Company purchase

The company purchase , including acquisition or takeover , from the supplier's perspective corporate sales , is an economic and legal transaction in which a company or an equity investment in whole or in part, by the seller to a buyer to purchase price payment in cash or in exchange for shares of the buyer sold will and sold.

General

While the term “company acquisition ” is understood to be the neutral description of a mergers & acquisitions transaction, the term “company takeover” used as a synonym is rather characterized by the power interests of the transferee and reflects the English equivalent “takeover”. The company to be acquired (“target” or “target company”) is acquired in whole or in part by an acquirer (“investor”) in return for payment of the purchase price or in exchange for shares in the purchasing company. From a business point of view, the acquisition of a company represents an investment decision , so that the business principles developed for investments apply. The concept of company acquisition is not legally defined . It is a complex contract that contains the target company as the object of purchase and provides for a purchase price to be paid by the buyer to the seller.

economic aspects

The economic aspects of a company acquisition include, in particular, the purchase motive and the purchase price and its financing .

Motifs

The motives for buying a company can be strategic , financial or personal:

Strategic motives:
- Risk motive: there is an improvement in risk through diversification or risk compensation through synergies (understood here as the combination of two or more companies that produces a higher value than the sum of the individual companies). It also enables an increase in market shares and increased market power . Increasing company sizes also minimize the risk that the investor himself becomes a takeover candidate. The exploitation of the law of mass production through economies of scale or lower market entry costs can bring about a reduction of the total costs.

Financial motives:
- Capital market-related motives: a company size leading to capital market capability is reached, economies of scale and economies of scale arise . These lead to a reduction in equity and debt capital costs, fixed costs and contribute to increasing profits / reducing losses.

Personal motives are often not based on business reasons, but result from personal, irrational or subjective considerations.

Hubris hypothesis: It assumes that management overestimates itself and leads to company acquisitions. It is assumed that a purchase price above the market price is paid because the company willing to buy believes it has a better market assessment than the market.
Managerialism hypothesis: If there are inefficient incentive and reward systems in companies willing to buy, these can only be put into perspective by external growth.
Free cash flow hypothesis: It assumes that company acquisitions create additional promotion and incentive potential for management by increasing resources.
Diversification hypothesis: It assumes that company acquisitions reduce the likelihood of insolvency of the company willing to buy and thus secure the income of managers in the future.

Evaluation, purchase price and financing

A company valuation is the basis for determining the purchase price . In valuation theory, there has long been a consensus that the transaction price for company acquisitions must be determined using an investment- theoretical present value calculus , since, as explained above, it is an investment decision. In question here is the coming earnings method or the discounted cash flow method. Other methods, such as the multiplier method or other comparison value methods, can be used to check the plausibility of the values determined. The determination of the value depends on a large number of parameters. The most important are the net returns that are likely to occur within the valuation horizon and the calculated interest rate . Since the characteristics of these parameters cannot be determined completely objectively, a corridor of possible values can be determined as part of the company valuation. The final determination of the purchase price also depends on the negotiating position of the parties involved.

The purchase price is financed from equity (including the share swap ), debt or a mixture of these, such as B. Mezzanine Capital .

Shape and types

Friendly and hostile takeover

In a friendly takeover (English friendly takeover ) the transaction by agreement between the investor and the management of the target company.

In the event of a hostile takeover (English unfriendly takeover or hostile takeover ), the investor wants to complete the transaction without a consensus with the management of the target company. This is possible if - as is usual with publicly traded corporations - their management is not also the main shareholder. In the case of a hostile takeover, the investor is therefore satisfied with the agreement of the shareholder. If this achieves a simple majority in the general meeting of the target company, the unwilling supervisory board , which in turn appoints the management board , can, if necessary, be replaced by a resolution by the general meeting . In Germany, a majority of 3/4 of the capital represented when the resolution is passed opens up the possibility of concluding a domination agreement with which the stock corporation is subject to another company in accordance with instructions.

Asset deal, share deal or merger

Depending on whether the shares in the target company or only certain assets of the target company are taken over during the transaction , a distinction is made between share deal and asset deal ; A special form of company acquisition is the merger , in which all assets (with full legal succession) are transferred to the buying company.

Leveraged buy-out, management buy-out and other special forms

A company acquisition that is primarily made through debt capital is referred to as a leveraged buy-out if the debt capital is granted by the financing banks solely on the basis of the expected viability of the target company (without any further obligations on the part of the buyer). Since the acquisition of a company is to be classified as a project financing from a banking point of view , the bank expects that the target's cash flow enables long-term debt servicing capability. The interest and repayments resulting from the loan financing (i.e. the debt service ) usually have to be paid from the target's cash flow. If the debt share is over 80%, the debt servicing capacity decreases with increasing credit risk. Banks willing to finance take on a significantly higher credit risk with a high proportion of external financing than with traditional loan financing, which they try to minimize by means of loan collateral for assets (pledging of the share package). A high return on equity - which is attractive for the investor - can be achieved through a low use of own funds , as long as the return on total capital is higher than the interest on borrowed capital . The prerequisite is that the target company generates a sufficiently high free cash flow with which the liabilities can be repaid.

