Over the course of the next few weeks, our legal experts will be writing about the most widely discussed but often overlooked topics when expanding overseas. This is a guide for American companies planning to grow their business in Europe, Asia and beyond. If any of these issues are relevant to you and your business, contact us directly and we'd be happy to help.
So you’ve found a company that you would like to acquire in Europe. How can you manage the process from the outset to ensure that it runs as smoothly as possible and achieves your business objectives in the most efficient way?
Identifying what it is about the target that makes it attractive, and what makes it less attractive, to you is key to a smooth acquisition process. The drivers for the transaction could be the acquisition of the target company’s assets, one or more lucrative contracts, business synergies with your existing core business or a skilled workforce. It is essential that buyers secure an adequate period of exclusivity in order to do a thorough legal, financial, tax and commercial due diligence exercise with third-party advisors where needed and negotiate the terms and structure of the deal. Risks identified during due diligence enable the buyer to assess the benefits and disadvantages of alternative structures for their business, the balance of risk between seller and buyer and consider whether to leave unwanted assets or liabilities behind altogether.
When you know what you want to acquire and what you might want to leave behind, get early advice from local lawyers and/or tax advisors about possible structures and the tax implications. The taxes that apply to share acquisitions and business and asset acquisitions vary between European jurisdictions. There may be reliefs, allowances or exemptions that need to be considered in the context of the specific structuring proposals. These taxes are often calculated by reference to the transaction value (or the value of specific classes of assets) and the personal tax circumstances of the sellers and can have a material impact on the cost of doing the deal. Potential hybrid structures, such as hiving target assets to a new shell company before its acquisition or acquiring a “going concern”, can help to mitigate risk in some jurisdictions as can obtaining up-front approvals or clearances.
Map out the deal timeline with lawyers and other advisors. Where third-party commercial or regulatory consents/approvals are required, agree the material details of the transaction with the sellers as early as possible so that consent applications can be submitted to start the clock running. In certain European jurisdictions there will be mandatory anti-competition filing requirements or employee consultation and tax clearance obligations. Where consents cannot be obtained before the parties formally agree to be bound to do the deal, or there are other conditions to closing, buyers need to consider what interlocutory provisions are needed to make sure that they have the benefit of contractual protections such representations and warranties through the period between signing and closing and, where necessary, the ability to walk away from the transaction in situations where acquiring the target is no longer the right course of action for the buyer.
The transaction documents that are needed to do the deal and integrate the target business with the buyer’s business will depend on a number of factors, including structure and the relevant jurisdictions involved. Some European jurisdictions will require documents to be notarized and apostilled and/or specific filing requirements with potentially strict penalties for failing to comply, including possible criminal liability for directors or potentially transactions being void or voidable. This might require legal opinions, having to obtain official translations of transaction documents and/or granting powers of attorney to advisors to execute documents on the buyer’s behalf