DLA Piper’s Andras Nemescsoi and Gabor Molnar Talk About The Deal of the Year in Hungary.
CEELM: First, congratulations on winning the Deal of the Year Award in Hungary!
Nemescsoi: Thank you, very much appreciated. It is an honor to have been selected as the winner amongst such high-profile candidates.
CEELM: Can you describe the deal for us and DLA Piper’s role in making it happen?
Nemescsoi: The ECB has pressed repeatedly that the European banking sector still has too many banks. Statistics also clearly show that in the U.S. consolidation has been progressing at a much faster pace. The transaction on which we acted is a prime example of the ongoing consolidation. The project has created the second largest universal banking group in Hungary by bringing together the fully state-owned Budapest Bank Group and two privately owned banking groups, MKB Bank Group and Takarek Group.
Molnar: Turning to the specifics, in our case the shareholders of the three banking groups established a new financial holding company, and then they transferred their bank shares as in-kind contributions to the newly established holding company via a capital increase. The three banking groups have thus become part of the same banking group, with a jointly owned holding company at the top. DLA Piper’s role was rather non-conventional. We acted as the central transactional legal advisor, i.e. the joint advisor to the merging shareholders advising them on everything from structuring, to corporate governance, regulatory, and other issues with the overall responsibility of coordinating all legal workstreams of the project. Where conflicts of interest existed between the shareholders, we intermediated between the shareholders’ own legal advisors as the neutral legal advisor.
CEELM: How did you land the mandate and what do you believe it was about your team that got it for you?
Nemescsoi: To advise on such a complex transaction you need to have deep and wide competencies locally and internationally as well as a critical mass. Being a truly global law firm and having a highly-respected full-service Hungarian practice with a very sizable team we had satisfied the basic selection criteria.
Molnar: I believe that our track record in these types of transactions and in this sector also contributed to our selection. To give just one example, in 2014 MKB Bank was put under resolution by the Hungarian Central Bank (HCB). In that procedure we acted as the legal advisor to the HCB, leading up to the successful privatization of MKB Bank. The knowledge accumulated on that mandate was very useful in our current transaction as well.
CEELM: What was the most difficult part of this deal and how did you/your team circumvent it?
Nemescsoi: There was an army of challenging issues. The transaction took place in the banking sector, one of the most highly regulated sectors. If we add that this transaction created a banking group relevant on a national economy scale, you can imagine how closely the process was monitored by the HCB, the Hungarian banking regulator. This workstream necessitated almost daily consultation with the regulator to ensure that the transaction always proceeded on track. I must say that we had an excellent experience with the HCB – they were extremely professional throughout the process.
Molnar: From a transactional perspective I would highlight two aspects. The transaction concerned the merger of three competing banking groups where mutual disclosure was essential for planning and ultimately for deciding on the merger. To comply with competition law requirements, we had to construct and operate a sophisticated information-sharing regime from the outset that applied to all transaction participants. Second, the Hungarian state’s involvement (being the ultimate shareholder of Budapest Bank) also brought with it the usual public sector-related issues (such as scrutiny of EU state aid issues) and the high formality requirements of public-sector decision making.
CEELM: In contrast, what, from your perspective, went particularly smoothly and what do you believe contributed to it?
Molnar: The dedication of each and every participant in this transaction was a truly pleasant surprise. From shareholders to management members, authorities, and all advisors, everybody looked in the same direction and there have not been any major fallouts between the transaction team members. I think that the necessity of the transaction helped a lot to have such a cooperative atmosphere.
Nemescsoi: Without the supportive attitude of the regulator it would have been very difficult, if even possible at all, to complete the transaction within the timeline. I would also add that all representatives of the state who took part in the transaction were also very business-minded, hardworking, and provided very valuable inputs on the transaction. We did not experience any of the usual stereotypes associated with the public sector being bureaucratic or slow.
CEELM: How do you believe the context of the pandemic affected the deal?
Nemescsoi: It is the impact of the pandemic that I would highlight. COVID-19 set in at a very early stage of the transaction. As you can imagine, the project had been built on a series of personal daily meetings – these were all promptly canceled. Migration from the physical to the virtual collaboration space proved unexpectedly swift and smooth. I must say that this forced change did not hinder, but actually contributed to the efficiency of the transaction process, even though I am sure that a number of cab drivers in Budapest would challenge the positive nature of this change.
CEELM: In your view, what is the significance of this deal for the Hungarian market? Why do you believe the judges voted for this deal over the others?
Nemescsoi: The merger of the three major Hungarian banking groups was a clear necessity to improve efficiency. The combined banking group that resulted now serves almost two million customers and is amongst the truly top banks in Hungary. As a law firm or as a lawyer you rarely have the opportunity to work on such a historic deal in Hungary.
Molnar: The transaction was also an unprecedented test of our capabilities. We are very proud that we had the opportunity to contribute to this transaction and that we did so – we believe – to the satisfaction of all stakeholders.
CEELM: Asking if you believe we can expect another similar deal might be overly optimistic. We’ll simply ask if you believe further consolidation in the banking sector can be expected?
Nemescsoi: The transaction was only the first step on the road leading to a truly integrated “super bank.” Accordingly, our work has not finished with the creation of the bank holding. We continue to support the holding company on various issues aimed at creating a harmonized, integrated operation.
Molnar: Bank consolidation will and must continue in the region and in Hungary. We hope that we will continue to have the opportunity to support our clients in these challenging opportunities.