Corporate M&A 2020

Last Updated April 20, 2020


Law and Practice


SZA Schilling, Zutt & Anschütz has been one of the most reputable German corporate law firms for many decades, and currently houses approximately 100 attorneys advising domestic and international clients on nearly all areas of corporate and commercial law. The firm has offices in Frankfurt, Mannheim, Munich and Brussels. Its core advisory services in the field of M&A cover matters such as acquisitions and divestments of businesses and company takeovers in accordance with the German Acquisition and Takeover Act. SZA is reinforced by an extensive international network of law firms to assist with cross-border projects. Issues concerning labour law, intellectual property, etc often arise in this complex legal field, and the firm is also able to deploy specialised attorneys to deal with these matters. Representation in post-M&A disputes is a further strongpoint at SZA.

In 2019, the European M&A market experienced a downturn compared to the years 2017 and 2018, but still reached a higher level than in 2016. The total transaction volume went down to USD770.5 billion (7,579 deals), which corresponds to a decrease of approximately 22% compared to 2018. Europe accounted for approximately 23% of the global transaction volume in 2019. The transaction volume of announced German target or seller transactions went down to approximately USD100 billion (approximately 950 transactions).

The main reasons for the downturn were the ongoing trade conflicts between the USA and China and, to a lesser extent, between the USA and the EU, uncertainties in context of Britain’s exit from the EU and an overall slow global economic growth. Another reason was the comparatively small number of big-ticket deals, with just five megadeals (transaction volume of more than USD10 billion) announced in 2019. However, it should also be noted that 2017 and 2018 were two very successful M&A years. defined by high-volume cross-border transactions.

Digital/Technological Transformation Processes

The German M&A market is still driven by digital/technological transformation processes (digitalisation/automation). Traditional industrial companies are facing challenges in this context and M&A transactions are seen as one way to efficiently tackle disruption in their markets. However, it is expected that this transformation processes will ultimately lead to an increase in distressed M&A transactions. For example, the German automotive industry is currently investing in e-mobility projects, which will most probably have negative impacts for the supplier industry in the combustion engine sector.

Private Equity

Transactions with private equity involvement in Europe remained steady throughout 2019. Announced deals totalled USD168.5 billion (1,445 deals), making 2019 the third consecutive year in which the USD150 billion mark was exceeded. Important German-target transactions with private equity involvement included the offer of US private equity investor KKR to the shareholders of Axel Springer SE and the offer of Austrian Company AMS to the shareholders of Osram Licht AG. AMS succeeded against the private equity investors Bain Capital and Carlyle.

In 2019, a number of companies in the chemical industry sold what they considered non-core business divisions to non-EU purchasers. For example, BASF SE sold its business division construction chemicals to US company Lone Star (transaction volume approximately EUR3.2 billion) and its business division pigments to Japanese company DIC (transaction volume EUR1.15 billion).

Bayer SE and Lanxess AG sold their stake in the chemical park operator Currenta to Mira (Macquarie Infrastructure and Real Assets), a subsidiary of the Australian investment bank Macquarie (transaction volume EUR3.5 billion). Furthermore, Bayer SE sold Animal Health GmbH to US company Elanco (transaction volume USD7.6 billion).

Apart from that, the observation from previous years has been confirmed that large individual transactions, which cannot necessarily be assigned to specific industries, are decisive for the size of the total market volume. For the first half of 2019, the largest part of the offer volume in Germany related to the takeover bid of Pulver BidCo GmbH to the shareholders of Scout24 AG.

Private M&A – Acquisitions of Non-Listed Companies

First, investment banks or M&A advisers co-ordinate an auction process, beginning with teasers sent to potential buyers to promote the target company. Interested parties must sign a non-disclosure agreement before gaining access to an information memorandum containing basic financial and legal information about the target company. They will then be invited to submit non-binding offers setting out their ideas about the purchase price and transaction structure. Bidders who submit the best indicative bids will have access to a data room where they can exercise due diligence.

The due diligence process is followed by binding bids; the seller then enters into negotiations with those bidders who have submitted the most attractive bids. Some bidders require exclusivity in the course of the process; sometimes the parties conclude a term sheet. The main document of any private transaction is the sale and purchase agreement. Core elements of an agreement are the determination and structuring of the purchase price, which typically follows a locked-box model or a cash-free/debt free mechanism with working capital adjustment, assurances and warranties, indemnities and the extent of possible damages.

Repurchase and guarantee insurance have gained importance in recent years. In Germany, there is a legal separation between the conclusion of the purchase agreement (the signing) and the transfer of shares in rem (the closing). In most transactions, the transfer in rem of the shares is subject to the payment of the purchase price and other conditions precedent, eg, merger control clearances.

Public M&A – Acquisitions of Listed Companies

The most practical way to obtain control over a publicly listed company in Germany is to acquire shares by way of a public tender or takeover offer. A takeover offer (Übernahmeangebot) is mandatory if a party seeks to obtain control of a public company, ie, to acquire at least 30% of its voting rights (as defined by the German Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz)). A public takeover bid can be friendly or hostile. Although the management board of the target company is subject to the principle of neutrality, certain defence mechanisms and defence measures can be implemented with the consent of the supervisory board.

Cross-border Mergers

Cross-border statutory mergers of companies are possible under the German Transformation Act (Umwandlungsgesetz). However, cross-border statutory mergers of companies involving minority shareholders are of minor practical importance, as the purchase of shares against cash payment is less complicated. In addition, the merger appears to have no specific advantage, as the acquiring company has to offer an exit option to dissenting shareholders via cash compensation to be based on the intrinsic value of the target company. This regularly proves to be a prohibiting factor. In cross-border mergers it is common to conclude business combination agreements, which outline the major steps of the envisaged transaction.

