GERMANY Law and Practice Contributed by: Marc Löbbe, Michaela Balke, Oliver Schröder and Martin Kolbinger, SZA Schilling, Zutt & Anschütz
2. Overview of Regulatory Field 2.1 Acquiring a Company Private M&A – Acquisitions of Non-Listed Companies
W&I insurance W&I insurance has gained significant importance in recent years and has become common in most pri - vate equity and many non-private equity transactions, with the level of seller exposure having migrated to non-recourse models and special coverage being available for historically uninsurable items (such as tax or antitrust risk; “blind-spot” coverage may even be available in special situations). In distressed M&A situations, purely synthetic W&I insurance has also become available. Insurance is almost always taken out by the purchaser, but can be pre-arranged by the seller in (soft or hard) stapled form. The prevailing use of W&I insurance is expected to continue and should be considered a part of the standard M&A toolbox suitable for most transactions. Public M&A – Acquisitions of Listed Companies The most practical way to obtain control over a pub - licly listed company in Germany is to acquire shares by way of a public takeover offer (see 6. Structuring ), often in conjunction with stakebuilding measures and/ or pre-agreed acquisitions of shares from key share - holders (see 4. Stakebuilding ). A public takeover offer can be friendly or hostile. Although the management board of the target com - pany is subject to the principle of neutrality, certain defence measures can be implemented with the consent of the supervisory board (see 9. Defensive Measures ). Joint Ventures Joint ventures are often only seen as a tool to jointly develop a new business, but they can also be used for M&A activity. In a standard M&A scenario, control in a business transfers from the seller to the buyer, but a joint venture structure may be chosen where the seller shall stay involved and the seller and buyer intend to establish co-operation in relation to the target. In this situation, a deal has both a transaction component and a co-operation component. The transaction side of a joint venture relates to the buyer as a new partner joining the existing business by:
Private M&A transactions are generally structured through (bilateral) negotiations, which can vary widely in terms of form and process. In competitive M&A scenarios, well-established auc - tion processes administered by M&A advisers are often employed. Usually, interested parties must sign a non-disclosure agreement before gaining access to an information memorandum containing basic finan - cial and legal information about the target company. They will then be invited to submit non-binding offers setting out purchase price and other key transaction items. Bidders who submit the best indicative bids will subsequently have access to a data room for due diligence; usually, the seller also provides legal and financial as well as tax fact books or even vendor due diligence reports in this context to help bidders assess the data room. Indicative offers for W&I insurance are also sometimes made available in the data room. The due diligence process is followed by binding bids, often requiring a first mark-up of the key legal docu - mentation; the seller then enters into negotiations with those bidders who have submitted the most attractive bids. Sometimes, the seller grants (temporary) exclu - sivity at this stage. The negotiation process concludes with the execution of a sale and purchase or merger agreement. Core elements of an agreement are: • the determination and structuring of the purchase price, which typically follows a locked-box model or a cash-free/debt-free mechanism with working capital adjustment at closing; • seller warranties; • potential specific indemnities (particularly on tax matters); • provisions on available remedies; • closing conditions; and • seller and purchaser covenants.
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