The term Mergers and Acquisitions (M&A) is used in German corporate law as a collective term for a variety of processes and transactions such as joint ventures, acquisitions or mergers relating to the purchase and sale of companies or company shares.
On this page we have compiled detailed information on company sales and acquisitions, advantages and disadvantages compared to mergers, the course of a merger & acquisition process, the due diligence process and our legal services.
Reading the above information cannot replace personal legal advice.
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There can be many different reasons for initiating a mergers and acquisitions process. Whether it is a planned retirement, a move to a new professional activity for the seller or a general desire to expand or to open up new sales markets for the acquirer in terms of location or sector.
The problems usually start with finding a suitable buyer or seller. For this reason, as a law firm from Dresden specializing in company acquisitions and company sales, we work together with, among others, company brokerage companies, also known as matching companies, as well as numerous consultants specializing in merger and acquisition processes. Our cooperation partners always have in-depth industry know-how and comprehensive databases that enable them to approach a large number of potential buyers/sellers. Of course, all of this is done using anonymized data and under the condition of absolute confidentiality.
We, the Dresden attorneys at white ip | Patent & Legal, have a high level of expertise in all areas that are relevant to the implementation of a successful corporate transaction, a merger and acquisition process or a company merger.
We are your point of contact for everything from advice and the implementation of precautionary measures to due diligence, the valuation of the company and the drafting of the necessary contracts for the succession.
Together with our cooperation partners, we also take the lead in tax protection and business management aspects.
Excerpt from our range of services:
- Creation of exposés with the company’s key data on an anonymous basis;
- Bringing together prospective buyers and sellers on the basis of internal databases and cooperation with banks, tax consultants, auditors and other representatives of the consulting profession, based on the exposé prepared;
- Due diligence audit; i.e. an audit of the company in all legal matters to determine risks, optimize processes and review legal structures
- Carrying out a company valuation;
- Preparation of the letter of intent(non-disclosure agreement);
- Creation of warranty catalogs;
- Preparation of the necessary contracts;
- Advice throughout the entire process, from the type of transfer (share or asset deal) to tax-saving models.
Mergers are usually carried out by combining the assets of the companies involved, whereby there are basically two types.
On the one hand, it is possible to merge companies by founding a new company. As part of such a merger, two (or more) companies merge and jointly establish a completely new, independent company. This type of merger is usually chosen when two companies merge that are comparable in economic and structural terms, i.e. the companies are equally “strong”.
On the other hand, it is also possible to merge companies by absorption. In a merger by absorption, the acquiring company takes over both the assets and the liabilities of the merging company. This type of merger is often chosen when an economically and structurally weaker company merges with a larger company. In this case, no new company is founded, but the larger of the two remains in existence, while the smaller company loses its existence.
During the acquisition process, the The target company is integrated into the acquiring company. In contrast to a merger of companies, an acquisition usually involves a transfer of ownership, performance and control rights. The target company is therefore not absorbed and integrated into the acquiring company, but rather is taken over. The acquired company regularly loses all co-determination rights and is completely absorbed into the acquiring company. This is why it is sometimes referred to as a “hostile takeover“, especially if the company acquisition is made due to an emergency situation of the selling company. In addition, a company acquisition regularly entails sometimes considerable costs, Restructuring in the target company.
A common reason for acquiring a company is to gain know-how and expertise. The acquisition provides access to new patents, technologies and processes. In this case, M&A transactions represent an alternative or supplement to a company’s own innovation efforts. An expansion of the product portfolio or strategic considerations for restructuring, rationalization or internationalization can also lead to the decision to acquire a company.
There are also two different ways in which acquisitions can be made.
On the one hand, a so-called “share deal” is possible. The share deal refers to a pure purchase of rights. The acquirer takes over the shares in the company to be acquired. The purchaser therefore becomes a shareholder with the associated rights and obligations. By taking over the company itself, the acquirer usually also assumes the debts of the acquired company and bears any liability risks, unless these are contractually excluded.
On the other hand, an acquisition can also take place via a so-called “asset deal”. In an asset deal, only the assets are transferred and not the company itself.
Instead of acquiring a stake in the target company, the company’s actual assets are acquired, such as buildings, machinery, land and patents.
The asset deal requires the seller’s consent to each individual asset, but this is also an enormous advantage because it gives the acquirer a choice. He is not forced to take over all of the target company’s assets, but can pick and choose the ones that are most favorable to him, provided the seller agrees. Depending on the scope of the deal, there may not even be a transfer of business, meaning that the acquirer does not have to take on the seller’s employees. At the end of the (complete) asset deal, the selling company remains a mere shell with high net assets but usually without any relevant assets.