Regulators for Public M&A – Acquisition of Listed Companies

Takeover Act

The German Securities Acquisition and Takeover Act, the Takeover Act Offer Ordinance (WpÜG Angebotsverordnung) and other statutory ordinances regulate public takeovers of listed companies. Legislation not specific to public takeovers also applies, in particular the rules of the German Stock Corporation Act (Aktiengesetz), the Market Abuse Regulation and the Transformation Act (Umwandlungsgesetz). Compliance with the German Takeover Law is overseen by the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin).

The German Securities Acquisition and Takeover Act concerns any public offer (öffentliches Angebot) to acquire shares of publicly listed stock corporations, European companies (SEs) and partnerships limited by shares that have their registered seat either in Germany and whose shares are traded on the German regulated market (the German Securities Acquisition and Takeover Act does not apply to stock corporations listed only in the open market segment), or – under certain further conditions – in another European Economic Area (EEA) member state. 

There are three classes of public offers:

  • a takeover offer (Übernahmeangebot), aimed at obtaining control of the target, ie, at least 30% of the target's voting rights, individually or on a joint basis acting in concert with others;
  • a mandatory offer (Pflichtangebot), which must be made if and when control has been obtained by other means than a takeover offer, and where no exemption applies; and
  • an acquisition offer (sonstiges Erwerbsangebot) not aimed at acquiring control, by buying less than 30% of the target's voting rights (together with any other target shares attributed to the bidder), buying additional shares if control has already been obtained, or buying non-voting preference shares only.

Stock Corporation Act (Aktiengesetz)

The Stock Corporation Act (and its extensive case law) is the main source of legislation for listed targets and their officers and shareholders. Its provisions are partially superseded or reiterated by the German Securities Acquisition and Takeover Act. Importantly, a German stock corporation's management board must always act in the company's best interests (Unternehmensinteresse), which are not necessarily identical to those of the shareholders.

In general, the company’s best interest comprises the interests of the shareholders, the employees and, arguably, the creditors of the target company. This focus of the target management’s fiduciary duties on the company's best interest may give rise to numerous issues during a takeover. In addition, the Stock Corporation Act and the German Securities Acquisition and Takeover Act govern various defence measures of the target’s management against hostile takeovers and both also contain rules on squeeze-outs.

Securities Trading Act (Wertpapierhandelsgesetz)

This act concerns, among other things, the mandatory notification of voting rights and other instruments.

Market Abuse Regulation

Regulation 596/2014/EU (Market Abuse) and accompanying EU directives regulate insider trading, a criminal offence in Germany, ad hoc disclosure requirements by the target and directors' dealings. Due to the prohibition of insider trading, the target's management cannot share any inside information that makes due diligence into a publicly listed target somewhat difficult. The target may also be obliged to publish an ad hoc announcement regarding the takeover.

Stock Exchange Act (Börsengesetz) and Stock Exchange Ordinances (Börsenordnungen)

Among other subject matter, the Stock Exchange Act contains rules on a regular delisting, including the requirement of a mandatory offer in the case of a delisting from a regulated market. Furthermore, following a public-to-private transaction, the investor may seek to re-offer the shares publicly as an exit route, which would then also be governed by various statutory provisions, including the Stock Exchange Act and the Securities Prospectus Act, as well as the Stock Exchange Ordinances. 

Regulating Rules for Both Private and Public M&A

Transformation Act (Umwandlungsgesetz)

The Transformation Act allows statutory mergers by transferring one entity's assets to another pre-existing entity, or by transferring two existing entities' assets to a new entity. It also provides a legal framework for de-mergers (Spaltungen) and changes of legal form (Formwechsel). Statutory mergers under the Transformation Act combine the selective approach of an asset deal with the universal succession of a share deal. Universal succession under the Transformation Act takes effect by way of the registration of the statutory merger with the commercial register. Registration with the commercial register may, however, be blocked by voidance claims initiated by shareholders, which in turn may be overcome via a fast-track release proceeding (Freigabeverfahren).

The Transformation Act also contains provisions on a merger-specific squeeze-out. In addition, the instruments contained in the Transformation Act may be used to take a target private (cold delisting), such as by merging a listed target into a non-listed entity.

Insolvency Act (Insolvenzordnung) and Voidance Act (Anfechtungsgesetz)

Any bidder intending to make an offer for a target or to a seller of a target that is insolvent (or close to insolvency) should consider the Insolvency Act and the Voidance Act. The Insolvency Act allows the restructuring of a target through proceedings similar to those under the US Chapter 11 rules. Under the Voidance Act, the transfer of assets to the detriment of the target's creditors may be voidable.

Commercial Code (Handelsgesetzbuch) and Civil Code (Bürgerliches Gesetzbuch)

The Civil Code governs any legal relationships between private individuals and entities. The Commercial Code adds rules specific to business entities (corporations and partnerships) and the businesses of sole proprietors. The offer to buy or exchange shares and the acceptance of such an offer, among other things, are governed by the Civil Code.

Banking Act (Gesetz über das Kreditwesen) and Insurance Supervision Act (Versicherungsaufsichtsgesetz)

With respect to regulated industries, including financial institutions and insurance companies in particular, the acquisitions of qualifying holdings have to be notified to and approved by the respective regulatory authorities before being consummated. A direct or indirect holding in an undertaking that represents 10% or more of the capital or of the voting rights, or which makes it possible to exercise a significant influence over the management of that undertaking, can already be considered as a qualifying holding.

