact of the transaction on competition in the relevant market. Factors to be taken into account include:
    • market shares;
    • potential for market dominance; and
    • the impact on consumer welfare;
  • Preparation: It is strongly recommended to engage the AVK early in the process, as open and ongoing communication will help to resolve any questions and concerns it might have and expedite the whole process before the AVK. In doing so, it is advisable to appoint legal advisers with expertise in Slovenian competition law, as they can:
    • guide the parties through the merger control process;
    • assist in preparing the necessary documentation; and
    • advice on compliance.
  • This should save valuable time and minimise potential exposure to penalties and remedies.
  • While parties tend to neglect exposure to breach of competition law after closing, it is very important to ensure ongoing compliance with competition law, including:
    • meeting all conditions imposed by the AVK; and
    • monitoring market conduct after closing.

10 Employment

10.1 What employee consultation rules apply to private M&A transactions in your jurisdiction?

The legal framework for employment-related issues in Slovenia is influenced by both national and EU law. Workers' participation in companies in Slovenia is governed by the Worker Participation in Management Act. Rights relating to workers' participation in the management (depending on the size of the company and the number of workers in the company) are safeguarded individually or collectively through:

  • works councils or workers' representatives;
  • workers' assemblies; and
  • employee representatives in company bodies.

The Companies Act provides for the involvement of employee representatives in certain decisions, especially those relating to significant changes to the company's organisation occur, such as mergers and acquisitions. If the target in an M&A transaction has a works council or other employee representative body, there are specific rules governing its involvement in the consultation process. In case of planned significant changes to the company's organisation, workers' representatives have the right to be consulted and informed of relevant information regarding the planned transaction – for example:

  • the details of the transaction;
  • its potential impact on employment; and
  • any measures envisaged to mitigate the consequences.

The Worker Participation in Management Act specifically addresses the participation of workers in decision-making processes at the company level. It includes provisions relating to workers' councils and the involvement of employees in significant business decisions, such as those relating to M&A transactions.

10.2 What transfer rules apply to private M&A transactions in your jurisdiction?

The basic transfer rules regarding employment-related issues in M&A transactions are set out in Article 75 of the Employment Relationships Act. If there is a change of employer as a result of the legal transfer of a company or part thereof, including due to a merger or division, the contractual and other rights and obligations from the employment relationships that the workers had on the day of the transfer are also transferred.

The rights and obligations emanating from any collective agreement that bound the transferring employer must also be guaranteed to the employees by the transferring employer for at least one year, unless:

  • the collective agreement expires before the one-year deadline; or
  • a new collective agreement is concluded during that time.

If, for objective reasons, within two years of the date of the transfer, the rights emanating from an employment contract are impaired or the conditions of an employee's work at the transferee significantly change and the employee therefore terminates the employment contract, the employee will have the same rights as though the employment contract were terminated by the employer due to business reasons. When determining the notice period, the right to severance payment and other rights related to seniority, the employee's seniority at both employers will be taken into account.

If the employee refuses to transfer and to perform work for the transferee employer, the transferee employer may terminate the employment contract.

The transferring company is jointly and severally liable for:

  • claims of employees that arose before the legal transfer of the company, as well as for the; and
  • claims that arise in the event of termination during the special notice period of two years (see above).

The responsibility of the transferring company also arises within two years of the transfer if:

  • an employment contract is terminated due to the initiation of bankruptcy proceedings or the liquidation of the company (termination of the company); and
  • the transferring company is also the majority owner of that company (ie, it owns 25% of the voting rights or a corresponding share in the capital of the company).

Where the majority ownership criterion is not met, in the case of a legal transfer of the company, the transferring company will be subsidiarily liable.

10.3 What other protections do employees enjoy in the case of a private M&A transaction in your jurisdiction?

See question 10.2.

If the company has a workers' council, the Workers' Participation in Management Act governs the involvement of the council in decision-making processes relating to significant business changes, with the aim of ensuring that employees' interests are considered.

10.4 What is the impact of a private M&A transaction on any pension scheme of the seller?

The impact of a private M&A transaction on the pension scheme of the seller can vary based on:

  • the specific terms negotiated between the parties;
  • the legal and regulatory framework; and
  • the type of pension scheme in place.

