German law firm for M&A

Corporate transactions as well as tax structuring are part of the focus of our work. We assist investors, shareholders and management at all stages of M&A processes in Germany - in domestic and cross-border transactions. For comprehensive advice and support, we draw on the expertise of our entire team of certified specialists and tax advisors.

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Lawyers and certified specialists for german corporate law

Process and structure of so-called M&A transactions in Germany

Both the sale of a company and the purchase of a company in Germany are usually extremely challenging situations, especially in medium-sized businesses. In addition to the day-to-day business, many wishes of different groups of people have to be fulfilled. Even if the course of a so-called company transaction is not subject to any fixed regulations, procedures and processes have become established in german law that are run through in almost every company sale. Knowledge of these individual steps helps to assess hurdles and risks and to increase the probability of closing.

Since english-speaking persons are now frequently involved in a company purchase, many terms from the english language have also become established in the german-speaking world, the understanding of which strengthens the confidence in one's own negotiating position. You will find a compilation of the most important terms in our M&A Glossary.

Reasons for acquiring or selling a company in german praxis

The motivations for selling a company are manifold. For example, the seller may want to sell a low-yielding part of his company or focus on other core areas of his business in the future. In the case of owner-managed companies in Germany, the lack of a successor can also be the driving force behind a sale. Occasionally, a financially lucrative offer is simply the reason for the decision to sell the company.

Buyers can be roughly divided into two categories. So-called strategic investors acquire the company, for example, to buy existing know-how instead of developing it themselves, to expand their own product portfolio with the product portfolio of the acquired company, or to strengthen or expand their own position in the german market. So-called financial investors (private equity companies, family offices) are typically more interested in stable profit development and a return on a later exit from the company (the so-called exit), e.g. through a resale.

How to find a buyer in Germany?

If the seller is not contacted directly by the potential buyer, german investment banks as well as so-called M&A advisors offer the possibility to search for potential buyers for the own company. M&A consultants often have an existing network of potential buyers who can be contacted. Therefore, specific industry knowledge should be taken into account when choosing a suitable M&A advisor.

In order to be able to present your company as transparently as possible, it may also be advisable to identify the strengths and weaknesses of the company as part of vendor due diligence before making contact with potential buyers, in order to eliminate identified exposures before contacting the potential buyer.

First contact: Ensure confidentiality!

Once one or more potential buyers have been identified for the company or an initial interest in buying has been communicated, the parties will quickly find out in the course of a process of getting to know each other whether there is a serious interest in the company and whether a more in-depth exchange is worthwhile.

Usually, before further discussions or the exchange of initial documents, a non-disclosure agreement (NDA) is concluded between the parties in Germany. The purpose of such an agreement is to prevent sensitive information that is exchanged between the parties during the further sales process from becoming public or, more importantly for the seller, to prevent the prospective buyer from using the information obtained about the company for his own purposes.

Letter of Intent - german practice

Once the parties in Germany have agreed on the key points of the transaction in further talks, the results are regularly recorded in a written letter of intent (LoI or MoU). An LoI contains, for example, a concrete description of the object of purchase and thus determines in particular whether company shares (share deal) or assets (asset deal) are to be transferred. Furthermore, the purchase price is derived and a timeline for the further transaction process is given.

Even if the LoI is often explicitly described as non-binding, the greatest possible attention should be paid to this phase of the company sale. In german practice, a later deviation from supposedly non-binding documented results is often only possible with considerable argumentation effort and concessions on other issues.

Due Diligence Examination in Germany

After confirming its fundamental interest in the company through the letter of intent, the prospective buyer naturally wants to know what exactly it will acquire in the event of the successful conclusion of a purchase agreement. In the course of a so-called due diligence in Germany, the prospective buyer will therefore carry out a comprehensive examination of the company in order to become acquainted in detail with the company's previous business activities and to be able to identify possible risks that would be transferred to the purchaser.

