AUSTRIA: An Introduction to Corporate/M&A

Austria’s Economic and Business Strengths

Located in central Europe with a population of approximately 9 million, Austria is a modern market economy with a strategic location and a highly skilled labour force. Austria boasts a robust economy characterised by a high GDP per capita according to the OECD, low unemployment rates and a strong industrial base. Key industries include manufacturing, services and tourism, but in recent years the country has also seen a growing number of cutting-edge technology companies and other players in R&D heavy industries. The capital of Austria, Vienna, is a major financial centre for the CEE region and hosts in its vicinity numerous international corporations and financial institutions. In 2023, Vienna was (again) named the most liveable city for expats, which allows companies to attract highly qualified employees (Mercer Quality of Living City Ranking, 2023). Besides the Vienna metropolitan region, many hidden “champions” are based in different areas of the country, such as Styria, Upper Austria, Tyrol or Vorarlberg. Key advantages of Austria as a business hub are its infrastructure, its high social security and the quality of its education system. Due to its geographical position and proximity to expanding markets in Eastern Europe and the Balkans, Austria is an interesting location for many companies that are active in the CEE region and want to make use of Austria’s historically good relations with many countries in the wider area. The reduction of the corporate tax rate to 23% over the past two years means that Austria not only offers a stable political environment, but also attractive tax conditions for investors and companies.

The M&A Market in 2023 and 2024

The M&A market in Austria in 2023 was impacted by geopolitical tensions, high inflation and increased interest rates, which had a particularly strong impact on the real estate sector. While the number of transactions involving Austrian companies decreased from 297 in 2022 to 227 in 2023 in line with the trend in previous years, the overall volume of transactions increased from EUR2.3 billion in 2022 to EUR6.6 billion in 2023 (EY Österreich M&A-Index 2023; in German). According to the same study, the industrial, technology/telecom and energy sectors were amongst the most active branches in 2023.

This development was driven by a greater number of large-cap deals in 2023, with the sale of cargo-partner to Nippon Express (transaction value: EUR1.4 billion according to the EY Österreich M&A-Index 2023), the acquisition of a majority stake in Constantia Flexibles by One Rock Capital Partners (transaction value: EUR1.1 billion according to EY) and the sale of a 20% stake in IMS Nanofabrication to Bain Capital (transaction value: EUR0.8 billion according to EY) being amongst the most significant transactions in 2023. Based on our overview of the market, the overall trend to “fewer but larger” has continued in the first half of 2024, with the partial exit of the founders of Single Use GmbH and Danaher (sale to Novo Holdings) and the acquisition of French Terreal group by the listed Austrian Wienerberger group being amongst the most significant transactions in recent months. Also, with different insolvency proceedings of entities of the Signa group being just the most prominent example, we have seen a significant increase in distressed M&A transactions, in particular in the real estate and automotive sectors.

Key Legal Developments

To highlight just a few examples, the following recent legal developments have had an impact on M&A transactions in Austria.

FDI

In the past years, we have seen an ever-increasing number of transactions that are subject to the Austrian FDI regime. The Austrian Investment Control Act (Investitionskontrollgesetz) identifies several critical sectors in which transactions involving certain foreign investors require a FDI filing, including not only areas like defence and security that are typically subject to areas, but (amongst others) also energy, IT, transport and health. Navigating the respective regulatory uncertainties and increased waiting periods has become a common feature of many cross-border transactions, even if they only involve minor Austrian subsidiaries as part of the target structure.

The Austrian FlexCo

Following longstanding requests from the Austrian start-up and venture capital community, the Austrian legislature has established with the new Austrian Flexible Company (“FlexCo”) a new corporate form in 2024. Providing in general greater generally flexibility for start-ups and scale-ups, the Austrian FlexCo Act and the corresponding changes in the Austrian tax laws now also allow for the use of internationally established employee participation programmes by the issuance of company value shares (as compared to virtual interests that have been most prevalent in the past). In addition, many practitioners see the reduction of formal requirements in connection with share transfers as one of the greatest advantages of FlexCos.

Digital infrastructure assets

IT and digital infrastructure assets, mainly fibre optics, data centres and towers, have attracted significant interest in the Austrian M&A market over recent years, including by real estate and private equity investors. For example, M&A activity in the digital infrastructure sector has been growing year-on-year in Austria, with deal counts and cumulative deal values highlighting the resilience of this asset class. The sector is also influenced by the ongoing demand for data sovereignty and a multitude of European and national regulations (such as the European Energy Efficiency Directive).

Digitalisation of legal processes

In the past years, Austria has been continuously focusing on the digitalisation of legal processes. Most recently, the introduction by law of the virtual shareholders’ meeting and the digital notarial deed have further decreased the formalities for national and international investors. Austria also offers extensive public funding opportunities in these areas, especially for start-ups.

W&I insurance

One of the biggest developments in the Austrian M&A market in recent years is that warranty and indemnity (W&I) insurance has become a common feature on many (also mid-cap) transactions, with private equity buyers being at the forefront of this development. The legal disputes resulting from the acquisition of Schur Flexibles by the Austrian B&C group in 2021 have put this product to a major test, which resulted in a recent pay out of approximately EUR120 million by certain W&I insurers, while certain other disputes in respect of this transaction are still pending.

Looking Ahead

Based on the pipeline of transactions for the coming months, we expect the Austrian M&A market to be strong in the remainder of 2024 and the first half of 2025. Following years of comparatively restrained appetite, we expect, in particular, to see an increased focus from private equity firms on M&A transactions with an Austrian angle, which will allow them to make use of the vast amounts of dry powder they have built up in the past years.