Common practice in the Adriatic region
Heading the M&A practice and business development at Unija ETL Consulting and for the execution of transactions across the West Balkans, David Čeplak and his colleagues have been facing M&A-related challenges daily for many years.
With this summary, they are to sharing several insights and practical examples – without disclosing names – regarding the expectations of buyers and sellers in the region, as well as the expectations of international buyers. ETL GLOBAL, which UNIJA Group is part of, operates in more than 60 countries worldwide, and many interested buyers for companies in the Adriatic region originate from this global network.
Unija’s market focus lies primarily on medium-sized and larger companies that they have worked with in the region, with buyers coming mainly from the EU, the US and the Middle East.
The language used below is intentionally simple and straightforward, as most company owners, who typically go through this process only once in their lifetime, need clarity, transparency, and common-sense explanations of all elements involved in selling a company.
The intention is to emphasize practical cases rather than generally known M&A procedures and concepts, which can be found from many other reputable M&A resources.
Motivation to Sell and the Decision-Making Process
There are several fundamental reasons why business owners choose to sell a company: retirement without a successor, burnout and lack of vision, limited growth potential, financial distress, disputes among shareholders or heirs and similar.
In the Balkans region, there is an additional context-specific factor: after the breakup of Yugoslavia in the late 1980s, entrepreneurship truly began to flourish, and many companies founded during that period have grown successfully and are now reaching the market. Their founders wish to monetize their life’s work.
Initial Discussions with UNIJA
Shareholders and Family Members
Case 1
The owner had been contemplating a sale for three years. The key dilemma was that one of the children expressed interest in taking over the company, yet the owner did not see him fit for this role. Discussions were first held with the owner alone, and later jointly with both parties. According to David Čeplak’s experience, conversations like these often reveal deeper reasons behind an owner’s hesitation.
For the advisors, this is crucial, as they will want to enter the process only once all uncertainties have been clarified in time. These matters must not be resolved only once a serious offer is already on the table (NBO, LOI, MOU) or even later during due diligence or SPA negotiations.
In this case, David’s primary role was to act as a mediator and help the parties align their actual goals. Founder- and family-run companies require a clear consensus among shareholders and family members on whether the company is to be sold – and once agreed, that decision must be followed decisively.
Case 2
Several shareholders jointly wished to sell their company, but one of them was in conflict with the others. The dispute appeared unresolvable. Since individual shareholdings were not attractive to potential acquirers, the only viable option was a full sale.
This required substantial experience and technical knowledge, including mediation between shareholders and parallel engagement agreements. The company was ultimately sold very successfully, and David’s team managed to align all shareholders under a unified negotiation strategy through careful preparation and goodwill.
Purchase Price Expectations and Other Key Terms
Sellers’ expectations are usually higher than realistic, while buyers often expect to acquire companies at a discount. This dynamic is typical in M&A. The advisor’s role is to align expectations before the process begins.
It is essential to set clear expectations early, as this gives structure to the process and prevents unpleasant surprises for all stakeholders.
It is generally recommendable to perform a professional valuation using recognized methods, typically the DCF method. It is a misconception that valuation can be reduced to a simple EBITDA multiple – numerous additional elements influence pricing.
These include, in particular, customer diversification, patents, long-term customer or supplier contracts, dependence on a single customer or supplier, potential litigation, dependency on the owner or founder and other specifics.
Although the EBITDA multiple is not the only criterion, many sellers in the Balkans expect 5–10x EBITDA for medium-sized companies. Transactions achieving 10x or more are rare and typically involve companies with high added value, specialized know-how, or proprietary technologies.
David’s team has for example already closed transactions at 12x EBITDA (manufacturing, BiH) and at 10x EBITDA (high-tech, Slovenia).
Real estate can also significantly impact valuation. In cases where real estate is worth more than the operating business, it may be advisable to carve out the property. Separating the operational balance sheet from the property can result in a higher combined sales price.
Beyond price, other terms are equally important: It is common for sellers, already in the first meeting, to categorically reject the idea of a transition period after closing. However, buyers require assurances that the company will operate as expected, without hidden issues. Although SPA representations and warranties mitigate some risks, buyers still expect a certain level of owner involvement during post-acquisition integration.
Typical transition periods in completed transactions range from one to two years, with some cases extending to three or even five years.
Case 1
The seller insisted on selling the company together with a newly built modern facility. UNIJA’s valuation indicated that separating the real estate would generate higher offers.
Accordingly, the real estate was cut out, and ultimately two separate sales of the business and the property were negotiated. As a result, the sellers achieved 60% more than initially expected.
Case 2
The owners of a manufacturing company initially had unrealistic value expectations. They agreed on a reasonable target price and proceeded to identify suitable buyers in Europe and globally.
The first NBO we received was, in UNIJA’s professional assessment, very favorable, and David’s team advised the seller to proceed. However, they declined.
Two years later, the transaction was eventually completed with the same buyer – at a lower price.
While advisors are not always right, experience and market insight should be considered at the right moment.
Case 3
During the first discussions with UNIJA’s adviser team, the owner of a reputable Serbian company realised that the overall process was more complex than he had assumed, despite all clear explanations. He had expected that a buyer would appear almost overnight and that the technical aspects of the transaction would unfold effortlessly.
In general, some sellers in the Western Balkans tend to underestimate the complexity of the process and buyers’ expectations. The advisers’ role is to prepare the owners and the company for the sale.