Foreign investments in target companies active in certain sectors may be subject to restrictions. The Foreign Trade Act (Aussenwirtschaftsgesetz) and the relevant Ordinance (Aussenwirtschaftsverordnung) provide for two different review mechanisms. The so-called sector-specific review mechanism mainly concerns foreign investments in domestic companies active in the military and defence sector.

Under the so-called cross-sectoral review, the Federal Ministry of Economics and Energy (Bundesministerium für Wirtschaft und Energie – BMWi) may review any direct or indirect acquisitions of at least 10% of the voting rights in a German target providing critical infrastructure by investors from outside the EU to determine whether such acquisitions may endanger the public order or security in Germany. The German Government may ultimately prohibit such acquisitions or impose obligations to safeguard public order or security.

The merger control provisions of the German Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen) apply if transactions qualify as concentrations and the parties meet certain thresholds. If a transaction is subject to German merger control, it must be notified to the German Federal Cartel Office (Bundeskartellamt) and must not be consummated before clearance has been obtained.

It is a particular feature of German merger control that concentrations subject to review are not limited to control acquisitions. For instance, acquisitions of 25% or 50% of the voting rights or capital interests also qualify as concentrations, as do acquisitions of a competitively significant influence. 

The notification thresholds are met if the combined aggregate worldwide turnover of the involved parties exceeds EUR500 million, the German turnover of at least one involved party exceeds EUR25 million and the German turnover of another involved party exceeds EUR5 million.

If the last threshold (ie, a German turnover exceeding EUR5 million) is not met by the target or another party, a notification will still be required if the value of the consideration for the transaction exceeds EUR400 million and the target has significant activities in Germany.

The target company's management board must, without undue delay, inform that company’s works council or, if there is no works council, the target's workforce directly, of a takeover announcement, and must forward to them the public offer document.

However, there is no obligation to consult the works council (or workforce) of the offer. The works council can comment on the offer; its comments have to be attached to, and published with, the target's management board's reasoned opinion.

According to the German Co-Determination Act (Mitbestimmungsgesetz), certain companies (stock corporations, partnerships limited by shares, limited liability companies and co-operatives) with more than 2,000 employees have to establish a supervisory board in which half the members must be employee representatives.

The same applies to companies with more than 500 employees, pursuant to the German One Third Participation Act (Drittelbeteiligungsgesetz), but only one third of the members are required to be employee representatives. 

As explained previously, the sector-specific review mechanism concerns foreign investments in domestic companies that are active in certain segments of the military and defence sector, as well as providers of certain IT security products. A direct or indirect acquisition of at least 10% of the voting rights in such a company by a foreigner must be notified to the BMWi.

Different from the cross-sectorial review, this notification obligation also applies to investors from other EU member states. The German Government may ultimately prohibit such acquisitions or impose obligations if this is necessary to safeguard essential German security interests.

In September 2018, the German Federal Supreme Court (Bundesgerichtshof – BGH) took a landmark decision on the definition of so-called "acting in concert" under the German Securities Trading Act. The legal instrument of acting in concert has various impacts on the scope of co-operation between two or more shareholders of a public listed company.

The BGH ruled that a one-time agreement between two shareholders regarding the exchange of the members of the supervisory board in order to achieve business realignment does not constitute acting in concert. Therefore, a co-operation does not lead to a mutual allocation of voting rights under the German Securities Trading Act. It follows that in such a situation the shareholders are also not obliged to extend a takeover offer.

As explained previously, foreign investments in companies active in the defence sector or providing critical infrastructure are subject to the restrictions imposed by the Foreign Trade Act (Aussenwirtschaftsgesetz) and the relevant Ordinance (Aussenwirtschaftsverordnung).

In December 2018, the participation threshold for notification to, and review by, the German Federal Ministry of Economics regarding transactions in said sectors was lowered from 25% to 10%. Furthermore, the German legislator implemented the Second EU Shareholders’ Rights Directive. It aims at enhancing transparency and protecting shareholders’ interests and improves, inter alia, the right of the annual general meeting to have a say on the remuneration of the management board members ("say on pay").

In practice, stakebuilding without issuing a public takeover offer is limited to a maximum of 30% of the voting rights, the threshold for a mandatory public takeover offer. Since German law provides for strict notification requirements that apply for much smaller stakes (see 4.2 Material Shareholding Disclosure Threshold), concealed stakebuilding is difficult to realise and has become rather uncommon.

If the 30% threshold is crossed due to a voluntary takeover offer, the bidder is free to acquire additional shares without being required to issue another (mandatory) takeover offer. This allows a bidder to acquire a block of shares just below the 30% threshold and then publish a voluntary takeover offer at a relatively low price, which will probably be accepted by only a few shareholders. If the bidder acquires enough shares to exceed the 30% threshold, the bidder is free to buy additional shares without being obliged to publish a mandatory takeover offer ("lowballing" or "creeping in").

Disclosure thresholds and filing obligations mainly concern listed companies on organised markets. Investors that build stakes in listed companies on an organised market are required to notify the company as well as the BaFin if their voting rights exceed or fall below 3%, 5%, 10%, 15%, 20%, 25%, 30%, 50% or 75% of the voting rights. The company is obliged to publish any notifications of its shareholders.

Investors have to consider that not only voting rights from shares that are directly held must be taken into account. If an investor acquires financial instruments that entitle the holder to acquire shares or have a similar economic effect, voting rights can be attributed to an investor who does not yet physically own the respective shares and is not yet able to exercise the respective voting rights. Moreover, shares held by subsidiaries of the investor or for the account of the investor may be attributed.

