There has recently been a significant increase in
domestic M&A activity in Cyprus, mostly as a result of
privatisations promoted by the Cypriot government and a wave of
consolidation in various sectors, for example in hotels.
The flurry of legislative and regulatory activity in Cyprus
and the EU that started in 2017 also boosted M&A activity
in Cyprus's banking sector. This trend continued over
subsequent years. Nevertheless, the volumes and values of
domestic M&A transactions in Cyprus are much lower than
those of international M&A transactions involving Cypriot
entities. This shows that Cyprus is geared towards
international M&A activity.
Cyprus is witnessing a general increase in M&A activity
compared to previous years. The country's return to economic
growth has seen remarkable interest from foreign investors in
the local market, with M&A and joint-ventures (JVs) on the
rise. Increased economic activity in Cyprus's key sectors led
to a GDP growth close to 4% in real terms in 2018 and average
rate close to 3.4% (September 2019), boosted by M&A
The regulatory overhaul in the banking sector over recent
years encouraged transactions in the sector, while the
hospitality and leisure industries attracted noteworthy
investment in the form of new ventures and M&A. Industry
consolidation continues to be a major theme in M&A.
The Cypriot market is driven by both private and public
M&A, with a varying emphasis depending on the economic
sector. For instance, banking M&A tends to be public, while
for private transactions, the main sectors include tourism and
leisure. Looking ahead, further consolidation will come as no
surprise, as the global trend toward vertical integration and
consolidation within industries continues. However, there is no
strict correlation between global and domestic trends.
Cypriot case law has developed significantly. Cyprus adopted
EU Directive 2005/56 on cross-border mergers and has
implemented wide-ranging tax law changes which incorporate
provisions for tax-free corporate reorganisations. Both have
impacted M&A structuring. Tax for its part, has always been
a key value driver in M&A transactions, with substantial
cash flows and various potential risks turning on tax
The increased focus on GDPR and AML policies along with due
diligence requirements have also influenced M&A deals.
Given that Cyprus is a common law jurisdiction and its
corporate statutory framework is modelled on the English
Companies Act of 1948, the Brexit vote has given rise to
foreign investment into the UK. Another trend, which will
impact private equity participants, is the steady rise in
private company valuations. Valuations will be affected by the
new limits on deductibility of interest, which tighten up a
company's earnings before interest and taxes (EBIT).
Ever-increasing competition in the market is another
important trend that will lead to sweeping industry
consolidation as both serial and opportunistic acquirers focus
on larger strategic transactions with industry rivals and
complementary businesses in order to strengthen their market
The oil and gas sector is also likely to generate M&A.
Expected activity includes companies entering into new business
lines via acquisitions to discover hydrocarbon fields in
Cyprus' exclusive economic zone, the exploration efforts being
made by oil majors such as Total and ExxonMobil, and the
exploration of possible synergies between Cyprus, Israel, Egypt
Cyprus lurched towards international M&A in 2017 with
Eurogate Container Terminal Limassol's acquisition of the
operation of the Limassol port, which is Cyprus's principal
port and handles 90% of imports and exports in terms of number
of containers. The transaction involved Eurogate International,
Interorient Navigation Co and East Med Holdings. This deal
followed a 25-year concession granted by the government of the
Republic of Cyprus to DP World Limassol (which is part of the
Dubai-based port and terminal operator).
In 2018, yields inflated amid uncertainties in the Cypriot
banking sector, which were linked to developments surrounding
the Cyprus Cooperative Bank (CCB). Since an agreement with
Hellenic Bank Public Company (HB) to acquire a portion of CCB's
assets and liabilities, yields appeared to have fairly
recovered, dropping to 2% by the end of June 2018.
In January 2018, there was Astrobank's €40 million
acquisition of USB Bank's banking operations. With this
acquisition, AstroBank significantly strengthened its position
in the Cypriot market. The bank's balance sheet increased by
over 50%, reaching €2.1 billion, with gross loans rising
to €1.2 billion, customer deposits to €1.9 billion
and total capital to over €160 million.
LEGISLATION AND POLICY CHANGES
The key legislation that regulates mergers and acquisitions
is the Companies Law (Cap 113). The Law (Articles 198-202)
contains provisions about mergers and the reconstruction and
amalgamation of companies, and the exchange of shares between
two or more companies.
Reference should be made to the Control of Concentration
between Enterprises Law (22(I)/ 1999) and the Safeguarding and
Protection of Employees Rights in the Event of the Transfer of
Undertakings, Businesses or Parts Thereof (104/ (I)/2000). The
first relates to fair competition and the second refers to the
safeguarding of employees' rights in the event of a transfer of
When it comes to public M&A, the relevant regulatory
framework is contained in the:
- Public Offer Law 2007;
- Cyprus Securities and Stock Exchange Law
- Cyprus Securities and Stock
Exchange (Public Offer for the Acquisition of Securities and
Merger of Companies Listed on the Stock Exchange) Regulations
- Companies Law sections 198-208;
- Insider Dealing and Market
- Market Abuse Law
(116(I)/2005) (Law 2005).