Also, management buy-outs or management buy-ins to purchase, where existing or purchasing manager leaving a company, usually carried out such financing techniques by using. In the case of takeovers by the workforce, the term employee buy-out is used. In the case of an owner buy-out , in the case of a family business, a community of heirs is paid out by a single heir in order to avoid a fragmentation of the shareholding and to be able to continue to run the company with a stable majority in the background. The owner buy-out therefore plays a role , especially in connection with succession planning .

procedure

In the case of professional investors such as private equity companies in particular , the acquisition of a company begins with the search for suitable investment properties (deal search) . This is followed by the evaluation of potential investment objects (due diligence) , followed by negotiations with the shareholders and / or the management of the target (deal negotiation) , which are recorded in a term sheet . A letter of intent can confirm the intention of both parties to successfully complete this transaction. The bilateral contract drafting (deal documentation) is accompanied by law firms , auditors , management consultants or investment banks . After the purchase has been completed, the investor's investment controlling (deal monitoring) ensures permanent monitoring of the development of the target, which may later be sold again (exit) .

When the company purchase agreement (signing) is concluded and all of the conditions listed therein are met, the shares in the company to be transferred will be transferred to the buyer as part of the closing , who then has to pay the purchase price. Companies are often also sold under the leadership of investment banks within the framework of auction procedures (controlled auction) . Only certain investors (bidders) are admitted as prospective buyers. Separate and confidential negotiations are conducted with each bidder. The company is eventually sold to the investor who (from the seller's point of view) offers the most favorable contract terms and the highest purchase price.

Legal issues

The company purchase is the subject of a company purchase agreement , which is one of the most complex international agreements . The sales law according to § 433 BGB et seq. Is directly applicable to the company purchase agreement, since it not only regulates the purchase of one thing, but also the purchase of "other items" (§ 453 Paragraph 1 BGB), which also includes companies as a whole .

shape

The asset purchase agreement as such is not in Germany on a special form attached, but there are rules that make up the need for the individual case notarial certification gives the company the sales contract. The acquisition of shares in a GmbH must regularly be notarised ( Section 15 (4 ) GmbHG ). This also applies if a property is part of the company's assets ( Section 311b (1) BGB ).

According to Section 311b (3) BGB, a company purchase agreement must also be notarized in the sense of Section 128 BGB in conjunction with Sections 1 et seq. BeurkG if it contains the current assets of a company to be acquired. According to the case law of the Reichsgericht and the Federal Supreme Court , notarial certification can be avoided if the individual asset components are specifically named and listed in full in the company purchase agreement. However, this requires a seamless contract drafting in order to exclude the risk of missing notarial certification and nullity.

In the cited decision, the OLG Hamm declared the purchase contract in the specific case void due to the lack of a notarial form. The parties had included a list of inventory and inventory items as well as various, precisely identified claims in the company purchase agreement, but also agreed to take over "all assets" and not expressly included trademark rights and various furnishings from the assets of the GmbH in the company purchase agreement. In contrast to land purchase contracts and assignments of the shares in accordance with Section 15 (4) GmbHG, in this case the missing notarial form could not be cured by the execution of the purchase contract. If these contractual requirements are missing, the company purchase agreement is void due to a lack of form according to § 125 BGB .

Merger control

In addition, antitrust issues must be checked regularly , in particular whether the acquisition of a company is subject to an obligation to register and notify the Federal Cartel Office or the European antitrust authorities ( merger control ).

Takeover of a listed stock corporation

The takeover of listed companies is regulated in the Takeover Directive of the European Union , which was implemented in Germany by the Securities Acquisition and Takeover Act (WpÜG) and in Austria by the Takeover Act. The Stock Exchange Act (SESTA) applies in Switzerland .

The WpÜG contains the following key points in particular for company acquisitions:

Voting rights

In order for a takeover to exist, the rights associated with the participation must be sufficient to be able to assert themselves against the other co-owners if necessary. In the literature, for example, one hundred percent participation, integration participation (95% in Germany, 90% in Austria for the possibility of excluding minority shareholders ), three-quarters majority (75%), majority participation (more than 50%) or blocking minority are used as control rates (25%) mentioned. According to Section 133 (1 ) AktG , a simple majority of the votes “cast” in the general meeting is important, so that actual presence plays a role. If it is assumed that the attendance at the general meetings of German stock corporations with a majority of free float is between 35% and 75%, a stake in the target of between 17.5% and 37.5% would in fact be required for exercising control.

