Challenges facing M&A transactions in North Macedonia: regulatory, competition and market considerations

Ljupka Noveska Andonova
Qoku & Partners, Skopje
ljupka.noveska@karanovicpartners.com

Vlatko Tokarev
Qoku & Partners, Skopje
vlatko.tokarev@karanovicpartners.com

Martina Anđelković Apostoloska
Qoku & Partners, Skopje
martina.andjelkovic@karanovicpartners.com

Introduction

Despite its relatively small market size, North Macedonia continues to attract interest from investors and regional investment funds seeking opportunities in the Western Balkans. The country’s strategic geographic location, NATO membership, competitive tax regime and continuous and intensifying alignment with European Union acquis and standards have contributed to a generally favourable investment climate. Sectors such as manufacturing, renewable energy, information technology, healthcare and consumer goods have been particularly attractive to both domestic and foreign investors.

While mergers and acquisitions (M&A) activity in North Macedonia remains modest compared to larger Central and Southeast European jurisdictions, transactions have become increasingly sophisticated. Parties to a transaction must navigate a legal and regulatory environment that is continuously evolving, while addressing practical challenges that can affect the transaction structure, timing and overall deal certainty.

This article examines the key challenges encountered in M&A transactions in North Macedonia, focusing on the regulatory complexities, merger control considerations, due diligence issues, market transparency and enforcement risks.

Regulatory complexities of a developing legal framework

The legal framework governing M&A transactions in North Macedonia is primarily based on the Company Law (2004, as amended), supplemented by the Competition Law (2010, as amended), the Joint-Stock Companies Takeover Law (2013, as amended), Securities Law (2005, as amended), Labour Law (2005, as amended) and other sector-specific laws and regulations.

Although substantial efforts have been made to harmonise Macedonian legislation with EU standards, transaction parties are often required to navigate multiple legal regimes concurrently. Depending on the nature of the target’s business, the relevant regulator’s prior consent may be necessary. This is particularly relevant in highly regulated sectors, such as banking, insurance and media. In other sectors, such as energy and telecommunications, while prior approval for a change in ownership may not be required, transaction parties must often comply with notification obligations to the relevant regulatory bodies to ensure the continued validity of operating licences.

Cross-border transactions present further complexity. Foreign investors must consider not only corporate and regulatory requirements, but also foreign exchange regulations, investment protection treaties and tax implications arising from the applicable double taxation treaties. For investors entering the Macedonian market for the first time, identifying all of the necessary approvals and compliance hurdles at an early stage is essential to mitigate execution risk and prevent procedural delays.

Merger control: a significant consideration for transaction planning

Among the regulatory issues affecting M&A transactions in North Macedonia, merger control has become increasingly important. While the country’s merger control regime is broadly aligned with EU competition law principles, its jurisdictional thresholds are comparatively low and may trigger filing obligations, even for transactions with a limited connection to the Macedonian market.

Under the local Competition Law, activity involving a concentration must be notified to the Competition Commission when certain turnover or market share thresholds are met. A filing obligation may arise where the combined worldwide turnover of the parties exceeds €10m in the preceding financial year, provided that at least one of the undertakings has a registered presence in North Macedonia or where the parties’ combined turnover in North Macedonia exceeds €2.5m. In addition, filing obligations may be triggered by market share thresholds, in situations where one undertaking holds at least 40 per cent of a relevant market or where the parties’ combined market share exceeds 60 per cent. Market share thresholds represent a particular challenge. Determining whether such thresholds have been met often requires defining the relevant product and geographic market, which may not always be straightforward in specialised industries or developing sectors. As a result, competition law analysis has become an increasingly important component of legal due diligence and transaction planning.

From a practical perspective, these thresholds are low compared with those found in many EU jurisdictions. As a result, foreign-to-foreign transactions involving multinational groups frequently require merger notifications in North Macedonia, even where the transaction has little or no substantive impact on competition in the local market. This feature of the Macedonian merger control regime creates several practical challenges. Firstly, transaction parties must assess the relevant merger filing obligations at an early stage, even where North Macedonia represents only a small portion of the parties’ overall business activities. Secondly, because merger notification is mandatory and subject to a standstill obligation, transactions cannot be implemented before clearance is obtained. Significantly, the Competition Commission has become increasingly active in identifying and penalising ‘gun-jumping’ cases, raising the stakes further for timely compliance. This can affect transaction deadlines and closing mechanics, particularly in multijurisdictional deals that require approval from several competition authorities.

From a policy perspective, the current thresholds frequently result in notifications for transactions that do not materially affect competition within North Macedonia. While the existing framework allows the Commission to maintain oversight of market developments, it also imposes exorbitant compliance burdens on investors. Future reforms associated with EU accession may provide an opportunity to recalibrate these thresholds to better align with the ‘local nexus’ principle.

