GERMANY LAW AND PRACTICE Contributed by: Daniel Möritz, Jan Bonhage, Hendrik Bockenheimer, Carl-Philipp Eberlein, Markus Ernst, Matthias Rothkopf, Christoph Wilken and Alexander Rang, Hengeler Mueller
3. Mergers and Acquisitions 3.1 Transaction Structures
and information-sharing of particularly sensitive data of the target.
As in most other jurisdictions, M&A transactions can be structured as share deals or asset deals in Ger - many. Share Deals In the case of large transactions, the share deal is the more frequently chosen transaction structure because the transfer of the target business is easier to implement – given that it does not entail an item- by-item transfer of all assets, contracts and liabilities pertaining to the business. Furthermore, the tax rate applicable on the seller’s profit from the transaction is often considerably lower than in an asset deal. Con - versely, an asset deal can provide the purchaser with a rather simple option to select the assets, contracts and liabilities that will be acquired, while leaving other parts of the target business with the seller. In addition, an asset deal often results in a step-up of tax-book values, creating a future tax shield for the buyer. Statutory Mergers and Tender Offers As an alternative to an acquisition of businesses by way of share deal or asset deal, a business com - bination can be implemented through a statutory merger or other measures pursuant to the German Transformation Act. At least in the event that minority shareholders are involved on both sides of a transac - tion, parties often avoid mergers or other measures pursuant to the German Transformation Act because they can be challenged by minority shareholders in court and consequently do not provide the required transaction security, and they may result in protracted appraisal proceedings. For this reason, almost all pub - lic M&A deals are structured as tender offers – for cash or stock consideration – rather than as statutory mergers. Demergers and Spin-Offs Measures pursuant to the German Transformation Act (eg, demergers or spin-offs) are, however, frequently used as intercompany measures to implement corpo - rate carve-outs in preparation for an M&A transaction that is implemented as a share deal.
2. Recent Developments and Market Trends 2.1 Current Economic, Political and Business Climate Germany has repeatedly tightened its FDI screen - ing regime. Currently, a further tightening of the FDI regime is being discussed. In 2021, additional categories of critical targets with mandatory filing and clearance requirements and a 20% entry review threshold were introduced. These categories are mainly based on critical technologies and inputs listed in the EU Foreign Investment Screen - ing Regulation as relevant screening factors. From this, the MoE has identified specific activities and products of German targets as triggers of filing and clearance requirements. The additional sensitive cat - egories include the developing or manufacturing of: • certain AI-based technologies for cybersurveillance or the prevention of cyber-attacks; • certain industrial robots (including software and technology); • a range of semiconductors; • certain dual-use goods; • goods for 3D printing; and • certain critical components for 5G infrastructure. The number of MoE FDI screening procedures remains high (306 in each of 2021 and 2022, 257 in 2023 and 261 in 2024, potentially more in 2025). In recent years, the German authorities have intervened in several cases under the FDI regime, including sev - eral Chinese investments in the energy technology, satellite communication, semiconductor, healthcare and infrastructure sectors, and with regard to a Ger - man subsidiary of Gazprom group that operates criti - cal gas infrastructure.
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