BULGARIA Law and Practice Contributed by: Nikolay Zisov, Svetlina Kortenska, Deyan Terziev and Teodora Peycheva, BOYANOV & Co.
4. Sale as a Liquidity Event (Sale of a Privately Held Venture Capital- Financed Company) 4.1 Liquidity Event: Sale Process When a Bulgarian start-up decides to pursue a sale as a liquidity event, the choice between an auction and a bilateral negotiation depends on several factors. For smaller or earlier-stage start-ups, a bilateral nego- tiation with a strategic investor or a private equity firm might be more appropriate. This approach can allow the company to maintain control over the sale pro- cess and potentially negotiate better terms. Larger, more mature companies with a strong track record and significant assets may be able to attract multiple buyers and benefit from an auction process. This can drive up the price and increase competition among potential bidders. In a strong market with high demand for acquisitions, an auction can be a good way to attract multiple bid- ders and maximise the sale price. In a weaker market, a bilateral negotiation might be more suitable, as it can allow the company to focus on finding a buyer who is willing to pay a fair price despite the challenging market conditions. If the company is looking for a quick sale, a bilateral negotiation might be more efficient. An auction pro- cess can take longer, especially if there are multiple rounds of bidding. If the company’s primary goal is to maximise the sale price, an auction can be a good option, as it can generate significant competition among potential buyers. In some cases, a hybrid approach may be considered, where the company initially conducts a limited auction process to gauge interest and then enters into bilateral negotiations with the most promising bidders. This can help the company achieve a balance between maximising value and efficiency. 4.2 Liquidity Event: Transaction Structure The sale of the entire company is the most common transaction structure for privately held technology companies in Bulgaria, and a sale of a controlling interest with VC funds retaining a minority stake might
be considered in certain circumstances. The specif- ic structure chosen will depend on various factors, including the company’s stage of development, the buyer’s preferences, and the VC investors’ objectives. 4.3 Liquidity Event: Form of Consideration In Bulgaria, most transactions involving the sale of a privately held technology company are typically done as a sale of the entire company for cash. This provides a clean exit for the seller and complete liquidity for the shareholders, including VC investors. While stock-for-stock transactions or a combination of stock and cash are less common in Bulgaria com- pared to cash-only deals, they can be seen in practice as the preferred choice under certain circumstances. 4.4 Liquidity Event: Certain Transaction Terms Founders and VC investors in Bulgaria are generally expected to stand behind representations and war- ranties and certain liabilities after closing. Indemnifica- tion and escrow/holdback mechanisms are commonly used to address these risks. While representations and warranties insurance is not as prevalent in Bulgar- ia as in some other jurisdictions, it can be considered in certain cases. Another valuable tool in technology M&A transactions is the earn-out mechanism. It allows the seller of a business to receive additional payments in the future, typically based on the start-up’s perfor- mance or the achievement of certain milestones. This can be an appropriate arrangement particularly when there is uncertainty about the future value of the tar- get company. The earn-out can help bridge valuation gaps, align incentives and reduce upfront payments.
5. Spin-Offs 5.1 Trends: Spin-Offs
In Bulgaria, the most common transaction type is a share transfer. When spin-offs are considered, they are typically driven by the need to separate distinct business units or to attract specialised investment, though such cases remain limited.
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