The Czech Republic is experiencing strong positive winds, irrespective of the severity with which the pandemic struck, and there are things aplenty to be happy about, according to Kocian Solc Balastik Partner Dagmar Dubecka.
“It’s really been exciting to be back in the office in full swing over the summer – there’s been a very positive mood in the air in the Czech Republic, as both domestic and international investors have been keen to get back to restored business operations,” Dubecka begins. “We’ve seen pent-up demand and strong competition amongst buyers and strong growth trends – the Finance Ministry is now predicting GDP growth of 3.2% in 2021, driven by all components of domestic demand, mostly investment and household consumption.”
Dubecka reports that, while growth has been evident in a variety of business sectors, the clear exceptions are travel and hospitality. “Both were severely hit by COVID-19 restrictions and will take some time to recover, dependent on global travel trends,” she says.
On the other end of the spectrum lie IT/technology and real estate, according to Dubecka, as the most active sectors. “Our firm has seen a lot of action here, especially with advising the Arete Invest Group in one of the largest Czech-Slovak real estate transactions in 2020, the sale of a portfolio of 11 logistics and industrial parks in the Czech Republic and Slovakia to the Australian Cromwell fund,” she reports. As for IT/technology, she reports a swath of webhosting and domain registration acquisitions, cybersecurity acquisitions, as well as information system and CRM platform transactions.
“The pandemic accelerated digitalization in all sectors of the economy and the excellence of the Czech tech sector as well as the motivation of companies not to fall behind in adopting digital solutions makes it likely that the tech sector will continue to be a key driver of M&A activity,” Dubecka continues. A strong trend in the last couple of years, despite the Covid era she says, has been a “rising share of investments with high value-added, i.e. investments focused on technology and R&D in strategic sectors. CzechInvest notes that, in 2018, only 20% of investment projects it arranged fulfilled the high value-added criteria. In 2020, this jumped to two-thirds of investment projects,” Dubecka reports.
Finally, tackling current regulatory issues, Dubecka mentions a “very new and untested area” of the new Foreign Direct Investment Act, which took effect in the country on May 1, 2021. “Lawyers and their clients will need to pay due attention from the point of view of M&A practice implications, to assess whether an investment under consideration requires prior consultation with the respective responsible authority of the Czech Republic, or whether other aspects of a client’s existing business operations in the Czech Republic may be subject to review,” Dubecka says, “even potentially such matters as a change in company directors. It will be interesting to see this evolve,” she concludes.