GERMANY Law and Practice Contributed by: Gregor von Bonin, Natascha Doll, Andreas Ruthemeyer, Stefan Schröder and Mirko Masek, Freshfields
3. Spin-Offs 3.1 Trends: Spin-Offs
While Germany has traditionally been dominated by large utilities and infrastructure operators, early-stage ventures are becoming more common, particularly in clean tech, distributed energy, and hydrogen clusters, often in partnership with corporates or municipal utili- ties. 2.2 Liquidity Events Typical liquidity events for early-stage energy and infrastructure companies in Germany include initial public offerings (IPOs) and strategic acquisitions by utilities, infrastructure investors, or industrial players seeking to scale energy transition capabilities or, on the debt side, trough HoldCo financings or hybrid equity instruments. Secondary sales to infrastructure or private equity funds are also common once the venture reaches regulatory maturity or achieves commercial viability. For companies pursuing a build-and-hold strategy, an IPO might be an attractive option to raise funds for long-term expansion and operation, although it leads to a much higher level of transparency and a stricter corporate and regulatory framework. A popular trans- action model is the “farm-down”, where a project developer, after commissioning, divests a portion of its equity while often retaining operational involvement and marketing the generated electricity through power purchase agreements (PPAs). Key considerations for founders and investors include ensuring regulatory compliance and securing bank- able permits, as these significantly affect valuation and buyer interest. Founders should consider care- ful preparation of any transaction, governance rights, and anti-dilution protections early on, while investors will focus on business cases, contracted or regulated revenue streams, and stability of the regulatory envi- ronment. Founders and investors in a sale scenario should be aware of transaction terms, which in recent months have shifted towards a more buyer-friendly landscape.
Spin-offs are customary and can be utilised as an alternative to asset deals in Germany’s energy and infrastructure sectors. Their key drivers stem from the complexity of asset-by-asset transfers, particularly when a company seeks to dispose of only a portion of its assets without transferring the entire business. A spin-off offers the significant benefit of simplifying this process by forming a new entity into which the relevant assets are transferred by operation of law, thereby generally eliminating the need to seek consent from counterparties before transferring each individual contract. The buyer can then acquire ownership of this new corporation directly. However, spin-offs also present certain challeng- es and mandatory statutory rules: transferees can become co-liable for the remaining business prior to the spin-off date, specific formal requirements can make the timeline cumbersome, and the mandatory notarisation of spin-off documentation can result in higher transaction costs compared to uncomplicated asset transfers. 3.2 Tax Consequences Spin-offs in Germany can be structured as tax-free transactions at both the corporate and shareholder levels, provided certain legal and tax requirements, especially under the German Reorganisation Tax Act (UmwStG), are met. To qualify, the transaction must involve the transfer of a functionally separate business unit capable of oper- ating independently after the spin-off. All assets and liabilities essential to that business must be clearly allocated to the transferee entity. The reorganisation must not amount to a hidden sale or preparation for a disposal to a third party. Tax neutrality also requires timely application of roll- over relief and adherence to formal requirements, including proper valuation and documentation.
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