Key regulatory bodies include the Registrar of Companies,
which is the competent authority for recording changes in the
shareholding and management of both public and private
companies. The Cyprus Securities and Exchange Commission is the
regulator for public takeover bids. The Cyprus Securities and
Exchange Commission may approve partial bids, provide
exemptions to obligatory public bids and impose administrative
The Commission for the Protection of Competition is the
national competition authority to which mergers, acquisitions
and JVs that meet the jurisdictional thresholds are notified.
Implementation of transactions is prohibited prior to clearance
by the Commission.
Recent changes in law
Although there have been no significant direct amendments to
the Companies Law there have been changes in other laws that
could affect M&A transactions. As a general note, lawmakers
emphasise investor protection, transparency and corporate
The Markets in Financial Instruments Directive No II (Mifid
II) came into force in 2019 and includes:
- A new concept of a management body and the
strengthening of corporate governance requirements.
- Significant penalties for
breach of the new laws.
- New transparency requirements.
- Broadening the regulated
legal persons that must now apply for authorisation and in
extend to be governed by the EU Directive.
- New financial instruments (for example
emissions allowances) and new investment products (for
example structured products) are now covered under the scope
of the new EU Directive.
There have been some changes to the Competition Law in line
with the EU framework. In fact, the new law sets rules to
ensure that any physical or legal person or public authority
that has suffered damage as a result of infringement of the
competition law, by an undertaking or association of
undertakings, can effectively claim compensation against those
undertakings. The new law establishes rules for the disclosure
of evidence, whether this is in the possession of the parties
or any third parties or included in the file of the national
competition authority. In addition, the new law lays down rules
on the liability of undertakings or associations of
undertakings which have infringed competition law in relation
to the damage suffered.
Lastly, we note that the Market Abuse Law 2016 has changed
to adopt the rules set out in the Inside Information and
Manipulation of the Market Law for the prevention of insider
dealing and market manipulation in both regulated and
There are no high-level discussions for any amendment in the
near future regarding the legal framework impacting M&A in
the Republic. However, given the rapid economic and political
changes in Europe, we are of the opinion that the European
Commission will issue further guidelines for implementation in
the national law.
The M&A process requires careful planning and a
comprehensive assessment of the acquisition target is a must.
The following mistakes should be avoided:
- Not doing a thorough operational due
- Paying too much for the target.
- Failing to communicate the
vision and significant growth prospects to bidders together
with the financial projections.
- Not taking into account the
tax considerations, including any applicable rates and
- Not identifying
organisations' cultural issues and not developing a 'cultural
integration outline' that could help to smooth the
Many M&A deals fail because companies overlook one of
three key areas. First, professional assistance. An M&A
advisor will help to achieve maximum value and an optimum deal
structure from the beginning to the end of the deal. Second,
what happens to employees after the deal – for
instance, by not having all the key employees tied down to
employment contracts? This is critical for the seller to
deliver the senior team and the key people to the buyer upon
closing; any unwillingness to follow may be crucial. Third,
technology underpins every part of a company's day-to-day
operations, yet it continues to take a backseat in M&A deal
preparations. Ignoring IT can lead to inaccuracies in other
parts of the pre-deal process. Any disparities between merging
IT systems can slow the process of bringing two companies
Control over a public company can be obtained directly from
the shareholders without making a public offer, via court
approval, through a merger and/or division of public companies
or by making a public offer.
The most common way is making a public offer under the
Takeover Bids Law. The procedure is supervised by the Cyprus
Securities and Stock Exchange Committee. The bidder must
announce its bid to the Cyprus Stock Exchange, the Cyprus
Security Committee and the board of directors of the company in
order to obtain the relevant approvals.
As per the Takeover Bids Law, a bidder may still proceed
with the decision to make a bid in relation to the target, even
where the board of directors of the target does not recommend
the bid to its shareholders. Once the announcement to make a
public offer has been made, the target board is obliged to
promptly and accurately provide information to its shareholders
and employees, to assess the bid and make recommendations to
A buyer must obtain the requisite regulatory approvals (as
mentioned above) as well as secure the necessary financing to
proceed with the bid and the advanced support of the
shareholders in the form of irrevocable undertakings. The major
shareholders must also accept the terms of the public
In accordance with the Takeover Law, a public offer will be
considered as successful when the bidder has acquired more than
50% of the voting rights in the target company. The squeeze-out
procedure will be triggered when the bidder, through a public
offer, acquires at least 90% of the voting rights in the target
The Takeover Law also provides that all holders of the same
class of shares of the target company should be treated equally
in a public offer. When a buyer acquires a sufficient number of
shares to provide it with voting rights equal to or greater
than 30% of the voting rights in the target company, the buyer
is then obliged to make a public offer for the acquisition of
all the shares in the target company.
Break fee or inducement fee commitments are available and
may be obtained from the target or target shareholders.
Although they are not specifically regulated under Cypriot law
and there are no restrictions regarding the same, they remain
uncommon on a recommended bid.
