GERMANY Law and Practice Contributed by: Georg Linde and Kamyar Abrar, Willkie Farr & Gallagher LLP
often narrowly defined or resisted altogether. Third- party consents, such as from key customers, land - lords, or licensors, may be included if deal-critical, although most buyers attempt to address these either pre-signing or via post-closing covenants. Share - holder approvals are generally not required unless a co-investor or existing stakeholder holds consent or blocking rights. Overall, the market standard favours high deal certainty and minimal execution risk. 6.5 “Hell or High Water” Undertakings Private equity buyers in Germany rarely accept uncon - ditional “hell or high water” undertakings in respect of regulatory approvals due to the potential expo - sure such commitments entail. More commonly, they agree to use “reasonable best efforts”, while explicitly excluding divestiture obligations relating to other port - folio companies. Exceptions may arise where regulatory risk is deemed low or competitive dynamics require more buyer flex - ibility. Even in such scenarios, break fees tied to failure to obtain regulatory clearance are usually disfavoured. A distinction is typically made between merger con - trol (where buyers may be more amenable, depending on the antitrust assessment) and foreign investment screening, which is generally more politically sensitive and can be less predictable. 6.6 Break Fees Break fees in favour of the seller remain relatively uncommon in German private equity transactions and are not considered part of standard market practice. Where they are agreed, such provisions typically arise in cross-border or highly competitive transactions and are triggered by buyer failures (for example, to secure financing or regulatory clearances within stipulated timeframes). Agreed fee levels generally range from 1–5% of the purchase price. Depending on the type of transaction, certain break-up fee arrangements out - side of the SPA need to be notarised. 6.7 Termination Rights in Acquisition Documentation Acquisition agreements in German private equity transactions typically provide both parties with termi - nation rights if closing conditions, notably regulatory clearances, are not fulfilled by an agreed long-stop
date. Additional termination triggers may include breach of fundamental warranties, failure to deliver closing deliverables, or, less frequently, the occurrence of a contractually defined material adverse change. Long-stop periods mostly range from three to six months post-signing, depending on the deal’s com - plexity and regulatory timeline. In auction or time- sensitive transactions, shorter long-stop periods may apply, while longer periods are often negotiated for transactions subject to FDI clearance or multijurisdic - tional merger control. Extensions are sometimes built in to accommodate pending approvals. 6.8 Allocation of Risk Risk allocation in private equity transactions diverges significantly from corporate-to-corporate M&A. Private equity sellers seek a “clean exit,” typically achieved through tight contractual limitations on liability, the use of W&I insurance, and limited warranties. In contrast, corporate sellers may accept broader warranties and greater residual exposure. On the buy-side, private equity purchasers adopt a risk-sensitive and highly structured approach, includ - ing detailed due diligence, bespoke indemnity provi - sions, and safeguards around financing. In secondary buyouts, private equity acquirers often accept more limited warranties than in acquisitions from corporate vendors. Overall, private equity buyers and sellers alike prioritise contractual certainty and well-defined liability regimes. 6.9 Warranty and Indemnity Protection In German private equity exits, the private equity seller typically provides only a limited set of funda - mental warranties, such as title to shares, authority, and capacity, and business warranties (eg relating to operations, compliance, IP, or material contracts) cov - ered by W&I insurance. Tax indemnities are customar - ily provided either directly by the seller or increasingly on a purely synthetic basis through insurance, albeit with a narrow scope and standard exclusions. Liability for business warranties is usually capped at 10–30% of the purchase price, with survival periods of 12–24 months.
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