The Securities Acquisition and Takeover Act (WpÜG) defines control as holding 30% of the share capital ( Section 29 (2) WpÜG) and takeover bids as aimed at acquiring control ( Section 29 (1) WpÜG). One of the reasons for this is that with this participation rate, taking into account the usual general meeting attendance of listed German companies, there is in most cases a majority at the general meeting. The decisive control intensity for all conceivable cases is obviously seen as that which is mediated by a majority at the general meeting, and the conversion of the control intensity into a quota of the share capital is also carried out through a blanket consideration. The Austrian Takeover Act also defines a stake with over 30% of the voting rights as controlling.

Technique of acquisition of shares

With regard to the technique of acquiring a stake in a listed stock corporation, a distinction can initially be made between whether the shares are acquired on the stock exchange or over the counter. In the case of an over-the-counter acquisition, a distinction is made between individually negotiated purchases and public (takeover) offers.

The acquisition of shares in the context of stock exchange trading requires a corresponding offer of shares on the stock exchanges. Since the shares traded every day on the stock exchange make up only a small fraction of the total number of shares, it can be assumed that a larger stake can only be built up over a longer period of time. For example, the possible secrecy of the intention to purchase with simultaneous successive acquisition is often seen as a means of overcoming possible resistance to the planned takeover (“creeping takeover”). However, it should be noted that if certain reporting thresholds are exceeded, a voting rights notification must be submitted in accordance with Section 21 WpÜG, whereby the investor must also disclose his intentions.
A second way of acquiring stakes is through individual agreements with the current shareholders. Because of the associated information and transaction costs, this approach only makes sense if it enables individual major shareholders or groups of shareholders to acquire larger stakes (package purchase). Sometimes prices that are significantly higher than the current market value have to be paid (package surcharge).
A public offer can be seen as the third elementary way of acquiring stakes. This is to be understood as the public offer made by a bidder to the shareholders of the company to be taken over, to acquire their shares at fixed conditions outside of stock exchange trading within a certain period of time. The offer is to be regarded as public if it is addressed to a large number of potential sellers. If the desired participation is sufficient to acquire control, a takeover offer has been made ( Section 29 (1) WpÜG).

The three forms of share purchase described can also be combined with one another. For example, it is conceivable that an acquirer initially makes anonymous purchases on the stock exchange and only makes a public takeover offer after reaching a smaller stake or when the takeover intention is revealed. In any case, if certain share thresholds are exceeded, a mandatory public offer must be submitted (in Germany at 30%; Section 35 (2) WpÜG).

Due diligence and liability for defects

According to the Anglo-Saxon legal principle Caveat emptor , the buyer bears the risk that the object of purchase is free of obvious material and legal defects . “May the buyer watch out” is a legal principle used in Anglo-Saxon “ common law ”, particularly when it comes to company acquisitions. Thereafter, it is the buyer's risk to record all the circumstances relating to a purchased item and to identify any defects. The risk initially lies solely with the buyer, who enjoys no legal protection. That is why it is common in Anglo-American legal circles to minimize or even exclude the buyer risk by means of a so-called due diligence check. The caveat-emptor principle does not apply in the Roman-Germanic legal system, to which the German legal system also belongs. However, due diligence has also become customary internationally, albeit not to the extent that is customary in common law jurisdictions. In Germany, too, company acquisitions usually no longer take place without prior due diligence . According to prevailing opinion and jurisprudence, due diligence is therefore not part of the traffic custom . Here, too, it is intended to eliminate the buyer's risk of acquiring a defective company, because there are numerous disadvantages associated with it, even if there are warranty claims against the seller. In addition, the due diligence check is used to determine the purchase price.

If there is a defect in the acquired company, the buyer can be entitled to various statutory warranty claims such as supplementary performance , withdrawal , reduction in the purchase price and compensation . Whether there is a defect depends primarily on the purchase contract, ie on whether the buyer and seller have made an agreement on this quality. If this is not the case, the suitability of the company for the use stipulated in the contract is decisive.

Accounting for company acquisitions

German accounting law

First of all, the assets and liabilities of the acquired company must be revalued. The valuation is based on current values, with hidden reserves being released if necessary. Intangible assets that could not be recognized by the acquired company are to be capitalized. If the net assets available after the revaluation are higher than the purchase price, the difference is to be capitalized as goodwill in the purchaser's balance sheet. This is to be amortized in the following periods. A negative difference ("badwill") is to be recognized as a provision ("difference from capital consolidation"), thus reducing the net worth. This provision may only be released if either the expected unfavorable development of earnings has occurred or it is certain on the balance sheet date that the badwill corresponds to a realized profit ( Section 309 (2) HGB , IAS 22.61 ff.).

The target company is consolidated within the framework of group accounting .