Finally, voting rights held by different investors who co-ordinate their actions with respect to the company ("acting in concert") are to be aggregated. These rules can lead to unintentional violations if notification requirements are overlooked, particularly in complex legal situations. It is advisable to examine the legal situation thoroughly, since violations can not only lead to serious fines but also to a suspension of all shareholders’ rights for the period during which the infringement persists and, under certain conditions, even for longer periods.

For private stock corporations and stock corporations listed in the open market segment, disclosure thresholds and filing obligations are much less rigid. If the stake of investor exceeds or falls below 25% or 50% of the shares in a German stock corporation, the investor is obliged to notify the company.

Under certain circumstances, shares of third parties are to be attributed. The respective rules are similar but less complex than those applicable to listed companies on an organised market. A failure to comply with the notification requirements leads to a suspension of the voting rights from the respective shares.

The acquisition of shares in limited liability companies (GmbH) follows its own legal rules. These rules allow tracing of any acquisition of shares, since the commercial register contains a list of the shareholders that is to be updated after shares have been traded.

The German Money Laundering Act (Geldwäschegesetz) also provides for certain disclosure requirements. All legal entities governed by private law, registered partnerships, trusts and similar legal forms are obliged to file certain data that inter alia relates to shareholdings with the Transparency Register.

The thresholds mentioned are mandatory and cannot be waived. Additional disclosure obligations can within certain limits be stipulated in the articles of association, but are not common.

Dealings in derivatives are permissible but can lead to notification obligations. Generally, dealings in derivatives are not a feasible way to avoid or circumvent disclosure obligations.

Depending on the circumstances and the types of derivatives, dealing in derivatives may trigger the same disclosure obligations as dealing in shares. Therefore, investors who consider a takeover strategy that involves dealing in derivatives should carefully perform a case-by-case analysis with respect to disclosure requirements.

If an investor issues a public takeover offer, the offer document has to state the objectives the bidder pursues relating to the target. Therefore, such information is disclosed to the public.

Following the acquisition of 10% or more of the voting rights in a listed company on an organised market, investors are required to inform the target company of their intentions and their source of funding. The law specifies in detail the information to be disclosed in such a scenario and the respective catalogue comprises in particular whether the investment serves strategic goals or is a mere capital investment, whether the bidder intends to increase the investment and whether there are intentions to influence the management or substantially change the capital structure.

With regard to disclosure duties, a distinction must be made between listed and non-listed companies.

If the target company is listed, it can be obliged to make so-called ad hoc announcements at different stages of the transaction. The European Market Abuse Regulation (MAR) governs the specific requirements of the obligation to make ad hoc announcements. According to the MAR, an issuer must inform the public as soon as possible of inside information that directly concerns that issuer. It is therefore decisive whether or not the information in question is "inside information". For this to be the case, the following conditions must be met. The information:

  • must relate, directly or indirectly, to one or more issuers or to one or more financial instruments;
  • must be of a precise nature;
  • may not have been made public yet; and
  • would, if it were made public, be likely to have a significant effect on the price of those financial instruments or on the price of related derivative financial instruments.

In a protracted process that occurs in stages – eg, in the case of a M&A transaction – it is recognised that not only the final steps (signing/closing) may trigger the obligation to make an ad hoc announcement, but that this is already the case for significant intermediate steps.

The MAR allows for exceptions, however:

  • "Self-exemption" – where an issuer may, at their own risk, delay disclosure of inside information if the following conditions are met:
    1. immediate disclosure is likely to prejudice the legitimate interests of the issuer;
    2. delay of disclosure is not likely to mislead the public; and
    3. the issuer is able to ensure the confidentiality of that information.
  • "Market sounding" – where an issuer may disclose possible inside information to potential investors to determine the interest of potential investors in a possible transaction. The legal requirements are quite complex, however. It is therefore recommended, and also common practice, to take legal advice prior to any delay of disclosure.

If the target company is non-listed, it has no obligation to disclose the transaction or the related intermediate steps.

Although both the target company and the potential purchasers are usually interested in avoiding early disclosure, it is not possible to defer from legal requirements. The parties may attempt to structure the transaction in a way that allows for a delay of disclosure, however.

With regard to listed companies and as already stated earlier, the issuer can delay disclosure of inside information if certain conditions are met (see 5.1 Requirement to Disclose a Deal). In this context, the disclosure of the transaction can no longer be delayed if there are already sufficiently accurate rumours about the transaction in the market. Here, the issuer must disclose the inside information to the public as soon as possible.

The scope of the due diligence depends strongly on the circumstances of the respective transaction. In most cases the potential purchasers will conduct a financial, legal and human resources due diligence, with compliance due diligences becoming more and more important as well.

Furthermore, the scope of the due diligence depends on the business areas in which the target company is active. Transactions in technical industrial fields often require technical and environmental due diligences.

Apart from that, it must be pointed out that the information provided by target companies varies. The management of the target company is generally only allowed to disclose information if the disclosure is in the company’s best interest.

In the sector of private M&As, disclosure requires a shareholders’ resolution. Furthermore, the managing bodies must comply with certain information disclosure restrictions, such as those stipulated by data protection law. Beyond that, many M&A transactions take place under considerable time pressure, which can ultimately also affect the review.

By concluding a standstill agreement, the bidder commits themselves to not further increase thier stake in the target company. Therefore, the target company sometimes demands standstill agreements as a means of defence. Although standstill agreements are generally permitted under German law, there are restrictions on the target company’s side as well as on the side of the bidder.

Regarding the target company, its management is obliged to act in the best interest of the company, which can require it not to hinder the takeover. The bidder must comply with the provisions of the German Takeover Act and can be obliged to extend his bid to all shares of the target company. In this case it is impossible for them to enter into a standstill agreement.

