On the one hand one could say that selling companies is the same anywhere in the world, and there is some truth to this: intellectually, the concepts are the same, the steps in the process are the same, and the reasons for the success or failure of a transaction have common elements all over the world.

Having worked on transactions covering more than 40 countries, I can testify to these similarities.

And yet, on the other hand, there are distinct differences to doing deals in Central Europe. But it is hard to put my finger on exactly what these differences are. Perhaps it has something to do with the fifty years of Soviet occupation of most of the region.

During this era, there was no M&A industry in Central Europe; there was a general lack of financial, marketing and other skills; there was a prevailing value that "information was power," and one held his or her cards very close to the chest, only revealing the minimum necessary information. Without giving an exhaustive list of all the characteristics unique to Central Europe in contrast to North America or Western Europe, these include:

• Good information about companies is much harder to obtain. For example, fewer companies, even of comparable size, have sophisticated Management Information Systems.

• Regulatory regimes are not as developed. While most Central European countries have converged considerably with EU laws and institutions, there are often still gaps in enforcement or interpretation of regulations. The regime for collection of debts in Croatia, for example, is remarkably poorly developed.

• Tax laws in most Central European countries are typically not as well conceived, are changed much more frequently, and their enforcement is more uneven.

• The authorities perhaps have more discretionary powers, making it harder to predict risks.

• There is also a much more prevalent grey economy than in Western Europe or North America. This means there is a need to look very carefully at companies that are being purchased, doing a very thorough due diligence. It also means that if an investor buys a legitimately operating company, it may experience unfair competition from those that are not.

For anyone attempting to do a cross-border deal in Central Europe, there are also a great deal of significant cross-cultural elements to doing a deal. The cultures of every single Central European country are highly unique. This is of course just as true for Western Europe.

Language in cross-cultural deals is another potential dimension of complexity. Recently, for example, I was involved in one deal that was negotiated in four languages.

Deals in Central Europe are typically smaller - market size is typically small, and few companies have become global or even regional.

Transactions typically take longer, due to the additional elements of complexity posed by the aforementioned factors.

So, as you can see then, doing deals in Central Europe has a flavor of its own. I do not mean this as a negative point. Doing a smaller mid-sized deal can be more exciting and intellectually stimulating than much larger deals in more developed markets.

From the perspective of multinationals and private equity firms, because Central Europe is generally undergoing much faster growth than Western Europe - a fact likely to remain the case for the coming decade or two - the additional complexity may be worth the effort.

There is also a convergence taking place. Deal sizes in Central Europe are becoming larger, ever increasing numbers of people are conversant in English, tax laws and regulations are gradually becoming clearer and their enforcement more predictable.

I have seen a huge evolution over the past 20 years, but it will probably take at least another 20 years before Central Europe fully converges with Western Europe.

Most M&A practitioners have a healthy skepticism regarding the ability of confidentiality agreements alone to adequately protect the rights of their clients, given the difficulty of proving a breach in the first place and then the amount of damages. Moreover, the lack of jurisprudence and precedents in Central Europe on this subject make enforceability even more difficult, hence the need to rely on a combination of all four approaches.

a) Confidentiality agreements or non-disclosure agreements

Most agreements cover only information received from the company rather than information available from public sources. The duration is typically negotiable between one to five years, with two to three years being the norm. Generally speaking, boilerplate agreements do a poor job of properly representing the interests of the parties concerned; this is an agreement that requires careful thought and specific focus. One common flaw is that many confidentiality agreements do not state that the mere information that the company is for sale, or is contemplating a transaction, is in and of itself confidential. Furthermore, companies typically try to stipulate liquidated damages (e.g. predefined damages if a breach of confidentiality is proven), whereas investors are typically reluctant to accept such damages.

b) Delay in the transmission of information

There is a general principle that should be observed in these transactions: the volume and degree of confidential information transmitted by a company should be in proportion to the degree of commitment given by an investor. For example, in the first stage of information disclosure (typically a teaser or information summary), as there is no commitment from the investor usually there is not sufficient information to ascertain the identity of the company (although there should be enough to allow the investor to decide whether or not to proceed further (e.g. sign a confidentiality agreement)).

Once a confidentiality agreement is signed, the company typically provides investors with an information memorandum. Information memoranda typically divulge a considerable amount of information about the company, including its identity, key market and financial data, staffing, backlog of contracts, etc. In cases where certain information may be extremely sensitive (e.g. the identity of clients), the name or identity of clients is sometimes withheld and instead the information memorandum might refer to client 1, client 2, etc., with an understanding that the identity of clients, or other sensitive information, would be revealed at some stage before closing.

After the information memorandum is received, investors generally proceed to the next level of commitment which is to provide a non-binding offer. Once the parties agree to the terms of an offer (often finalized in a term sheet), the company then allows access to the data room, where source documents such as contracts, title documents, intellectual property, etc. are made available. Once again, highly sensitive information may be withheld until prior to closing, bearing in mind that if such information is not according to the investor’s expectations, the investor will generally reserve the right to back out of the transaction. Withholding sensitive information may also hinder the bidder’s ability to nail down the purchase price and a sensible compromise must be found at this important stage.

After the data room, the investor then must decide whether to make a binding offer. After a binding offer, the parties usually negotiate a sale and purchase agreement (SPA). After signing the SPA, the investor should then insist on receiving all the information about the company, with absolutely nothing withheld.

As a past client of ours stated when selling their business, “We had to dress down to our underwear, and beyond.” And, indeed, dressing down is the quid pro quo for the investor putting millions of dollars or euros at risk.

c) Deal with a reputable party

A confidentiality agreement, or indeed any other agreement, is usually not worth the paper it is written on unless signed by a reputable party. Given the difficulty of verification of any transgressions and proof of damages, a judgement call needs to be made about the character of the individual or corporate recipient and there must be mutual trust in order for a deal to work. This is of course especially true when providing sensitive information to a direct competitor and so the ethics and reputation of the firm in question are vitally important.

d) Not dealing with direct or indirect competitors

Most business owners have a healthy reluctance to share information with competitors. The more direct the potential competitive threat, the stronger the reluctance. If a business owner has other potential investors, he might choose to negotiate first with parties who do not pose a threat. Alternatively, once again, the release of sensitive information could be delayed. However, in doing so there is a trade-off, in that this may also delay obtaining a bona fide offer.

Think of the process of information disclosure as a ritual or dance: step by step. Do not let one foot get too far ahead of the other!