GERMANY Trends and Developments Contributed by: Anselm Lenhard and Philipp Büchler, LARK
all) assets. German law does not provide for a security interest in the form of a floating or busi- ness charge creating security over all present and future assets of a business, as found in other jurisdictions. However, under German law, the individual security rights in the form of pledges, security assignments and transfers, as well as land charges and mortgages and the legal tech- niques developed in practice, achieve a similar result for secured lenders. As Germany is a developed market for acqui- sition financings, German security agreements have relatively standardised terms, including customary protections by using so-called “limi- tation language” to avoid a breach of German capital maintenance rules when upstream or cross-stream guarantees and security are grant- ed. Certain contractual techniques required in financings with multiple (or potentially multiple) lenders – such as parallel debt obligations to a security agent – are also well established. There- fore, the negotiation of the terms of security agreements is usually limited, and instead the focus of negotiation tends to be on the scope of the security package and general structural considerations at the outset. Vendor Finance As previously mentioned under 2024 in review and trends, one mechanism for bridging the gap between the purchase price expectations of sellers and buyers has been “vendor finance” . A vendor loan is provided by a seller by agreeing that the payment of a portion of the purchase price be deferred until a certain date or the occurrence of a certain event in the future, such as a refinancing of the buyer or the buyer’s exit of the target. Purposes of vendor finance Vendor finance can serve several purposes.
• Quality assurance: as a form of re-investment by the seller, the seller continues to maintain “skin in the game” , thereby signalling to a buyer confidence in the quality of the asset being sold. • Re-investment instrument: by accepting a vendor loan, the buyer can also offer the seller the opportunity to remain invested in the business, to earn an attractive return and to be ultimately paid by the business, whose risk profile the seller is familiar with, through a relatively straightforward instrument that can serve as an alternative to a roll-over or equity re-investment of the seller. • Bridge financing: as bridge financing, a vendor loan can enable an expedited con- summation of an acquisition while the buyer is obtaining acquisition finance in the bank or private credit markets. • Closing the financing gap: in the current market environment, vendor finance is also increasingly being used to close any gap in the financing available to buyers to fund the purchase price the seller is asking for. Regulatory considerations In Germany, the granting of loans is, in princi- ple, subject to a banking licence requirement. However, several exceptions typically apply to vendor loans. • According to the German Federal Financial Supervisory Authority ( Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin), a seller who provides credit for its own sales by deferring the purchase price does not conduct lending business, even if the parties agree that interest will accrue on the deferred purchase price. Only if the claim for payment of the deferred purchase price is rescheduled as a loan by the seller and the purchaser can lending business be conducted in a form that
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