Mergers and Acquisitions

An acquisition is a complex process that typically consists of several phases.

Step 1
When a seller wants to sell their business, an information memorandum is often prepared first. An interested buyer can then make an offer on the business, typically through a non-binding offer (NBO).
Step 2
Once the buyer and seller have reached an agreement and are ready to move forward, a non-disclosure agreement is signed to protect sensitive information.
Step 3
This is followed by a period of negotiations, during which the price and terms of the deal are discussed.
Step 4
Once the main terms have been agreed upon, the buyer proceeds with due diligence—a thorough examination of the company’s financial and legal situation.
Step 5
If everything is in order, the purchase agreement, often along with other agreements, is drafted and signed.
Step 6
Then it is time to go to the notary for the transfer of the shares.

The duration of a business acquisition varies depending on the complexity of the transaction. On average, the process can take several months, but for larger or international acquisitions, it can take even longer. It is always important to go through the process carefully.

A lawyer is indispensable during an acquisition. He or she not only helps you understand the legal aspects but also ensures that everything proceeds smoothly and securely. From drafting the purchase agreement to advising on the terms and conducting negotiations, the lawyer serves as the buyer’s or seller’s right-hand person, alongside any other financial and tax advisors. Lawyers also play a major role in due diligence by helping to identify potential legal risks—such as pending lawsuits or ongoing contracts. Lawyers are accustomed to staying sharp on every legal detail, even under the time pressure that often accompanies acquisitions. In short, a lawyer ensures that you do not encounter any unexpected legal issues and that you enter into an agreement that you hopefully won’t have to worry about again.

In a business acquisition, there are various ways to structure the transaction, depending on the specific situation and the wishes of the parties involved. The choice of a particular form of acquisition affects both the financial and tax aspects of the transaction as well as the legal obligations that arise. The most common forms of business acquisitions are the stock transaction, the asset-liability transaction, and the legal merger.

• Share transaction: In a share transaction, the buyer purchases the shares that the seller owns in the company’s share capital. This means that the buyer steps into the seller’s shoes and thus assumes all rights and obligations of the company, including all existing contracts, debts, and legal obligations.
• Asset-liability transaction: In an asset-liability transaction, the buyer purchases only specific assets of a company, such as machinery, inventory, intangible rights, or real estate, but not the shares. The buyer thus chooses which parts of the company they wish to acquire. Liabilities (debts and obligations) are also not automatically assumed, unless explicitly agreed upon. This type of transaction gives the buyer more control over what they do and do not acquire, and can be more tax-efficient because they acquire only the assets without the associated liabilities.
• Legal merger: In a legal merger, two or more companies are combined into a single new company. This can be done in various ways, but the result is that the merged companies cease to exist legally and continue as a single entity. This type of acquisition is often used when two companies wish to collaborate in a more integrated manner, combining both the assets and liabilities of the merging parties. Legal mergers are typically more complex than other forms of acquisitions, as they require legal procedures and approvals from shareholders or regulators.

Each type of acquisition has its own advantages and disadvantages, and the choice depends on various factors, such as the buyer’s strategy, the company’s financial situation, and the preferences of the parties involved.

There’s quite a bit of paperwork involved in an acquisition. It usually starts with a non-disclosure agreement (NDA) to ensure that sensitive information remains secure during negotiations. After that, a letter of intent (LOI) or term sheet is often drafted, briefly summarizing the key terms of the deal. When the buyer then conducts an investigation into a company (due diligence), financial reports, tax documents, and contracts are often reviewed. If everything is in order, the purchase agreement is drafted, setting out the details of the transaction. Additionally, other documents may be required, such as a shareholders’ agreement, loan agreements, employment contracts, intellectual property agreements, or any necessary permits, depending on the nature of the company.

A non-disclosure agreement (NDA) is a document in which both parties agree not to share confidential information related to the acquisition with third parties. This is an important document at the start of the process, as it protects both the buyer and the seller from the unintended disclosure of sensitive information. Examples include financial data or business strategies that must not be made public. It ensures that both parties can discuss the deal openly without worrying about the consequences of sharing trade secrets.

A Letter of Intent (LOI) is a document in which the buyer and seller set out their intentions. The LOI provides a clear overview of the key terms of the deal, such as the price, structure, and timeline. It serves as a way to ensure that both parties are on the same page before proceeding with due diligence and the purchase agreement. It is, therefore, a kind of handshake on paper, setting out the broad outlines of the acquisition, but it does not yet mean that everything is final. An important element of the LOI is exclusivity: the buyer often wants to be the only party negotiating the purchase agreement with the seller in the phase following the LOI.

• Buying a business – The process of acquiring another company.
• Selling a business – The steps and key considerations involved in selling a business.
• Merger – Two companies merging into a single organization.
• Joint venture – A partnership between companies without a full merger or acquisition.
• Management buyout (MBO) – Acquisition by the current management.
• Management buy-in (MBI) – Acquisition by an external management team.
• Restructuring – Changes to the corporate structure, such as spin-offs or divestitures of business units.

Due diligence is a thorough investigation of a company that a buyer intends to acquire. It is a critical phase, as the buyer wants to ensure they are not faced with any surprises. A buyer examines everything, from a company’s financial situation to its legal obligations, such as ongoing contracts or potential lawsuits. This investigation helps the buyer accurately assess the value of a company and identify any risks that could impact the deal. So, it’s essentially a way to verify that everything is in order, ensuring you don’t run into unforeseen problems.

An indemnity relates to a specific risk that is known at the time of the acquisition, often as a result of the due diligence review. Through indemnities, it is agreed that this risk remains with the seller, and the buyer is therefore not held liable for any consequences. It is essentially a way for the seller to say: “This is something you, as the buyer, will not be responsible for.”

A warranty, on the other hand, concerns matters that are presumed to be correct at the time the agreement is signed. The seller hereby promises that certain facts are true, such as the financial situation or the legal status of a company. It is often agreed, however, that the warranties are limited by the buyer’s knowledge. This means that the buyer cannot simply rely blindly on all warranties, but must take into account the information they have gathered themselves. The buyer usually obtains this information through the due diligence process and the disclosures the seller has made to the buyer. In other words, what the buyer knows can influence what the seller warrants.