An exclusivity agreement, in contrast, obliges the seller of the target company not to negotiate with other potential buyers (for a limited period). It is not uncommon for a buyer to demand such an agreement to justify further investments in the course of preparing for the transaction.

Exclusivity agreements are generally permitted under German law. However, as mentioned, the management of the selling company is obliged to act in the best interests of the company, and it can be advantageous for the selling company to set up a transaction process with several bidders in order to achieve a higher purchase price.

The German Takeover Act, supplemented by the German Takeover Act Offer Ordinance governs the legal requirements for public takeover offers (see 2 Overview of Regulatory Field).

Both regulations require the offer document to contain very detailed information in order to provide the shareholders of the target company with a sufficient information basis for their decision about acceptance or rejection of the offer. The offer document must contain information on, inter alia:

  • the consideration;
  • the offer period;
  • the possible effects of a successful offer; and
  • the bidder’s intentions with regard to the target company.

The offer document also determines the subsequent content of the share purchase agreement and contains its terms and conditions. To support the shareholders in a "take it or leave it situation" caused by this, both the management board and the supervisory board of the target company are obliged to give a reasoned opinion on the assessment of the offer. The reasoned opinion must address four topics in particular:

  • the nature and amount of the consideration offered;
  • the prospective consequences of a successful offer for the target company and its employees, the employment conditions and the target company’s sites;
  • the bidder’s objectives; and 
  • the intention of the board members to accept the offer, insofar as they are shareholders themselves.

The duration of a takeover process cannot be generalised and differs between private and public transactions.

In private M&A transactions, the duration varies widely. In small transactions, the whole process can be completed in a matter of weeks. In large and more complex transactions, it can take months or in some cases years (considering the whole time from the planning stage to the closing of the transaction).

The required term depends on the size and complexity of the involved companies, the time pressure on both the seller’s and the purchaser’s side, the structure and financing of the transaction and eventually required approvals of authorities.

Public M&A transactions regularly take about three months form the bidder’s announcement to issue an offer to complete (the maximum is 22 weeks; longer durations are possible if concurring offers are published). The duration of preparatory actions, particularly stakebuilding and due diligence, are not included and can vary widely.

An investor who acquires 30% or more of the voting shares of a company that is listed on an organised market is required to issue a mandatory takeover offer to all other shareholders. The bidder may apply to BaFin to be exempted from the obligation. However, such exemptions are only granted in extraordinary cases.

Both cash and shares (or a mix of both) can be used as consideration. If the bidder uses shares, these must be liquid and listed on an organised market; the owners of voting shares in the target must be offered voting shares as consideration.

Moreover, if the bidder acquires 5% or more of the shares for a cash consideration during the six months before the announcement of the takeover offer, a cash consideration must be offered to all shareholders of the target; a consideration in shares can be offered as an alternative.

In practice, German bidders in most cases offer cash as consideration, while foreign bidders in some cases offer shares or a mix of cash and shares.

The conditions that apply to mandatory and voluntary takeover offers are primarily subject to legal requirements under the German Takeover Act and the Offer Ordinance. The bidder is obliged to offer an "adequate" consideration. Such consideration is required be at least equal to both:

  • the value of the highest consideration paid or agreed to by the bidder, a person acting in concert with the bidder or any of their subsidiaries for the acquisition of shares in the target within the six month period prior to the announcement of the takeover; and
  • the weighted average price of such shares on the stock exchange during the last three months before the announcement of the takeover.

In addition, if the bidder acquires shares at a higher price during the offer period or within 12 months after the end of the offer period, the higher price is to be paid to all shareholders who accept the takeover offer.

Under certain circumstances, particularly in non-liquid markets, the amount of the consideration is not to be determined on the basis of the stock market price, but on the basis of a valuation of the company’s intrinsic value.

The minimum pricing requirements do not only apply to mandatory but also to voluntary takeover offers that aim to obtain control of the target company.

Mandatory takeover offers cannot be made subject to conditions (except where the conditions concern legal requirements for the takeover). With regard to voluntary takeover offers, less rigid rules apply.

In such offers, the bidder may define conditions that must be met for the offer to become effective. These conditions can comprise minimum acceptance conditions (ie, a certain percentage of shares must be tendered before the offer becomes effective) or the approval of authorities.

In practice, it is sometimes difficult to formulate certain conditions with sufficient precision so that they depend on objective criteria (eg, material adverse change conditions). Moreover, the law excludes certain conditions. This pertains particularly to conditions that the bidder himself can bring about. An offer made subject to revocation or withdrawal is also inadmissible.

In most cases, the acceptance thresholds are chosen in such a way that the bidder acquires sufficient shares to be able to implement essential decisions in the target company without the co-operation of other shareholders.

Even though a regular majority of 30% is sufficient, the participation rate of the bidder as a precaution frequently exceeds 50% or 75%, since these are the most important majority requirements for shareholders’ resolutions in German stock corporations.

In general, the resolutions of the shareholders’ meetings are taken with a simple majority that exceeds 50% of the votes. However, for some important measures, particularly all measures that require an amendment of the articles of association, a majority that exceeds 75% of the share capital represented in the shareholders’ meeting is required.

For some measures – in particular regarding a squeeze-out of minority shareholders – even higher majorities are required (see 6.10 Squeeze-Out Mechanisms). Therefore, in some cases, bidders may consider even higher thresholds than those previously covered.

Before issuing a public takeover offer, the bidder is required to ensure that they have the necessary financial resources to fulfil the obligations to the shareholders who accept the offer.

For a cash offer, the bidder must prove that sufficient funds are available by obtaining confirmation from an investment service company (usually a bank). Therefore, the bidder cannot make a takeover offer that is subject to obtaining financing.