The key considerations include the following:

  • In the case of a defined contribution pension scheme, the impact of an M&A transaction may be less significant. The individual accounts of employees in such schemes are typically portable and the assets are held in separate accounts. In the event of a transaction, employees may have the option to transfer their pension accounts to the new employer or another suitable pension arrangement.
  • Defined benefit pension schemes, where the employer promises a specific benefit upon retirement, may have more complex implications. The buyer may assume responsibility for the pension liabilities or alternative arrangements may be made to secure the benefits owed to employees.
  • The share purchase agreement may stipulate the transfer of pension liabilities from the seller to the buyer. This transfer involves the assumption of responsibility for funding and administering the pension benefits.
  • The financial health of the pension scheme and its funding status can impact the negotiation of the M&A transaction. If the pension scheme is underfunded, the parties may need to address how any funding shortfall will be managed. It is also important to communicate with employees about the impact of the M&A transaction on their pension benefits.

10.5 What considerations should be made to ensure there are no concerns over the potential misclassification of employee status for any employee, worker, director, contractor or consultant of the target?

It is very important to understand:

  • the legal definitions and regulations governing employment classifications; and
  • the nature of relationship between the individuals and the company regulated through employment contracts and other contractual agreements.

Key factors for consideration include:

  • control;
  • supervision;
  • degree of independence;
  • working hours and location;
  • equipment and expenses; and
  • benefits and entitlements.

10.6 What other key concerns and considerations should participants in private M&A transactions bear in mind from an employment perspective?

It is beneficial to evaluate the need for harmonisation of employment terms and conditions post-acquisition. The participants should be aware of potential challenges and resistance from employees regarding changes to their terms of employment. This is why it is also crucial to identify key employees and develop retention strategies to ensure the continuity of critical talent post-acquisition, thus addressing any concerns or uncertainties that key employees may have regarding their roles and future within the new entity.

11 Data protection

11.1 What key data protection rules apply to private M&A transactions in your jurisdiction?

In Slovenia, as in many other EU countries, data protection is primarily governed by the EU General Data Protection Regulation (GDPR) as a comprehensive EU regulation that applies to the processing of personal data. It sets out principles and requirements for the lawful and fair processing of personal data. Based on the GDPR, Slovenia has adopted the new Personal Data Protection Act.

Key data protection rules applicable to private M&A transactions in Slovenia arising from the GDPR and the Personal Data Protection Act include the following:

  • Lawful basis for processing personal data: In the context of M&A transactions, this may include the necessity of processing for:
    • the performance of a contract;
    • compliance with legal obligations; or
    • the pursuit of legitimate interests by the data controller or a third party.
  • Data minimisation and purpose limitation: Personal data collected and processed should be adequate, relevant and limited to what is necessary for the purposes for which it is being processed.
  • Transparency and information obligations: Data controllers must provide individuals with clear and transparent information about the processing of their personal data. This includes informing employees and other data subjects about the implications of an M&A transaction on their personal data.
  • Data subject rights: Data subjects have various rights, including the rights to access, rectification, erasure and portability of their personal data. M&A participants should be aware of these rights and ensure compliance with data subjects' requests.
  • Data protection impact assessments (DPIAs): In certain cases, conducting a DPIA may be required to assess and mitigate the risks associated with the processing of personal data, particularly when the processing is likely to result in a high risk to the rights and freedoms of individuals.
  • Data security measures: Implementing appropriate technical and organisational measures to ensure the security of personal data is particularly important during the due diligence phase when sensitive information is being exchanged.
  • International data transfers: If personal data is transferred outside the European Economic Area (EEA), compliance with the GDPR requirements for international data transfers must be ensured. This may involve using standard contractual clauses or other mechanisms approved by the European Commission.
  • Data breach notification: It is important to comply with the requirements for reporting data breaches to the data protection authority and, in certain cases, to notify affected individuals.
  • Documentation and records: It is highly advisable to maintain documentation to demonstrate compliance with GDPR requirements, including records of:
    • processing activities;
    • DPIAs; and
    • contractual agreements.

