Mergers & Acquisitions (M&A) refers to the coming together or consolidation of different companies. Due to the rise of successful and steadily growing start-up companies, the frequency and scope of such transactions have increased. When it comes to the question of how M&A should take place, entrepreneurs have various options open to them.
Regardless of how companies merge, competent legal counsel is essential to provide support and advice. Our team of German corporate and contract law experts will be at your side throughout the process. Our firm’s full-service approach means that we can oversee the legal requirements for the contracts involved, the following restructuring of the companies and in any legal disputes which may arise.
Mergers & acquisitions is the broad term for the coming together or consolidation of companies. It can happen when two companies of roughly equal size come together in a merger or by a more substantial company acquires the other. To ensure that the management structures and model of the new company are viable, a merger requires careful preparation. It also requires the careful procurement of proper filing documents necessary to form a company.
Acquisitions are transactions between companies that differ in size. One company takes over another, and no name or internal change of the acquiring company is required. An acquisition can take place in different ways. The most appropriate form depends on the goals of the companies involved.
Compensation in the Event of Termination of Negotiations
If the parties cannot agree on a purchase price or other contract-specific aspects, negotiations may break off. In such cases, claims for damages are often asserted. If an M&A deal falls through, it must first be determined whether the negotiations were broken off pre-contractually or after the contract has been concluded.
In the case of a pre-contractual breakdown, it can often be challenging to assert claims for damages. Although a claim could be enforced under the provisions of Sections 280 (1), 311 (2), 241 (2) BGB (culpa in contrahendo, abbreviated c.i.c.), this requires a relationship of trustworthiness of protection. When such a relationship of trust exists depends on the individual case.
If a contract breach is caused by one party (such as non-payment of the agreed purchase price), compensation can be claimed from the other party. It is also possible to withdraw from the purchase contract between the companies under certain circumstances.
Our team of German contract lawyers will inform you about your legal options for action after the termination of an M&A deal or the negotiations for it and will be happy to present you with implementing them.
Purchase and Sale of a Company: Asset and Share Deal
The buyer has two options for acquiring a company: the so-called asset deal or the share deal. Both options have advantages and disadvantages. Which option is chosen, however, depends on the circumstances of the transaction in question.
While a share deal may be easier to realise, the asset deal offers the acquirer more control over the acquisition. When choosing the acquisition method, other considerations such as tax aspects, flexibility and the interests of both parties must be considered.
The Share Deal
In a share deal, shares in a company are acquired and transferred. It should be noted that assets and liabilities are assumed with the purchase in an acquisition of this type. Essentially, this means that any agreements concluded with third parties, the tax situation and other contracts are taken over in the form in which they exist at the time of the purchase. Specific agreements may contain so-called “change-of-control” clauses, which allow termination after the transfer of ownership.
When buying a company in a share deal, it is crucial to proceed carefully in the due diligence phase, especially regarding the tax aspects.
The Asset Deal
In an asset deal, the buyer acquires individual assets of the company. The assets to be acquired include, for example, land, building, facilities and machinery. In particular, the requirement of a detailed list of all assets in the corresponding purchase agreement must be observed (pricing of definiteness).
Each asset must be identifiable. However, this is difficult in the case of intangible assets (trademarks, copyrights, patents) unless a valuation is carried out in advance. Therefore, it is advisable to hire a lawyer and research the values of individual assets in advance.
Acquisition Agreement
Careful drafting of the acquisition agreement is of particular importance. Different aspects and requirements must be considered depending on whether the transaction is conducted as a share deal or an asset deal. In addition to the acquisition agreement, a separate transfer agreement may be drafted for the actual transfer of shares or assets. In any case, the assistance of a lawyer in the drafting or legal review is advisable.
In the case of asset purchase agreements, it must be complied with the so-called principle of specification (Bestimmtheitsgrundsatz) according to German law. This means the assets to be transferred must be defined as precisely as possible in the acquisition agreement or a separate transfer agreement. All assets subject to the transfer must be determinable solely from the acquisition agreement; otherwise, the transfer of the concerning asset is invalid. It is advisable to list the assets in an annexe to the acquisition agreement.
It should also be noted that some documents must be notarised according to German law. This is the case if the records concern the acquisition of shares in a German limited liability company (GmbH) or real estate. A notarial certification may also be necessary in case of the purchase of assets substantially covering the total assets of a person or company. At the notary, all contracting parties must be present or validly represented by another person.
Employment Law Concerns during M&A
In the case of an M&A transaction, the employees of the sold company continue to be employed. Under Section 613a (1) Sentence 1 of the German Civil Code (BGB), the transfer of a business does not automatically lead to the dismissal of the previous employees. However, if a company restructuring is intended, dismissal for operational reasons can be made.
It must be borne in mind that all employment law concerns must be considered. This applies in particular in cases of unfair dismissal. Our German employment law practice group will advise you and ensure that terminations are carried out correctly.
International Transactions
Transactions such as asset or share deals are often international and involve different legal systems. Legal advice is of significant benefit in such cases, whether you are seeking to acquire individual assets of a company, transfer shares in a company abroad, or undertake these transactions with a foreign buyer. In particular, the cultural and legal differences in cross-border M&A cases should not be underestimated. The lawyers of Schlun & Elseven will support you throughout the entire process and represent your interests.
The multidisciplinary approach of our German law firm enables your company to work in a cost-efficient and time-saving manner. In addition to reviewing existing or being drafted contracts, our lawyers advise you on German employment law issues and ensure that our business clients are fully informed about compliance requirements, developments in whistleblowing law and opportunities under German tax law.
The cooperation with our legal experts ensures that all legal requirements are considered, and legal disputes are avoided. We offer continuous and competent legal advice.