To this end, the prospective buyer in german practice must be provided with all the documents and records required for an appropriate valuation of the company, which the buyer often reviews and evaluates with the help of its advisors. In addition to an examination of the legal and tax risks under german law, the economic, balance sheet and financial situation of the company is almost always analyzed.

If risks are identified which are not acceptable to the prospective buyer and which can no longer be eliminated (deal-breaker), this can mean the termination of the sales process. Often, however, the results found and risks identified during the due diligence process are taken into account when drawing up the purchase agreement and are then the subject of extensive negotiations between the parties.

German company purchase agreement: SPA & APA

The core of every M&A transaction in Germany is the company purchase agreement. If the buyer is to acquire the business shares or stock from the seller, this is referred to as a share deal. The company purchase agreement is then also referred to as a Share Purchase Agreement (SPA). If, on the other hand, the parties have agreed to take over some or all of the company's assets (asset deal), this is known as an asset purchase agreement (APA).

In addition to the usual provisions of a purchase agreement, the german company purchase agreement contains the following provisions in particular

• the purchase price and
• possible purchase price adjustments,
• seller guarantees and
• the consequences of a breach of warranty (representations and warranties),
• provisions on tax exemptions,
• non-competition clauses and
• The parties' obligations between the signing of the contract and the actual transfer of the business to the buyer.

Signing & Closing of the german purchase contract

Once the parties in Germany have agreed on the content of the german company purchase agreement, often after lengthy negotiations, the contract is signed jointly, usually in front of a notary. In german practice, the moment of the signatures is often seen as the end of the sales process. In the rarest of cases, however, a "handover of keys" takes place directly at the notary. Rather, certain conditions usually have to be met before the transfer of the company to the buyer can be completed (Closing Conditions).

For example, the transaction may have to be approved by the german competition authorities or a loan to finance the purchase price may have to be released by the bank. The seller may also have to ensure that the company is brought into a condition in which it can be sold between the conclusion of the contract and its completion.

When the agreed conditions for the closing of the sale and purchase agreement have been met, the parties meet and jointly sign a document stating that the closing conditions have been met (Closing Memorandum). With the signing of the Closing Memorandum, the acquisition in Germany is completed and the buyer receives the "keys".

German practical tip: The early bird

Every successful business sale in Germany begins with professional preparation of the transaction and equally professional conduct throughout the sales process, but this is not to say that such a process cannot be conducted emotionally. The earlier a business owner starts to prepare for the sale, the more successful the subsequent sale will be.

From countless transactions, the only recommendation that can be made in german practice is to seek support from professional and experienced advisors (lawyers, tax advisors, M&A advisors) at an early stage. It is not uncommon for events to come to a head during a sales process in Germany, and the parties involved find it difficult to keep track of everything. When selecting an advisor, it is often crucial that the "chemistry" is right and that the advisor is able to develop a good understanding of one's own business model.

The ROSE & PARTNER consulting team in Hamburg, Berlin, Munich, Frankfurt and Cologne

At ROSE & PARTNER, a team of certified specialists for german corporate law and tax advisors accompanies you in all stages of the purchase or sale of a company. Our advice covers strategic as well as all legal and tax issues.

Our contact persons for the areas of M&A, company acquisitions as well as transformations in Germany are:

• Dr. Michael Demuth, LL.M. Attorney at Law, Certified specialist for german commercial and corporate law
• Dr. Boris Jan Schiemzik, Attorney at Law, Certified specialist for german commercial and corporate law
• Dr. Ronny Jänig, LL.M., Attorney at Law, Certified specialist for german commercial and corporate law
• Finn R. Dethleff, Attorney at Law
• Dr. Jens Nyenhuis, LLM., Attorney at Law, Certified specialist for german commercial and corporate law
• Helge Schubert, tax advisor, german tax law specialist
• Dirk Mahler, tax advisor, Certified specialist for tax law
• Christian Westermann, Attorney at Law, Certified specialist for german commercial and corporate law
• Gregor Kübler, Attorney at Law, Maître en Droit (Aix-Marseille III)
• Christian Mattlage, LL.M., Attorney at Law, Certified specialist for german commercial and corporate law