Mergers and acquisitions in Germany
| Autor | Dr. Martin Fröhlich |
| Páginas | 105-120 |
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One of the most fundamental distinctions within the M&A sector is the contrast between Private and Public M&A transactions. Whereas Private M&A describes transactions in which the target is not a listed company, Public M&A deals with transactions involving a listed entity. The most notable difference between private and public transactions is that public transaction are subject to public takeover regulation, while private transactions do not face such restrictions. Many public takeovers may involve buying interests from a great number of parties, which are unknown to the bidder in advance. In contrast, private transactions only involve a limited number of preselected bidders. Thus, both the negotiation situation as well as the legal aspects that have to be considered differ greatly between Public and Private M&A transactions. In Germany, most companies are private companies (“German Mittelstand”) owned by families or financial investors. Thus, most M&A transactions in Germany fall in the group of private M&A.1
There is no specific “M&A law” in Germany. The general framework for M&A transactions is set by the German Civil Code (Bürgerliches Gesetzbuch, BGB) and mandatory corporate law (Limited Liability Companies Act, GmbHG; Stock Corporations Act, AktG). The parties to a M&A agreement, will alwys intent to exclude the BGB-provisions to the extent possible and establish their own concept of guarantees and remedies.
A private deal may be structured as a share deal, an asset deal, or a combination of both. The decision on the deal structure will depend on the specific legal situation and the individual requirements of the respective parties. Corporate, employment and tax law aspects are also likely to influence the deal structure.
A share deal involves the acquisition of the target entity’s shares. This way, all of its assets, liabilities and legal relationships are transferred indirectly to the purchaser. The main advantage of such deal structure is its relative simplicity. The structure may
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cause difficulties where the target is part of a wider group; problems may arise with regard to the separation of the entity. Intra-group arrangements such as domination and profit and loss transfer agreements will have to be identified and terminated. The purchaser will, further, have to make sure that all assets, legal permits and contractual relationships are available after closing. This requires entering into a detailed analysis of the change of control provisions in the respective documents. Finally, the need for a carve-out may arise if the seller wants to retain a part of the business, and numerous provisions protecting the purchaser against potential hidden liabilities will have to be incorporated in the agreement.
In an asset deal, the relevant assets and liabilities of the target are transferred directly to the purchaser, which generally will be able to chose the items it would like to acquire. This freedom, however, is not without problems: If a commercial business is acquired by way of an asset deal and continued under the same commercial name (“Firma”), the German Commercial Code (Handelsgesetzbuch, HGB) holds the purchaser jointly and severally liable for all liabilities incurred by the seller in the conduct of the business.2The parties may, however, agree to exclude this liability, which subsequently will be notified to the creditors or will preferably be published in the commercial register. From a tax law perspective, the purchaser of the business will be liable for any business taxes and withholding taxes that were incurred from the beginning of the last calendar year prior to the acquisition and which are assessed within one year from the notification of the acquisition to the competent authorities. With regards to employment law, the transfer of a business or a part thereof will also trigger an automatic transfer of the rights and obligations under the relevant employment relationships.3
A typical M&A transaction does not begin with the acquisition agreement rather it involves a number of pre-sale agreements that establish a framework for further negotiations which is safe in both legal and economic terms. Common pre-sale
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agreements are confidentiality agreements, exclusivity agreements and letters of intent will usually play the most prominent role.4
Under German law, the commencement of negotiations imposes pre-contractual obligations upon the parties to respect each other’s due rights and interests.5 That generally includes the obligation to keep disclosed information confidential.6
Nonetheless, due to the general nature of these pre-contractual obligations, the parties will usually conclude separate confidentiality agreements that specify the requirements under which sensitive information may be disclosed. Such agreements contain a definition of confidential information, limitations on the parties’ rights to use or disclose such information and an obligation to return or destroy data, should the transaction fail. If the transaction is successfully completed, the confidentiality agreement is typically replaced by confidentiality provisions in the share purchase agreement and/or a shareholder agreement, the latter in the case of a joint venture.
Where the target company is not a party to the confidentiality agreement, it is often declared that the agreement has been concluded to the benefit of the target (Vertrag zugunsten Dritter)7, so that the target company may directly enforce against the purchaser the rights and remedies under the confidentiality agreement.8 Another common clause reverses the burden of proof for unauthorized disclosure in favour of the disclosing party (i.e. the seller), thus making it easier to recover damages. Furthermore, concerning the consequences of a breach, contractual penalties are common and generally permitted under German law.9 Non-solicitation clauses which prohibit the prospective purchasers from headhunting employees or approaching customers and suppliers, are common as well. However, the enforceability of such provisions that concern employees is unlikely. For the purpose of legal certainty, such
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provisions should only prohibit active solicitation without preventing employees from approaching a new employer on their own initiative.10
If the negotiations are limited to only one purchaser, it is common to agree on exclusivity agreements. Generally speaking, the seller promises to refrain from preparing or entering into any other transactions that could pose a threat to the respective deal. Sometimes, these agreements even oblige the seller not only to provide all documents necessary for the due diligence, but also to negotiate in good faith so as to reach a final agreement. In order to maintain a strong bargaining position and to prevent unreasonably long lock-outs of other parties, the seller will usually insist on including a provision governing the termination of the exclusivity agreement.11Thus, the seller may put an end to the negotiations if the circumstances indicate that the purchaser is no longer engaged either in general or with relation to the initially contemplated terms. Often, a breach of the exclusivity agreement will be remedied by compensating expenses and damages, and by paying contractual penalties.
The term designates different types of pre-sale documents that serve to record matters such as the state of discussions, general principles of the deal or envisaged timetables. Is serves as a basis for the final acquisition agreement.12The titles of such documents are wide ranging (“letter of understanding”, “memorandum”, etc.). However, letters of intent commonly only tend to be concluded if negotiations take place between no more than two parties. Since a letter of intent will often contain a mixture of binding and non-binding provisions, the extent to which it creates legal obligations is not always easy to determine. In this respect, substance prevails over form, and the document is construed according to the expressed or implied intentions of the parties. Typically, the binding provisions will not address core issues of the deal, but rather refer to fairly peripheral matters such as confidentiality.13
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As mentioned before, under German law, the mere entering into negotiations results in a reciprocal obligation to take account of the due rights and interests of the other party. Any wilful or negligent breach of these pre-contractual obligations may result in a claim for damages. The amount of damages is generally limited to the loss as compared to a hypothetical situation in which the breach has not occurred.14The types and the content of pre-contractual obligations have been formed by the courts over a long period of time, but some disputes remain. Within the context of an M&A transaction, the most important group of obligations refer to confidentiality issues that are addressed by clauses concerning non-solicitation, disclosure, misrepresentation, and the breaking-off of negotiations.15
Under German law, there is no general requirement for a purchaser to carry out a due diligence on a target. There is...
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