Generally, agreements on deal security measures between the bidder and current shareholders are not subject to any specific restrictions. Thus, the bidder and key shareholders can make any arrangements they consider reasonable (eg, the major shareholder can undertake to accept the bid irrevocably vis-à-vis the bidder) as long as these are in line with general legal requirements (eg, general antitrust law, etc).

Restrictions apply if measures require co-operation of the target company, since the management board of the target is obliged to act in the best interest of the company (which is not necessarily identical to the interest of key shareholders who intend to sell their shares). Therefore, the target company can only assume obligations in the context of deal security measures if these are in its best interest and comply with all requirements of applicable stock corporation law.

Since it is, in most cases, hard to prove that the target is interested in being owned by a specific shareholder, deal security measures are often legally problematic if the target company assumes obligations.

In practice, break-up fees are occasionally agreed. However, if the target company (and not only a key shareholder) is made subject to payment obligations in that context, the enforceability of such agreements is at least doubtful since admissibility of the arrangements can be questioned for a number of reasons, in particular regarding capital maintenance rules. Therefore, a legal uncertainty remains and a careful legal assessment is advisable in each case.

The conclusion of business combination agreements in the preparation of a transaction may also clash with the very strict rules of the Stock Corporation Act on the constitution of a stock corporation. The permissibility and enforceability of such agreements is under dispute in legal literature and depends very much on the precise content of an agreement. Therefore, business combination agreements require particularly careful legal assessment and alignment to the principles of stock corporation law.

In German stock corporations, the options to implement special rights for certain shareholders are limited. The basic structure of the corporate governance of a stock corporation and the rights of the corporate bodies cannot be amended. In particular, the members of the management board and supervisory board cannot be bound to follow instructions from the shareholders.

The shareholders generally have to be treated equally and their rights only depend on their respective participation rate. The main thresholds the participation rate must exceed to obtain control over the most important decisions taken by the shareholders’ meeting are 50% and, for some decisions, 75% (see 6.5 Minimum Acceptance Conditions).

If a shareholder wishes to obtain decision-making powers that he or she would not normally be entitled to with his participation rate, it is possible to enter into a pooling agreement and co-ordinate voting rights with other shareholders. These, however, may constitute "acting in concert" and trigger a mandatory takeover obligation.

A special right that may be granted to a shareholder in the articles of association would be the right to appoint a member of the supervisory board. If a shareholder’s participation rate exceeds 50% of the shares, that shareholder can decide on the appointment of supervisory board members anyway by a majority vote. However, a shareholder who does not control the majority vote in the shareholders’ meeting may ask for the right to appoint a representative to the supervisory board.

Shareholders are permitted to send representatives to the shareholders’ meeting and to vote by proxy.

German law provides for three types of squeeze-out mechanism, all of which allow a bidder to acquire the shares of shareholders who have not accepted a public takeover offer.

Squeeze-Outs Under Company Law

The most general squeeze-out mechanism under German law allows any shareholder with a participation rate of at least 95% of a stock corporation’s share capital to force the remaining shareholders to sell their shares. A squeeze-out under company law can but does not necessarily have to take place as a follow-up to a public takeover offer. From a legal perspective, it is not relevant how the majority shareholder’s share package was built.

The implementation of a squeeze-out under company law requires a shareholders’ resolution. If minority shareholders challenge such resolution, the registration of the squeeze-out can temporarily be blocked. However, it is possible to obtain the registration in an accelerated court procedure (Freigabeverfahren), which usually take three to six months. Minority shareholders must be paid a purchase price that is based on a fair market valuation of the company. Disputes about the amount to be paid by the majority shareholder do, however, not block the execution of the squeeze-out but are subject to a specific procedure (Spruchverfahren).

Squeeze-Outs Under Takeover Law

If a bidder holds at least 95% of the shares in a stock corporation following a public takeover offer, it is also possible to buy out the remaining shareholders by way of a squeeze-out under takeover law. This type of squeeze-out mechanism is initiated by filing an application with the Regional Court of Frankfurt am Main. The court will review whether the preconditions of a squeeze-out under takeover law are met. The bidder must pay an adequate compensation. Even if the public takeover offer set forth a consideration in shares, such compensation may be paid in cash.

If the previous takeover offer was accepted by shareholders with an (aggregated) participation rate of at least 90% of the share capital, the consideration offered in the takeover offer is deemed to be adequate. This is advantageous from the bidder’s perspective, as he can save himself a lengthy court procedure on the adequacy of the purchase price for the remaining shares. Where there is a lower acceptance rate, this advantage does not exist, which makes a squeeze-out under takeover law appear less sensible in the majority of cases. In the follow-up of a public takeover-offer that allows the bidder to initiate a squeeze-out under takeover law, the remaining minority shareholders can still tender their shares within three months from the end of the offer period.

Squeeze-Outs Under Merger Law

The German Transformation Act (Umwandlungsgesetz) provides for the third option to buy out minority shareholders of a stock corporation. This type of squeeze-out is similar to a squeeze-out under company law but lowers the threshold of shares the majority shareholder must hold to 90% of the share capital.

It is, however, necessary that the squeeze-out occur in the context of an upstream merger with another stock corporation, partnership limited by shares or SE. The majority shareholder is required to adopt the resolution initiating the squeeze-out within three months from the conclusion of the merger agreement and the merger agreement must already contain the prospect of the future squeeze-out. The effectiveness of the squeeze-out in this case depends on the effectiveness of the merger.

In addition to the above-mentioned squeeze-out variants, another way to acquire the shares of minority shareholders would be a delisting of the target company. The Stock Exchange Act (Börsengesetz) requires that an offer to the remaining shareholders be published prior to delisting. The legal requirements regarding such an offer are very similar to those of a public takeover offer under takeover law. However, since the tradeability of shares that are no longer listed is very much limited, there is a chance that shareholders who rejected a public takeover offer accept an offer in the context of a delisting.

