GERMANY Law and Practice Contributed by: Carsten Berrar, Florian Späth and Heiko Blaut, Sullivan & Cromwell LLP
challenging in case of significant shareholder opposition. Put/Call Options In certain rare cases, strategically focused shareholders may succeed in negotiating call option rights over other shareholders’ exiting stakes at a price that is typically reflective of, or based upon, a company’s FMV, as existing at the time of the option window. Call options may per - mit a (group of) specific investor(s) to initiate a change-of-control transaction – eg, in the event of a significant strategic value for a corporate VC or if shareholders seek to pre-agree on a set “path to liquidity” after a certain time. Call option arrangements are often mirrored by correspond - ing put options and may entail a premium over, as well as a mechanism to fairly determine, the A right by one VC investor to request that the company undertake preparations for an IPO/list - ing after a pre-defined period has been argued to conflict with the statutory authority of a manage - ment board of an AG/SE to act in the company’s best interest, as existing from time to time. That said, IPO initiation rights are often structured so that all shareholders inter se commit to using their corporate governance rights to procure that an IPO will be initiated. These rights can be sub - ject to value hurdles and/or timing requirements. 6.2 IPO Exits company’s FMV. IPO Force Right IPO exits are typically driven by easier access to new capital, increased liquidity of the shares, a transparent valuation, improved branding and marketing for the company, and enhanced attractiveness to employees due to employee participation programmes. However, the pre - dominant exit strategy in the current German
market environment is an M&A exit, primarily by strategic buyers. When publicly listing shares, issuers can choose from two market segments: • the regulated market with higher admission and post-admission requirements leading to elevated transparency and typically greater liquidity; and • the open market with lower entry and compli - ance costs, which may be more attractive for SMEs. The Frankfurt Stock Exchange’s Prime Standard is the sub-segment of the regulated market with the highest ongoing transparency requirements. Meanwhile, its Scale open market sub-segment is currently the only registered German SME Growth Market, which allows SMEs to make use of certain alleviations under applicable EU prospectus and market abuse rules. In order to be admitted to the regulated market, the issuer is required to have been in existence for at least three years (subject to exemptions – eg, for special purpose acquisition companies (SPACs)), have sufficient free float, publish a pro - spectus including three years of audited financial statements, and report on a semi-annual (Prime Standard: quarterly) basis going forward. An inclusion of securities in the open market is not governed by statutory law but, rather, the relevant market operator’s general terms. Accordingly, the admission and post-admissions requirements vary more between markets – for example, with regard to admission documenta - tion, requisite term of issuer’s existence, free float and market capitalisation – and thus pro - vide more flexibility for early-stage companies.
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