M&A - Mergers and Acquisitions
M&A (Mergers & Acquisitions) encompasses all types of corporate acquisitions, mergers, takeovers, sales, carve-outs, etc.
Anyone dealing with M&A—particularly corporate acquisitions as the core of M&A business—must have a thorough understanding of the standard processes involved in M&A transactions. This is of enormous importance for the success of the deal. Of particular note are the significant time pressures under which such projects are (or must be) carried out, as well as the risk of losing trust in the respective business partner and, consequently, the risk of compromising transaction security.
Process of an M&A Transaction
"Sprucing up" the target company and, if necessary, reorganizing and repositioning it
Searching for a buyer
Initial Discussions and Letter of Intent (LOI)
Due Diligence
Contract Negotiations / SPA – Share Purchase Agreement
Signing and closing
Implementation and Integration
From the buyer’s perspective, the same applies in reverse.
Key Question: Share Deal or Asset Deal
M&A transactions in the narrower sense can be divided into share deals and asset deals. Is the company being acquired, or are its assets being acquired?
Share Deal
A share deal is the acquisition of all or individual shares in a company that operates a business. “Share,” as a general English-language term, is used here to refer to all types of corporate interests regardless of the specific legal form and therefore includes, in particular, common stock, GmbH shares, KG interests, BGB partnership interests, etc.
A share deal is thus the purchase of the holding company from its shareholders and, consequently, the more indirect acquisition of the business, provided the buyer acquires all shares or at least a controlling majority in the holding company. A mere acquisition of an equity interest occurs when the buyer acquires only corporate interests without gaining control over the corporate vehicle (commonly found in the private equity and venture capital sectors).
Through a share deal, all rights and obligations—and thus all assets and liabilities—of the acquired company are indirectly transferred to the buyer. Share deals are therefore often advantageous for executing the transaction, as individual assets do not need to be transferred. Conversely, a share deal requires increased attention during the due diligence process, as any unknown “skeletons in the closet” are also acquired. So-called “cherry-picking” is not possible without further structuring.
Asset Deal
An asset deal is the acquisition of all or individual assets of a business held by a company or an individual. No shares are transferred; rather, individual assets (and, where applicable, liabilities—provided this is separately agreed upon with the creditors of such liabilities) are transferred.
An asset deal involves the acquisition of individual assets. The acquisition takes place through the purchase of the business (or individual parts thereof) by way of so-called singular succession, and the transfer from the seller to the buyer therefore follows the legal rules applicable to each individual asset:
Real estate: Notarized deed
Movable property: Transfer of ownership (principle of specificity)
Receivables and intellectual property: Assignment
Contracts: Assumption of contracts (consent of the contracting party required)
In an asset deal, only those assets listed in the M&A purchase agreement or its attachments are acquired. Consequently, “cherry-picking” is generally easier in this context, and certain assets or liabilities can simply be excluded and are then not part of the M&A transaction.
Relationship Between Due Diligence and the Purchase Agreement
Of course, not all risks associated with an acquisition can be identified through due diligence. For this reason, the purchase agreement (SPA—Share Purchase Agreement or APA—Asset Purchase Agreement) often includes extensive warranties and representations made by the seller to mitigate these risks for the buyer.
Post-Merger Integration
Throughout the entire transaction phase, the ultimate goal—namely, the integration of the acquired entity into the buyer’s corporate structure and culture—must not be lost sight of. After all, the actual implementation begins only after closing. Now that the company has been acquired, the real work begins.