It is possible under German law to obtain commitments to tender by principal shareholders. While such agreements used to be very common they have become less so in recent years. The reason for this is that irrevocable commitments can trigger disclosure obligations to the target company and the supervisory authority (see 4.2 Material Shareholding Disclosure Threshold), which makes them hardly useful for concealed stakebuilding.

Where irrevocable commitments are still used today, such commitments normally define a minimum price the bidder must offer for the commitment to become effective, since the conditions of the takeover offer are usually not known when an irrevocable commitment is negotiated. Moreover, they are usually subject to a ‘drop dead date’ on which they become ineffective if the bidder has not published a public takeover offer.

In accordance with the German Securities Takeover Act, the bidder has to publish his decision to submit an offer immediately following the decision, having communicated it to the stock exchanges’ management and BaFin. The announcement needs to contain the parties involved in the transaction, the offer’s nature and the offer price. It shall be disclosed in German by publication on the internet and via an electronic information distribution system.

Subsequently, the publication has to be sent to the management of the stock exchange and BaFin, and to the target company’s management board. Within four weeks of publication of the decision to submit an offer, the bidder has to submit the offer document to BaFin. As soon as BaFin permits the offer or if it does not refuse it within ten days, the offer document needs to be published immediately on the internet and published in the German Federal Gazette or by being available for distribution to the public without charge.

In fact, anyone who directly or indirectly acquires control of a target company – other than as a result of a takeover bid – has to publish this immediately, at the latest within seven days, stating the amount of his share in the voting rights. The publication must be made on the internet and via an electronic information distribution system.

Within four weeks of the publication of the acquisition of control, the bidder has to submit an offer to BaFin and publish it immediately on the internet and by publication in the German Federal Gazette or by being available for distribution to the public without charge. Under the German Securities Takeover Act, acquiring control means the holding of at least 30% of the voting rights in the target company.

Public takeovers by German bidders are commonly exclusively made for cash consideration. If in fact shares are publicly offered, then equivalent disclosure and prospectus requirements apply as to other public share offerings, and the German Securities Prospectus Act (Wertpapierprospektgesetz) needs to be followed.

Before shares are offered to the public, the issuer has to publish a prospectus, by making the prospectus available in printed form for distribution to the public or on the issuer’s website without charge. Under the German Securities Prospectus Act, the prospectus has to contain, inter alia, various pieces of information about the issuer and the shares to be issued.

Additionally, according to the Securities Trading Act, an acquisition of 3%, 5%, 10%, 15%, 20%, 25%, 30%, 50% or 75% of the voting rights in the target company generally requires immediate notification to the issuer and BaFin within four days.

Under EU Regulation No 809/2004, a prospectus has to precede a share issue, which must also include pro-forma financial statements about the companies involved in the transaction and, therefore, also about the bidder. These pro-forma financial statements need to be prepared in a manner consistent with the accounting policies applied by the issuer in recent annual financial statements.

In principle, the right to confidentiality of negotiations is respected. The first exception is the bidder’s offer document, which has to be disclosed in full. This document announces the plan to submit a public offer and needs to contain the parties involved in the transaction, the nature of the offer and the offer price.

The statement of the target company’s management and supervisory board about the offer has to be fully disclosed by publication on the internet and by publication in the German Federal Gazette, or by being available for distribution to the public without charge. The declaration has to cover the consideration’s nature and amount, the likely consequences for the target company and its employees, the bidder’s goals, etc.

Further, the bidder has to publish the number of shares and voting rights tendered in response to the offer, as well as the number of shares and voting rights held by the bidder in total including voting rights allocated to the bidder as well as financial instruments requiring notification under the Securities Trading Act. This information has to be published repeatedly and at certain dates and milestones.

With the exception of the one-tier SE, stock corporations in Germany have a two-tier board system. While the management board runs the company and takes the main business decisions, the supervisory board acts as an advisory and supervisory body. Generally, both boards must act in the target company’s best interest. Furthermore, according to the German Takeover Act, the management board of the target company must refrain from any action that could prevent the success of the takeover offer.

There are exceptions, however. Actions that would have also been undertaken by a diligent manager of a company not affected by a takeover offer are excluded. Apart from that, the management and supervisory boards must issue a reasoned opinion on the takeover offer (see 5.5 Definitive Agreements).

These restrictions do not apply in the private M&A sector. The management of private companies, such as the limited liability company, is bound only by the obligation to act in the target company’s best interest as well as by the shareholders’ instructions (the shareholders of a limited liability company are able to instruct the management).

Takeover committees are mainly established at supervisory board level in order to increase the efficiency of the decision-making processes if the target company has a large number of supervisory board members. However, it is very unusual to establish a takeover committee at management board level.

In case of conflicts of interest, the affected board members can refrain from taking part in the corresponding decision-making processes. In this respect, the formation of a takeover committee is not mandatory. Moreover, conflicts of interest of board members of the target company are disclosed in the reasoned opinion.

In Germany, the business judgement rule applies to acts of the members of the management board in entrepreneurial decisions, if the member of the management board could reasonably assume that he was acting in the company’s best interest on the basis of appropriate information. The business judgement rule does not apply in case of mandatory legal requirements, however. With regard to takeover situations, the requirements of the German Takeover Act are lex specialis.

According to the Takeover Act, the management board of the target company must refrain from any action that could prevent the success of the takeover offer (see 8.1 Principal Directors' Duties).

