German M&A Lawyer

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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.

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Our law firm offers competent legal advice in matters of German contract and corporate law. Our lawyers assist companies in setting up businesses and in M&A transactions, support them in expanding their market share and offer strategic support.

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for Companies

The law firm Schlun & Elseven offers business clients comprehensive service. Our legal services cover contract drafting and review, intellectual property protection, German tax and corporate law advice and more. We are your reliable partner for comprehensive legal advice.

Legal Services
for Companies

Our law firm offers competent legal advice in German contract and corporate law. Our lawyers assist companies in setting up businesses and in M&A transactions, support them in expanding their market share and offer strategic support.

Further Service
for Companies

The law firm Schlun & Elseven offers business clients comprehensive service. Our legal services cover contract drafting and review, intellectual property protection, German tax and corporate law advice and more. We are your reliable partner for comprehensive legal advice.

Mergers & Acquisitions – More details

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.

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Declarations/Agreements: Letter of Intent, Term Sheet, NDA

Our German M&A lawyers guide the drafting of the letter of intent. This declaration serves to clarify the buyer’s intention (submission of an offer). The letter of intent is not generally held as a legally binding document.

Using a carefully drafted letter, the buyer can set out the most important aspects of the purchase in writing. The letter of intent, therefore, often describes specific objects of purchase. This states whether the transfer of shares in the company (share deal) or individual assets (asset deal) is desired. The details in the letter of intent also include the timetable for due diligence. Given this, the Letter of Intent can be seen as a roadmap for the subsequent M&A transaction. It is therefore advisable to have it drafted by an experienced lawyer.

The parties often draw up a term sheet in addition to or instead of the letter of intent. This contains the most important points of the future contract on the transaction. As a rule, the timesheet is negotiated and signed by both parties and – like the letter of intent – is not legally binding. The term sheet and/or the letter of intent should be studied carefully before signing. A deviation from this declaration can often cause difficulties in practice. Prior legal advice may sometimes be necessary to prevent conflicts of this kind in later negotiations.

Note: Where companies express an interest and information is to be exchanged, a non-disclosure or confidentiality agreement (NDA) is often concluded about the contract negotiations or an exclusivity clause. These clauses/agreements form a binding element of the letter of intent. Through the exclusivity clause, the seller undertakes not to negotiate with third parties for a certain period. The NDA is intended to ensure the confidentiality of information that is not to be disclosed to the public.

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.

Preparing for the M&A Transaction: Due Diligence

There are several ways to complete an M&A transaction; however, preparing for it is vital. Carrying out due diligence is a critical step when it comes to the planning of the consolidation. Due diligence during M&A transactions can be time-consuming and frustrating, but it is necessary to ensure a successful process. Evaluating the risks involved with the transaction means that you have the full facts available to you when making important decisions.

During the due diligence process, the financial situation of the business for sale, as well as tax and legal risks, are examined. In addition, the company’s current position in the market is analysed. Assessing the risks associated with the transaction enables you to base important decisions on the facts made available to you. Our German lawyers analyse the documentation of the other party for buyers, evaluate the management and the organisation/structure of the selling company and determine whether the two companies are strategically compatible.

Due diligence is also essential for the seller, as it allows him to check whether the proposed valuation of the company corresponds to the actual market value. It is also a way to determine whether the buyer is trustworthy. In addition, the seller needs to have answers to all questions and concerns raised. The lawyers of Schlun & Elseven support you in this phase, e.g., safeguarding any trade secrets and minimising the risk of later liability.

Our due diligence service includes the analysis of all material aspects of the transaction, including:

  • Company overview: Assessing the selling company as a whole is the first step toward successful M&A transactions. Should the company in question be available-to-buy, our lawyers will determine the reasoning behind that. We will analyse the product range of the selling company, the geographical structures, and the management structures within that company and determine the synergies that can occur with a fusion.
  • Financial statements: Our lawyers will assess the past and current financial statements to determine whether the selling company’s future projections are reasonable. This will involve determining the exact assets and debts of the company. Carrying out such financial due diligence will ensure that the buying company is prepared for the costs involved with the M&A transaction.
  • Legal diligence: We will look at any legal risks inherent in the transaction by examining contractual agreements, intellectual property held, patents and trademarks the company has, and whether there is any pending or threatening litigation. Our lawyers will determine whether the company in question follows the necessary environmental requirements or whether there are any investigations currently underway in this field.
  • Analysis of company management/organisation and employment law: Our lawyers will analyse the company’s management structures and policies. This process will involve assessing collective agreements, the work councils present within the company, and how restructuring can occur once the M&A transaction is complete. See our page on the “Transfer of Business Ownership” under employment law to learn more.

The areas in which due diligence is required depend on the specific case or the companies involved. Whether you are a buyer or a seller, having an experienced lawyer on your side is critical to a smooth transaction. Contact our German M&A practice group via our online form to benefit from our legal services.

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.