QUESTION ONE - In your experience, what are the key considerations that international clients should have the front of mind when assessing a target company for acquisition in your jurisdiction?
Analysing your target is crucial. Typical targets in Germany are so-called ‘Mittelstand’ companies, which may be described as mid-size, family-owned and family-directed companies with strong personalities derived from the owner family's management.
Though often market leaders and/or innovative, the documentation can be individual and not necessarily compliant with international standards. The structure, culture and processes are idiosyncratic and may deviate from US/international standards. There is often a strong personal and emotional link to the employees.
You should assess whether the target is active in a firmly regulated market and whether there are any strong regulatory restrictions. Antitrust thresholds should be considered, while the factbook must be read and interpreted and the due diligence question list designed.
QUESTION TWO - How would you, as a professional advisor, approach the due diligence process to ensure all bases are covered prior to a sale price being agreed?
Analysing the client is important, including his skills and experiences and weak points. We need to know if the client is open or averse to taking risks and what their business goals are.
The peculiarities of German law and market practice are important. In Germany, share purchase agreements often require formal notarization by a notary public, which triggers costs.
Structuring and securing the price is another area that deserves attention. This will include macs (material adverse clauses), drag-along necessities and earn-out options.
QUESTION THREE - Once an acquisition is agreed, what are the key clauses or warranties and indemnities you would recommend for inclusion in the sales contract?
Representations and warranties are central to eliminate foreseeable risks. This can cover price securitisation or mechanisms on adjusting the purchase price.
The clauses can cover the pricing structure and trigger benefits after closing, earn-outs or drag-along. Never forget to fix a dispute resolution scheme, an applicable law and a place of jurisdiction.
Tips for completing a successful cross-border acquisition
Cultural differences need to be taken into account. German negotiation participants are often straightforward and direct, which in other cultural traditions might be regarded to be rude. On the other hand, they expect that a word or decision once uttered, shall remain and not be questioned again. The negotiations – at least in the mid-cap sector - regularly take place with decision-makers, not intermediary personnel.
Consider different legal concepts and differences. There are often ‘false friends’ when applying terms or structures that seem familiar.
Consider whether ‘neutral’ concepts such as the United Nations Convention on Contracts of the International Sale of Goods may offer suitable solutions (e.g. in asset purchases) or whether arbitral institutions (e.g. the DIS Deutsche Institution für Schiedsgerichtsbarkeit (German Institution for Arbitration), could be useful.
This excerpt was taken from the IR Global Guide: International Deal Making: Assisting Acquirers. To view the full publication, please click here.