Part 4: Completion of the transaction and integration of the target company into the existing structures of the acquirer
Once the purchase agreement has been signed and the previous phases of the process have been successfully completed, a significant part of the transaction process has been accomplished, but the overall process is not yet complete. Once the purchase agreement has been signed, the “closing” phase and the “integration of the target company into the existing structures of the acquirer” begin.
Core topics of enforcement
In many company purchase agreements, the contract of sale under the law of obligations (signing) and the contract for performance in rem (closing) fall apart. Such a divergence is usually not desirable from the seller’s point of view because the occurrence of the closing conditions usually falls within the buyer’s sphere of risk and can therefore be influenced by the buyer.
Typical enforcement requirements are, for example
- antitrust clearance
- Restructuring measures to make the target company “saleable”
- Waiver of pre-emption rights and declarations on any statutory co-sale rights and obligations
- Granting of approvals under company law and committee reservations
- Issuance of audit opinions on the financial statements of the target company
- Conclusion of certain contracts
- Approval from banks, funding bodies, guarantee associations, etc.
- Entry of the limitation of liability pursuant to Section 176 (2) HGB or Section 25 (2) HGB in the commercial register or entry of the purchaser in the list of shareholders (Sections 16 (1), 40 GmbHG)
Enforcement requirements and enforcement actions
The more complex the contractual structure is and the more extensive the conditions and approval requirements for an effective transfer of shares and execution of the purchase agreement are, the more advisable the aforementioned separation between signing and closing is. Once the parties have decided on this, the closing requirements (i.e. what must happen for the closing to take place at all) and the closing actions (i.e. which actions are to be taken at the closing itself) should be defined as precisely as possible in the purchase agreement. Common areas of regulation in the context of closing actions are, for example
- Conclusion of necessary contracts (e.g. rental agreement for business premises, service and license agreements, etc.)
- Fulfillment of conditions (e.g. proof of financing; approval of committees, etc.)
- Adoption of balance sheets or interim financial statements
- Dismissal/reappointment of Managing Director
- Proof of payment of purchase price
For documentation purposes, a closing and acceptance protocol is then usually drawn up and signed by the contracting parties. Once the closing has been successfully completed, the transaction is finalized, i.e. ownership of the shares in the target company is transferred to the purchaser. Or in short: the purchaser becomes the legal owner from this point in time.
Integration of the target company into the existing structures of the acquirer
The merging and integration of previously independent companies into a functioning unit leads to the actual completion of the transaction process. In order for this to be successful, particular attention must be paid to structured planning and implementation.
The first step is to develop and continuously review the integration strategy, taking into account the knowledge gained during the transaction process. This includes, among other things
- Determining the optimal takeover and integration structure (e.g. conversion, asset deal, share deal)
- Adaptation of the acquirer’s structures (national and international mergers and other transformation measures)
- Dealing with (tax) law issues, such as existing control and profit transfer agreements
- The standardization of the corporate governance structure (e.g. with regard to uniform group-wide approval requirements or the implementation of management structures of the acquiring organization)
- Merging the compliance organizations and IT infrastructure
This is followed by the most timely and efficient implementation of the previously developed integration strategy in order to restore normal business operations as quickly as possible. The challenge here is to integrate upcoming integration tasks into the business processes during day-to-day operations. As mentioned at the beginning, structured planning and implementation is essential to ensure that the acquisition and integration of the target company is a success and that the people involved in the implementation are not unduly burdened, so that they can then devote themselves to new tasks and projects with renewed motivation.
Outlook
This series of articles provides small and medium-sized companies with an initial guide on how a transaction process can be structured and successfully mastered. In a total of 4 parts with a total of 6 articles, the main topics in the context of an M&A transaction are presented in a compact and practice-oriented manner. If you have missed any of the articles, you can find them at https://www.tigges.legal/praxiswissen/.
Do you have questions about the typical challenges? Please feel free to contact us.
The author and your usual contacts will be happy to answer any questions you may have!
Christian Schon
schon@tigges.legal
+49 211 8687 284