Closing the deal is just the beginning. Where the acquirer and target businesses operate in the same or complementary fields, the acquirer will often want to integrate the two businesses with a view to saving costs and generating value for its shareholders through meeting synergy targets. However, bringing together businesses with different trading relationships, histories and cultures inevitably poses substantial challenges, especially in the case of multinationals. Thus, over the course of three newsletters, we will provide you with nine tips to improve post-acquisition integration.
In our previous newsletter, we provided you with our first three out of nine tips to improve post-acquisition integration:
- Have internal staff and outside advisers work closely together
- Do due diligence
- Establish how to combine local companies
Find our next three tips here.
4. Secure an optimal pre-integration structure
It is often preferable, as a pre-step to the integration, to first create a share ownership structure whereby the entities to be consolidated are in a direct parent/subsidiary or brother/sister relationship with
each other. In most jurisdictions, including the Netherlands, some form of simplified merger procedure applies in this case, saving time and costs.
A further benefit of such a pre-integration structure is that, following the merger, the surviving subsidiary will have a single shareholder, making future distributions, redemptions and restructurings easier to implement. In addition, however, if the integration is to be achieved by way of an asset transfer, followed by the dissolution of the transferor entity, creating a parent/subsidiary relationship can be beneficial from the perspective of enabling a more straightforward clean-up of any consideration debt. A number of methods can be used to achieve a parent/subsidiary or brother/sister relationship prior to integration, including contribution, distribution, sale or cross-border merger.
5. Anticipate directors’ departure
In the aftermath of an acquisition, it is likely that some directors of the involved entities will leave. Some jurisdictions require a minimum number of managing directors. If this is the case, or if all directors are leaving, they will have to be replaced, possibly also at the subsidiary level. Another issue arises with respect to directors who are serving as nominee shareholders to satisfy minimum shareholder or resident shareholder requirements in a particular jurisdiction. If these directors have left the company, they may have to be tracked down to sign share transfer or other documents.
6. Keep the waiting periods in mind
In many jurisdictions, government or tax clearances are required prior to the merger or liquidation of local entities. Also, public notices are often necessary and statutory waiting periods may apply. It is important to identify the jurisdictions where immediate integration is desired so that the required applications and notices can be filed as soon as possible. In cases where there are statutory or practical delays in implementing the integration, alternative strategies may be available to minimize operational inconvenience or tax exposure, for example having one company operate the other’s business under a management contract during the interim period.