Most private transactions contain a locked-box mechanism and
completion accounts are fundamental. It is important to focus
on them both pre- and post-signing of the share purchase
agreement (SPA) as they can protect or enhance the deal
The earn-out provision facilitates the buyer's position by
allowing it to pay part of the deal value at completion date
and the remaining deal value in further payments, depending on
the profits of the acquired company.
A frequently used mechanism when exchange does not occur
simultaneously is an escrow for holding the deal value, or a
part of it, until preconditions are satisfied.
In addition, extensive warranties, representations and
indemnities must be provided by the seller to the buyer. These
are important and form an essential part of the SPA as they
give the buyer further assurance concerning the
The conditions of private takeover offers are set out in the
SPA and usually vary based on the circumstances of each
transaction. One important condition regards warranties and
indemnities (W&I). When it comes to a buyer with a strong
bargaining position, warranties are strictly negotiated as they
give the buyer the right to withdraw from the acquisition in
the event of a breach.
Another important condition is the material adverse change
(MAC) clause, which gives the buyer the right to terminate the
M&A contract in the event of a material adverse change in
the business of the acquired company, when it comes to its
assets/profits. This provision provides protection to the buyer
against the general risk of adverse events that may occur
during the period between signing the SPA and completion.
A well-drafted SPA is one of the most important keys to a
successful transaction as it is the instrument that governs the
terms and conditions between the acquiring company and the
target company. It is the process of prioritising the
objectives of a deal and ensuring that the top-priority
objectives of all parties involved are satisfied according to
the weight of risk each party can bear.
Private equity investors must also plan exit strategies
early. While considering an IPO to expand a business, improve
market presence or as a long-term planned exit strategy,
advanced planning is vital because this can take a significant
amount of time and many IPOs are delayed – or even
fail – because a company has underestimated the amount
of work required.
In an IPO, a private equity firm must retain a significant
stake in the company, which prolongs the holding period for an
investment. With that in mind, if the end of the planned
holding period is approaching or has passed or an exit must be
assured to meet fund return targets, a trade sale can be used
as a backup option to expedite an exit and receive proceeds
from a sale.
It takes significant resources and energy for company
management to prepare for an IPO and trade sale exit
simultaneously. Sponsors must make an honest assessment about
whether management has sufficient bandwidth to sustain both
tracks while running the daily business.
The European and international communities are on hold due
to Brexit with an especially keen eye on the 'hard Brexit'
scenario, which is the only scenario under discussion in
Brussels at the moment.
Brexit under any scenario will likely affect M&A in a
negative way. However, we foresee that because of the unstable
situation and high volatility in the markets, some assets could
become quite attractive for trading, a change of ownership and
merging. This could give rise to an increase in M&A
We believe that the lawmakers will ensure the protection of
investors, enhance transparency and strengthen corporate
governance. It is yet unclear how legal practice will respond
however, the unfortunate events of the past (and we refer to
the collapse of various national economies within the Eurozone)
have taught us that the best cure is prevention.
Lawyer / founder & CEO, C Samir &
T: +357 2225 8800
Charalambos Samir is a member of the Cyprus Bar
Association. He has a broad specialisation in
international corporate law, legal and tax services and
private wealth, with a strong focus on M&A, the
setting up and restructuring of international projects,
international tax planning and immigration. He is also
a licensed international professional mediator approved
by the Ministry of Justice and Public Order in
Charalambos advises high net worth individuals
(HNWIs) from CIS countries, China, India, Europe and
the Middle East on tax planning, asset management and
commercial transactions using the favourable Cypriot
legal, tax and banking environment. His articles on
various business issues are regularly published in
business publications in Cyprus and abroad. He is also
a member of all the main business associations linking
Cyprus and other countries, as well as the founder and
president of CYMEBA (Cyprus Middle East Bridge to
In January 2019, Charalambos obtained the STEP
Professional Postgraduate Diploma in Private Wealth
Advising (PPgD) taught at the Oxford University,
Deputy managing director, C Samir &
T: +357 2225 8800
Athina Katiri graduated from the Kingston University
London with a bachelor of laws. She earned her MSc in
business management from Cyprus International Institute
of Management and she is a member of the Cyprus Bar
Athina is specialised in corporate law disciplines
such as the drafting, negotiation and implementation of
Cyprus law security documents, charges and pledges, the
issuance of corporate capacity legal opinions in
M&A transactions and the restructuring of
Andrea M Hadjigeorgiou
Lawyer, C Samir & Co
T: +357 2225 8800
Andrea Hadjigeorgiou holds a law degree from the Law
School of Athens. Andrea earned her master's degree in
commercial law (LLM) from Cardiff Law School. She is a
member of the Cyprus Bar Association.
Over the past years, Andrea has been highly involved
in compliance, AML, regulatory, and legal and risk
matters for numerous Cyprus investment firms. She has
obtained advanced certification from the Cyprus
Securities and Exchange Commission.
Moreover, Andrea has also been engaged in
compliance, AML compliance and regulatory matters for
alternative investment funds and fund managers.