IFRS

The representation of company acquisitions in IFRS financial statements differs in some details from that in HGB financial statements. A major difference is that, under IFRS, goodwill is not subject to scheduled amortization. In the event of a decrease in value, however, unscheduled depreciation must be carried out. According to IFRS, badwill must be dissolved immediately and posted as other operating income.

literature

Ralf Ek , Philipp von Hoyenberg : Company purchase and sale. (= Beck legal advisor in German 50646). 1st edition. Verlag CH Beck, 2007, ISBN 978-3-406-54707-2 .
Gerhard Picot (Hrsg.): Company purchase and restructuring - manual on commercial law. 3. Edition. CH Beck Verlag, Munich 2004, ISBN 3-406-51464-2 .
Hans-Joachim Holzapfel, Reinhard Pöllath: Company purchase in law and practice. 14th edition. RWS Verlag, 2010, ISBN 978-3-8145-7435-6 .
Walter Brugger : company acquisition. The company and share purchase from a legal perspective. Manz-Verlag, 2014, ISBN 978-3-214-05923-1 .

Individual evidence

↑ Christian Wilplinger: Making company acquisitions and sales tax-optimized. 2007, p. 6 f.
↑ Bernd W. Wirtz: Mergers & Acquisitions. 2003, p. 69 ff.
↑ Christian Wilplinger: Making company acquisitions and sales tax-optimized. 2007, p. 22.
^ Gerhard Picot: The process of the company acquisition. In: Gerhard Picot (Ed.): Company purchase and restructuring. 3. Edition. 2004, p. 23 ff. (With schedule)
↑ Cf. on this and the following Wolfgang Hölters, in: Hölters (Hrsg.): Handbuch des Unternehmens- und Beteiligungskauf. 6th edition. 2005, part I.
↑ ^a ^b Michael Rozijn , confidentiality obligations and capital protection when concluding M&A service contracts , NZG 2001, 494 ff. (In particular fn. 43 f.)

^ Gerhard Picot: The process of the company acquisition. In: Gerhard Picot (Ed.): Company purchase and restructuring. 2nd Edition. 1998, part I marginal note 11 ff.

↑ ^a ^b OLG Hamm, judgment of March 26, 2010, Az. I-19 U 145/09, full text .

^ RG, judgment of November 12, 1908, Az. Rep. IV. 83/08, RGZ 69, 413, 420 f .; BGH, judgment of October 30, 1990, Az. IX ZR 9/90, full text .

↑ Ralf Bergjan: The Effects of the Law of Obligations Reform on Company Purchases , 2002, p. 96 ff

^ Michael Schuster: Hostile takeovers of German stock corporations. 2003, p. 14.

^ Shirin Maria Massumi: Quo Vadis company purchase agreements . 2008, p. 105.

^ Shirin Maria Massumi: Quo Vadis company purchase agreements . 2008, p. 185.

^ Wolfgang Weitnauer: The company purchase according to the new sales law . In: NJW 2002 . S. 2511 .

[1] Christian Wilplinger: Making company acquisitions and sales tax-optimized. 2007, p. 6 f.

[2] Bernd W. Wirtz: Mergers & Acquisitions. 2003, p. 69 ff.

[3] Christian Wilplinger: Making company acquisitions and sales tax-optimized. 2007, p. 22.

[4] Gerhard Picot: The process of the company acquisition. In: Gerhard Picot (Ed.): Company purchase and restructuring. 3. Edition. 2004, p. 23 ff. (With schedule)

[5] Cf. on this and the following Wolfgang Hölters, in: Hölters (Hrsg.): Handbuch des Unternehmens- und Beteiligungskauf. 6th edition. 2005, part I.

[rozin494-6] Michael Rozijn , confidentiality obligations and capital protection when concluding M&A service contracts , NZG 2001, 494 ff. (In particular fn. 43 f.)

[7] Gerhard Picot: The process of the company acquisition. In: Gerhard Picot (Ed.): Company purchase and restructuring. 2nd Edition. 1998, part I marginal note 11 ff.

[OLG-8] OLG Hamm, judgment of March 26, 2010, Az. I-19 U 145/09, full text .

[9] RG, judgment of November 12, 1908, Az. Rep. IV. 83/08, RGZ 69, 413, 420 f .; BGH, judgment of October 30, 1990, Az. IX ZR 9/90, full text .

[10] Ralf Bergjan: The Effects of the Law of Obligations Reform on Company Purchases , 2002, p. 96 ff

[11] Michael Schuster: Hostile takeovers of German stock corporations. 2003, p. 14.

[12] Shirin Maria Massumi: Quo Vadis company purchase agreements . 2008, p. 105.

[13] Shirin Maria Massumi: Quo Vadis company purchase agreements . 2008, p. 185.

[14] Wolfgang Weitnauer: The company purchase according to the new sales law . In: NJW 2002 . S. 2511 .