11.2 What other key concerns and considerations should participants in private M&A transactions bear in mind from a data protection perspective?

In addition to the general considerations outlined in question 11.1, additional key points to consider include the following:

  • Employee data protection: Employee data, especially in the context of due diligence, may include sensitive information. It is vital to ensure the processing of employee data complies with the GDPR and the Personal Data Protection Act.
  • Consent and notification: It is important to:
    • evaluate whether consent is required for the processing of personal data; and
    • ensure that individuals are appropriately informed.
  • Cross-border data transfers: If personal data is transferred outside the EEA, legal mechanisms for ensuring an adequate level of protection must be in place.
  • Contractual protections: It is highly advisable to incorporate data protection clauses into contracts, especially in agreements with vendors, service providers or other third parties involved in the M&A transaction.
  • Data retention and deletion: Personal data cannot be retained for longer than necessary. Procedures for the secure deletion of data when it is no longer needed should be established.
  • Data subject impact assessments (DSIAs): It is vital to conduct DSIAs when processing operations are likely to result in a high risk to the rights and freedoms of individuals.
  • Change of control clauses: Change of control clauses should be included in the terms of service to inform users or data subjects about the M&A transaction and any resulting changes in data processing.
  • Communication with data subjects: A communication plan for data subjects, notifying them of changes in data processing activities resulting from the M&A transaction and addressing any concerns they may have, should be established;
  • Data protection officer (DPO): It is important to evaluate the need to appoint a DPO, especially if the processing involves large-scale data processing or sensitive categories of data.
  • Post-merger audits: These:
    • ensure ongoing compliance with data protection requirements; and
    • identify and address any issues that may arise after the transaction is complete.

12 Environment

12.1 Who bears liability for the clean-up of contaminated sites? How is liability apportioned as between the buyer and the seller in case of private M&A transactions?

Liability for the clean-up of contaminated sites can vary, but in general, it may fall on the current owner or operator of the contaminated site. However, liability can extend to previous owners or operators – particularly if:

  • they were responsible for the contamination; or
  • they knew about it but failed to disclose it.

The allocation of liability for contaminated sites is an important aspect of the negotiations in M&A transactions. Buyers typically seek protection from assuming responsibility for pre-existing environmental liabilities, while sellers aim to limit their exposure and potential future claims.

Several mechanisms are used to address environmental liabilities in M&A transactions:

  • Due diligence: Thorough environmental due diligence is crucial to identify potential environmental risks and liabilities associated with the target's activities and property. Key concerns and considerations include:
    • regulatory compliance;
    • permits and licences;
    • waste management;
    • environmental litigation;
    • climate change; and
    • future risks.
  • Representations and warranties: The share purchase agreement (SPA) may include representations and warranties related to environmental matters.
  • Indemnities and escrows: Buyers may negotiate for indemnities or escrows to cover potential environmental liabilities discovered after transaction closing.
  • Holdbacks: Although this is rare in practice, a portion of the purchase price may be held in escrow for a certain period, allowing the buyer to address any environmental issues that arise after a certain period following the closing. In order to reach an agreement on holdbacks, it is crucial to determine:
    • the amount to be held in escrow; and
    • the period for which it will be held in escrow.
  • Insurance: Environmental insurance can be used to mitigate risks associated with known or unknown contamination. It can be purchased by either the buyer or the seller.

12.2 What other key concerns and considerations should participants in private M&A transactions bear in mind from an environmental perspective?

Key concerns and considerations in the due diligence analysis, the negotiations and the drafting of the SPA include:

  • regulatory compliance;
  • permits and licences;
  • waste management;
  • environmental litigation;
  • climate change; and
  • future risks.

It is increasingly common for environmental experts to be engaged in order to address these complex issues and assist with the allocation of environmental liabilities.