Due diligence challenges

Comprehensive due diligence remains a critical component of any M&A transaction in North Macedonia. While significant improvements have been made in corporate transparency, governance and regulatory compliance over recent years, investors continue to encounter practical challenges during the due diligence process.

Many privately owned businesses have historically operated with less formal governance structures than those commonly found in Western European markets. Corporate records may be incomplete, while historical corporate actions may lack sufficient documentation and may require additional verification. Title over real estate and other key assets often require particularly careful review. Although the cadastral system has undergone substantial modernisation, investors may still encounter inconsistencies when reconciling registered ownership records with historical documentation, particularly in relation to older industrial facilities and manufacturing sites.

Employment matters also require close attention. Buyers frequently scrutinise compliance with labour legislation, independent contractor status, collective bargaining arrangements and potential liabilities arising from previous employment practices. In labour-intensive sectors, employment issues can become a significant factor in transaction negotiations.

Tax due diligence represents another critical area of focus. Investors commonly require detailed reviews of historical tax compliance, transfer pricing arrangements, value-added tax (VAT) treatment and potential contingent liabilities that may not be immediately apparent from publicly available information.

Given these considerations, buyers often seek extensive contractual protections through customised representations, warranties and specific indemnities designed to allocate the identified risks appropriately between the parties.

Limited market transparency and valuation challenges

A recurring challenge in Macedonian M&A transactions is the limited availability of market information compared to more developed EU economies and jurisdictions.

Reliable financial, commercial and transactional data is often less accessible, making it more difficult for investors to conduct benchmarking exercises and establish accurate valuations. The scarcity of publicly available comparable transactions may further complicate negotiations regarding enterprise value and purchase price mechanisms.

Consequently, valuation gaps between buyers and sellers are common. Sellers frequently rely on optimistic projections and growth expectations, while buyers apply conservative risk adjustments to reflect the legal, regulatory and market uncertainties. To bridge these differences, transaction parties increasingly rely on earn-out arrangements, deferred consideration structures and sophisticated purchase price adjustment mechanisms. Such tools help mitigate information asymmetry, while facilitating an agreement on the valuation by allowing the parties to share future performance risks.

Financing and market size considerations

North Macedonia’s relatively small economy presents both opportunities and constraints for M&A activity.

The domestic capital market remains comparatively underdeveloped and liquidity on the Macedonian Stock Exchange is limited. Consequently, most acquisitions are financed through bank financing, shareholder funding or foreign investment capital rather than local equity markets. Although private equity interest in the Western Balkans has grown in recent years, North Macedonia continues to attract fewer institutional investors than larger regional markets. Limited exit opportunities and the relatively small size of the domestic market may affect investment strategies and valuation assumptions.

Many investors, therefore, approach Macedonian acquisitions as part of broader regional expansion strategies rather than standalone investments. This trend is particularly visible in sectors such as manufacturing, energy, telecommunications and consumer products.

Dispute resolution and enforcement considerations

The predictability and efficiency of the available dispute resolution mechanisms remain critical considerations for foreign investors.

While North Macedonia has implemented significant judicial reforms, uncertainties remain regarding the consistency of judicial practice and the potential prolonged duration of local court proceedings. While these concerns do not necessarily deter investment, they invariably influence the allocation of risk within transaction documentation.

International investors frequently seek additional protections through escrow arrangements, arbitration clauses, purchase price retention mechanisms and carefully negotiated warranty and indemnity provisions. Such protections are designed to mitigate enforcement risks and provide greater certainty in the event of post-closing disputes.

The growing preference for international arbitration in cross-border transactions reflects the importance that investors place on neutral and predictable dispute resolution. In this context, North Macedonia’s status as a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards provides a vital layer of security, ensuring that arbitral awards are recognised and enforceable against local counterparties.

Conclusion

North Macedonia continues to offer attractive opportunities for investors seeking exposure to the Western Balkans. The country’s strategic location, competitive business environment and ongoing integration into EU legal and economic frameworks provide a solid foundation for future investment activity.

Nevertheless, M&A transactions in North Macedonia present a series of distinctive challenges. Regulatory complexity, extensive due diligence requirements, limited market transparency and enforcement concerns all require careful consideration. Among these issues, merger control has become particularly significant due to the country’s relatively low jurisdictional thresholds, which frequently trigger notification obligations for transactions with only limited local effects. The recent increase in enforcement activity related to gun-jumping further highlights the need for regulatory compliance.

For investors and advisers, successful transactions depend on early planning, comprehensive due diligence and proactive management of the applicable regulatory requirements. As North Macedonia continues to harmonise its legal framework with EU standards and continues to develop its investment environment, many of these challenges are likely to become less pronounced. Until then, navigating and understanding the specific characteristics of the Macedonian market remains essential to achieving transaction success.