Buyer Expectations
There are various buyer categories. In addition to the primary distinction between strategic buyers and financial investors (funds), their motives differ substantially.
Funds aim for a value-creating investment that can be exited at a profit, whereas strategic buyers typically seek growth through acquisition in their existing or complementary sectors, access to new technologies, markets, patents or cost synergies.
Some buyers focus on distressed acquisitions and therefore make offers significantly below sellers’ expectations. Foreign investors – especially from the DACH region – who already have positive experience in the Adriatic and Western Balkans are more comfortable investing.
However, first-time investors often struggle with unfamiliar business environments and the region’s fragmentation. Six former Yugoslav countries represent a market of 20 million people – relatively small considering the diversity of regulatory, tax, and business frameworks.
The colleagues at ETL UNIJA Consulting address these complexities through integrated regional support. If a company is strong, profitable, growing, transparent and operates in a business-friendly environment, it stands a high chance of attracting a reputable foreign buyer at a fair price.
Currently, the most business-friendly tax environments are found in Croatia, Serbia, Montenegro, and North Macedonia. Slovenia is somewhat less attractive from a tax-burden perspective, but it benefits from highly qualified, innovative, and reliable personnel – similar to Croatia and partly Serbia. Serbia has strong companies and a steadily rising GDP per capita. Bosnia and Herzegovina, while complex due to its internal political structure, offers tax advantages, competitive costs, and skilled labour, supported by the ETL UNIJA BIH team.
Overall, foreign investment in the Balkans region pays off.
At the same time, domestic buyers understand the local business environment well and, with UNIJA’s assistance, consolidate markets across sectors. Consolidation is ongoing in retail, tourism, healthcare and wellness, metal and plastic products, manufacturing, engineering, IT and software, consulting and many others.
Timeline
Sellers often have unclear expectations regarding the duration of the sale process, particularly when the buyer is not yet identified.
On the one hand there are situations where a seller already has an active dialogue with a specific buyer and only requires professional support – preparing transaction documents such as NBO, LOI, MOU, SPA, conducting due diligence, or supporting negotiations. On the other hand, in many cases the seller is still searching for a buyer, which is commercially more demanding.
Thanks to an extensive network of strategic buyers, funds, and global M&A partners – especially within ETL GLOBAL – it is usually possible to generate international investors’ interest relatively quickly.
On average, transactions close at the notary within 18 months from signing the engagement letter. Some cases take longer, especially when mediation is required between stakeholders, or when regulatory clearance is needed, such as competition authority approval.
Example
In one particularly successful case, David’s team quickly found a suitable buyer and negotiations progressed smoothly. However, the transaction was delayed by nine months due to the competition authority approval process, despite the deal being relatively straightforward.
Potential Obstacles
Several issues can complicate the sale process. The seller must be completely transparent with the advisor from the beginning, or a vendor due diligence review should be conducted to prepare the company accordingly.
Some risks can be anticipated early on, for example dependency on a single supplier or principal, or the company operating under a franchise-type arrangement.
Case 1
UNIJA was handling the sale of a car dealer business where the buyer and seller had already agreed on terms and price. However, the principal issued a negative opinion regarding the change of ownership, which would have jeopardized the dealership rights for the buyer. The deal collapsed.
In such cases, it is advisable to check these dependencies in advance, to the extent that confidentiality and process timing allow.
Case 2
David’s team successfully completed the acquisition of a company that had long served as an exclusive representative of a global vehicle rental brand. Such exclusivity contracts form the backbone of the business, and therefore it was crucial to verify in advance the key requirements the potential buyer had to meet before entering the sale process.
In this case, an excellent buyer could be identified, and the global brand willingly transferred the agreement to the new owner.
Tax perspective
Capital gains tax is to be considered as one of the costs of the transaction and should not be ignored.
The tax systems of the countries in the Adriatic region differ significantly, in determining the tax conditions, tax base and tax rates, respectively. However, in all countries the tax base generally consists of the profit made and is calculated as the difference between the purchase and sale price. Certain costs and specifics of the case can be considered, depending on legislation.
UNIJA’s tax consultants prepare exact calculations in advance to help clients understand their legal obligations after the transaction.
Below is a short overview of the capital gains tax regimes in the Adriatic Region, should the seller be an individual.
| Capital gains tax rates for individuals* | |
|---|---|
| Slovenia |
Ownership of shares:
|
| Croatia |
Ownership of shares:
|
| Bosnia and Herzegovina | In Federation BIH: tax rate 10%.
In Republic Srpska: tax rate 13%. |
| Montenegro | Tax rate is 15%. |
| Serbia |
Ownership of shares:
|
| North Macedonia | Tax rate is 10%. |
*Due to the specifics of the legislation, tax liability should be verified for each specific case separately.
As shown in the above practical cases and insights, there are numerous factors to be observed in an M&A process, such as management of buyers’ and sellers’ expectations, pricing, timing and taxation. Although this is pretty much the same in any market, the Adriatic region brings along some extras.
Unija ETL Consulting is part of the internationally recognized brand Unija ETL, which is known for its high-quality accounting and consulting services and advanced IT solutions. David Čeplak and his team of over 30 consultants specializing in M&A, law, tax, and finance are happy to help. They collaborate with a broad network of strategic buyers and investment funds in the Balkan region, Europe, and worldwide.
Unija ETL operates in Slovenia, Croatia, Bosnia and Herzegovina, Serbia, Montenegro, and North Macedonia and collaborates closely with its international ETL GLOBAL partners around the world.