Our Dresden law firm white ip | Patent & Legal has specialized lawyers who have already been involved in many mergers and acquisitions and have advised companies comprehensively in advance. Based on this experience, our attorneys are able to provide you with comprehensive and competent information on questions of company mergers, management buy-outs or company sales at any time.
The decision whether to merge with or acquire another company (merger and acquisition) depends on various factors and must be assessed on a case-by-case basis.
One argument in favour of a company merger is that a merger offers various tax and organizational advantages. For example, the loss carryforward of the company to be merged can be used by the merged company.
Above all, however, a merger makes sense if it takes place between two companies whose economic value is comparable. This is referred to as a merger of equals.
If the companies are of equal value, a company acquisition is generally out of the question, as neither company would be able to raise the necessary funds. Furthermore, in contrast to a company acquisition, no premium has to be paid to the shareholders in the case of a merger of a stock corporation, for example. Ultimately, a merger generally leads to a more positive working environment than a company acquisition, especially in comparison to a “hostile takeover”. In principle, there is no dominant company, even if the merger by absorption could give the impression of this.
For the Company acquisition or The sale of the company , on the other hand Variety of options for both the seller and the acquirer. Often only part of the company is to be acquired, or only a part of the business is to be sold that is not (or no longer) part of the core business. Such partial acquisitions cannot usually be realized through a merger.
Another very common reason for selling a company is the the owner’s unconditional will to sell, for example because they cannot or do not wish to continue running the company themselves. Not infrequently, the The lack of a successor to take over the business ultimately led to its sale.
The “corporate cannibalization” often cited in the press, i.e. the purchase of a company and the subsequent sale of individual, profitable parts of it, which ultimately leads to a break-up, takes place in the form of a “corporate carve-out“. In practice, this only happens very rarely . Although this possibility should be taken into account, it is generally not to be feared.
The buyer also has a significant more options with the acquired company than if it were to merge. For example, one of the main areas of activity for financial investors is the purchase of the company, optimization of the organization and processes with the aim of increasing profits and the subsequent sale.
However, the most important aspect for the normal buyer is probably the fact that, in contrast to a merger, he regularly does not have to include any other persons in the management level of its company. Instead, the managing partner(s) of the acquiring company remain alone in their management position.
In practice, a company acquisition is predominantly preferred over a merger in M&A processes. Here we explain exactly how a company acquisition usually works.
Our lawyers in the field of commercial and corporate law in Dresden will answer all questions about the process of a company merger and support you in the purchase or sale of companies. Do not hesitate to contact us in this regard.
- 1. seller due diligence
- 2. approaching potential buyers / finding potential sellers
- 3. decision asset or share deal
- 4. conclusion of a non-disclosure/confidentiality agreement
- 5. letter of intent (meaning: declaration of intent)
- 6. conducting the due diligence review
- Excursus: What is due diligence?
- Subject of the due diligence review
- 7. final negotiations and conclusion of the purchase agreement
- 8. closing / transfer
In some very rare cases, the seller of the company carries out their own due diligence. They do this before deciding to buy in order to find out about the strengths and weaknesses of their company, optimize it and thus increase the purchase price if possible. It also gives the seller an overview of any liability risks.
Regardless of whether you want to buy a particular company or sell your company, the search for a potential contractual partner is the most fundamental step. There are various ways to find a potential counterpart. Various banks offer help in the search for buyers/sellers. M&A consultants or the local chambers of commerce can also help with the search. As it could cause considerable damage to the company to be sold if the intention to sell is leaked, information is passed on anonymously at this stage based solely on key data. This step is merely intended to arouse mutual interest.
The contracting parties usually decide at a very early stage whether an asset deal or a share deal is to be carried out, as this has an impact on the purchase price, the necessary checks to be carried out and the content of the contract, and consequently influences all further steps.
If various interested parties come forward due to the disclosure of the anonymized information, it is imperative that the information is not leaked due to the high potential for damage. As sensitive information is also disclosed at this stage, which could in principle also be used by the potential buyer to the detriment of the seller, a non-disclosure/confidentiality agreementmust now be concluded.
Once the seller has decided on a particular potential buyer, the basic, serious interest in carrying out the purchase or sale of the company is recorded in a written declaration of intent, the so-called “Letter of Intent”.