13 Tax

13.1 What taxes are payable on private M&A transactions in your jurisdiction? Do any exemptions apply?

Slovenia generally imposes capital gains tax on the sale of shares in a Slovenian company. The standard rate for capital gains tax is 25% (this rate was 27.5% in 2020 and 2012). However, exemptions may apply under certain conditions, such as where the participation exemption applies. These exemptions are available:

  • in case of the disposal of capital after 15 years of ownership;
  • for profits achieved on:
    • the first disposal of shares or a share in the capital acquired in the process of the transformation of ownership of a company in accordance with the relevant regulations; or
    • the first disposal of inherited shares or a share in the capital which was acquired by the decedent in the process of the transformation of ownership of a company; and
  • when disposing of investment coupons that the holder acquired by exchanging shares of an authorised investment company or shares of an investment company that was created from an authorised investment company in the process of the mandatory transformation of an authorised investment company.

13.2 What other strategies are available to participants in a private M&A transaction to minimise their tax exposure?

Strategies to minimise tax exposure include the following:

  • Participation exemption: Ensure that the transaction qualifies for the participation exemption so that capital gains will be exempt from tax.
  • Tax due diligence: The buyer should conduct thorough tax due diligence to identify potential tax risks and opportunities.
  • Optimised deal structure: Consider structuring the deal in a tax-efficient manner to minimise the overall tax exposure.

13.3 Is tax consolidation of corporate groups permitted in your jurisdiction? Can group companies transfer losses between each other for tax purposes?

Slovenia allows the tax consolidation of corporate groups. Group companies can be consolidated for corporate income tax purposes, which may afford certain tax advantages. Group companies can transfer losses within the group under certain conditions, subject to anti-abuse rules.

13.4 What other key concerns and considerations should participants in private M&A transactions bear in mind from a tax perspective?

It is vital to consider the value added tax (VAT) implications of the transaction, especially if the sale involves assets which are subject to VAT. The potential application of withholding tax should also be considered.

14 Trends and predictions

14.1 How would you describe the current M&A landscape and prevailing trends in your jurisdiction? What significant deals took place in the last 12 months?

The current M&A landscape remains active, although a cooldown is expected due primarily to the higher costs of financing. This is not unusual, as these types of deals slow down in times of market uncertainty; but at the same time, valuations also become more attractive. Despite the difficult conditions, lower company valuations, less competition and new assets coming to market present real opportunities for buyers to achieve better returns and even growth.

Bigger deals are quite rare on the Slovenian market. Most deals are mid-sizes and are aimed at:

  • increasing growth,
  • strengthening a market position; or
  • achieving a strategic transformation.

We have also seen a rise in domestic and foreign venture capital funds on the buyer's side.

14.2 Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

Given the uncertain times, it is difficult to make predictions. However, despite the market uncertainty, these challenging conditions also present a window of opportunity for potential buyers. In the long run, we estimate that the number of mid-sized deals should continue to grow as more companies emerge on the market.

15 Tips and traps

15.1 What are your top tips for the smooth closing of private M&A transactions and what potential sticking points would you highlight?

Private M&A transactions can be complex. Our top tips for success are as follows:

  • Conduct comprehensive due diligence to identify any potential issues or risks early in the process.
  • Draft clear and comprehensive transaction document that outline the rights, obligations and responsibilities of each party.
  • Maintain open and transparent communication between all parties involved in the transaction. Misunderstandings and miscommunication can lead to delays and complications.
  • Engage experienced legal and financial advisers who are well versed in M&A transactions. They can provide guidance on complex issues and help you to navigate the process smoothly.
  • Address employee concerns and communications effectively.
  • Ensure that financing is secured and available for the transaction.
  • Make timely preparations for regulatory approvals. Delays or complications in obtaining regulatory approvals, such as competition clearance or sector-specific consents, can be a significant sticking point.
  • Be aware that:
    • significant changes in the financial performance of the target between signing and closing may require renegotiation of terms;
    • external economic or geopolitical factors can affect the transaction, such as changes in currency exchange rates, tax laws or trade policies; and
    • changes in tax or accounting regulations can affect the financial aspects of the deal.

To navigate the M&A transaction process smoothly, it is crucial to have a well-structured approach to the M&A process. This includes:

  • effective risk management;
  • clear communication; and
  • a strong focus on legal and financial due diligence.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.