In addition to the type of transaction and the expected purchase price, this usually also sets out the main features of the further procedure (timing, any guarantees, contract negotiations, etc.).
Once the buyer and seller have finally been found, an in-depth examination of the company begins, known as due diligence. During this “due diligence” review, the company is put through its paces in all respects.
For example, in the tax, legal, economic and financial areas, the question of establishing the company on the market and the availability of “human resources”. This refers to the company’s human resources, the continuation of which would be difficult for the company to manage. It also looks at how the company is positioned in terms of technology and IT. Ultimately, an appropriate purchase price can be determined by weighing up all the strengths, deficits and risks identified.
Excursus: What is due diligence?
In very simple terms, a due diligence review is a comprehensive risk and liability assessment of the selling company. The aim is to inform the acquirer comprehensively about all potential risks in order to minimize the probability of a bad purchase as much as possible. In addition, the due diligence should also check whether the purchase price forecast by the parties is appropriate or whether it may need to be adjusted. The aim is to identify the risks and eliminate them where possible. Sometimes so-called “deal breakers” are also found during due diligence, i.e. risks that are so serious that the entire company acquisition fails at this stage.
In addition, the due diligence review forms the basis for the guarantee catalog to be included in the subsequent purchase agreement.
If the entire process of buying or selling a company can, in principle, still be carried out without the help of third parties up to this point, external help should be sought at the latest during due diligence. In particular, lawyers, tax advisors and, if necessary, management consultants should be consulted for this comprehensive review.
Our specialized lawyers from the ” Commercial and Corporate LawTeam” in Dresden regularly carry out due diligence audits and are therefore familiar with the process and can entrust it routinely and comprehensively. In addition, we regularly work together with various tax advisors and auditors as part of due diligence audits so that we can recommend competent colleagues from these areas if required.
Subject of the due diligence review
Due diligence regularly covers four areas: Legal, Financial, Tax and Commercial – i.e. the legal, financial, tax and commercial audit. Depending on the company’s field of activity, it may also be necessary to examine other areas. This must be decided on a case-by-case basis.
As part of the legal due diligence, the legal liability risks are comprehensively assessed. For example, a complete examination of the shareholdings within the company is carried out.
- Who was a shareholder of the company and when, why and how did they leave the company?
- What capital measures were implemented?
- Are the company’s employment contracts valid, or are, for example, fixed-term employment contracts so flawed that they are to be regarded as permanent employment contracts?
- Are the company’s general terms and conditions in order or are individual clauses void?
- Has the company’s trademark been duly registered, are the patents validly registered and are the trademarks protected?
These and many other points are the subject of comprehensive legal due diligence, at the end of which the results are made available to the potential buyer in a report.
Due to the considerable duration of a due diligence, the final contract negotiations regularly take place while the audit is still ongoing. The following points in particular must be taken into account:
- The parties must be named in full, from the company name and registered office to the commercial register number.
- The ownership structure must be presented as comprehensively as possible.
- The assets or shares to be sold must be identified as precisely as possible. In the context of the share deal, this means, for example, that the numbers resulting from the list of shareholders filed in the commercial register are specified.
- The concrete determination of the purchase price usually causes considerable problems. The agreement of a fixed price is usually not in the best interests of the parties, as the company to be sold usually continues to operate after the last balance sheet has been prepared and also after the purchase agreement has been concluded until the time of the actual transfer and its assets can therefore be subject to both positive and negative fluctuations until the end. An appropriate solution can therefore only be found in consultation with both contracting parties.
- A guarantee catalog must be drawn up. In particular due to the fact that the company is usually still active until the final transfer and therefore significant changes may occur even after the due diligence has been completed, any changes to the detriment of the buyer must be compensated for by guarantee declarations from the seller. The conflicting interests of the contracting parties must also be appropriately balanced.
- The final purchase agreement must be checked again from a tax perspective. It should be ensured that the seller also bears all tax burdens in the period between the conclusion of the purchase agreement and the final transfer.
At the end of the mergers and acquisitions process, the company or part of the company that has already been sold at this point must be transferred. Depending on the wording of the purchase agreement, a transfer agreement may still be necessary.
The law firm white ip | Patent & Legal, based in Dresden, is happy to advise and represent you comprehensively, professionally and competently throughout the entire mergers and acquisitions process. Due to the large number of due diligence audits we have already successfully carried out, we are at your disposal as an experienced partner in your M&A processes.
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