The business judgement rule applies in the context of the reasoned opinion on the takeover offer (see 5.5 Definitive Agreements). Therefore, the management board must assess the takeover offer, eg, whether the consideration is appropriate, whether it is based on appropriate information, and whether it is unencumbered by special interests.

Although the German Takeover Act does not require the management board or the supervisory board to seek external advice, the business judgment rule will only apply if their decisions are based on appropriate information (see 8.3 Business Judgement Rule). In public takeover situations, the boards of the target company are obliged to issue a reasoned opinion, which requires an in-depth assessment of the offer document (see 5.5 Definitive Agreements).

It is, therefore, recommended – and common practice – to take legal and economic advice. To assess the appropriateness of the consideration of the takeover offer, the boards of the target company should obtain a fairness opinion on the company’s fair value. Apart from that, outside advice is usually required in the context of due diligence (see 5.3 Scope of Due Diligence).

Conflicts of interest of board members can affect takeover situations for a variety of reasons. It is not uncommon for board members to also hold a board position in another company. In a takeover situation, the interests of both companies can be conflicting. Furthermore, board members can be shareholders of the target company themselves and may therefore be inclined to support or to defend against the takeover offer for personal financial reasons.

A further reason for potential conflicts of interest of board members can arise if the bidder seeks to incentivise board members by granting or promising cash payments or non-cash benefits to them. The potential conflicts of interest caused by this are directly addressed in the German Takeover Act.

According to the Takeover Act the bidder and persons acting in concert with the bidder are prohibited from granting or promising unjustified cash payments or other unjustified non-cash benefits to members of the management board or supervisory board of the target company in connection with the takeover offer.

In contrast, shareholders are generally allowed to pursue their own interests in a takeover situation.

According to German law, a public offer does not require the consent of the management of the target company. Hostile takeovers are therefore permissible. However, they are still extremely rare in Germany due to German capital maintenance rules, the duty of the board members of the target company to act in the best interest of the target company and various other obligations under German takeover and company law.

Under German law, the management board of the target company is generally entitled to take defensive measures. The German Takeover Act does not provide for any restrictions for the period prior to the announcement of a takeover offer.

Therefore, in principle, any defensive measures can be taken. Following the announcement of a takeover bid, the management board may not, however, frustrate a bid under the German Takeover Act (and the EU Directive on Takeover Bids).

German law requires listed stock corporations to disclose all defensive mechanisms in the management report. Based on this information, the supervisory board is required to make a statement on these mechanisms in its statement to the annual general meeting.

A company that could be the target of a takeover bid can for example prepare in co-operation with its advisers a so-called defence manual in which, in particular, the first steps with the respective organisational and possible defensive measures are defined and discussed.

Further, the management board can propose to the general meeting that anticipatory resolutions be adopted that entitle the management board to take certain defensive actions. Besides, it is possible to exclude access to due diligence or to take certain restructuring measures to make the target unattractive for a takeover.

However, following the submission of a takeover bid for the company, the executive board's scope of action is limited. The management board of the target company is prohibited from preventing the success of the offer. Nevertheless, the management board may search for alternative offers by other bidders, so-called white knights.

Defensive measures can only be taken by the management board in exceptional cases and only if they are approved by the general meeting of the target company and, if applicable, by the supervisory board.

The management board of the target company is obliged to act in the best interest of the company at all times. The interests of the company are not necessarily identical with the concerns of the shareholders, but encompass and combine the interests of the shareholders, the employees and the creditors. In addition, the defensive measures must be in line with the provisions of German stock corporation law.

According to the German Takeover Act, the management board of the target company is obliged not to frustrate a takeover offer after its announcement. Nevertheless, the management board may convene a shareholders' meeting to take defensive measures.

The opinion of the management board often influences the decision of the (further) shareholders and thus the success of the offer.

Company acquisitions are of great importance in German practice. After an M&A transaction, disputes sometimes arise between the parties. In private M&A transactions, disputes between the bidder and the target company often involve termination or break-up fee clauses, a breach of warranties or the due date of variable purchase price payments.

In the case of public M&A transactions, minority shareholders primarily challenge the amount of compensation after certain corporate taking-private transactions, such as squeeze-out or delisting resolutions.

However, litigation is not common and published court decisions are extremely rare. There are two main reasons for this: 

  • most German M&A contracts contain arbitration clauses, so arbitral awards are usually not published; and
  • disputes before state courts are often settled amicably, so that there is no published court decision on this either.

In connection with private M&A transactions, litigation is conducted in various phases. If, for example, there is a dispute about break-up fee clauses, the legal dispute takes place before the actual transaction. In contrast, a legal dispute, eg, over the breach of warranties, takes place after the M&A transaction has been completed.

Public M&A processes, in particular challenges by minority shareholders, generally follow the resolution of the general meeting, eg, on a squeeze-out, for example, delisting or other structural measures. The actions then block the entry of the resolution of the general meeting in the commercial register.

Shareholder activism has increased in recent years in Germany. A substantial reason for this is that Germany offers activist shareholders a comfortable environment. Both the number of potential target companies and the diverse minority rights under stock corporation law promote shareholder activism. Shareholder activism is generally a constructive, agenda-driven approach that frequently seeks short-term effects and benefits.

To achieve their goals, shareholders make use of their minority rights under the German Stock Corporation Act (eg, the right to request an addition to the agenda or submit counterproposals at shareholders' meetings, or to initiate legal disputes with board members or majority shareholders), as well as the possibilities to challenge shareholders' resolutions (see below). The motives of activist shareholders are manifold and their approach varies accordingly, ranging from limited activism to aggressive interaction with the company. The latter cases, in particular, have increased considerably in recent years (see 11.2 Aims of Activists).

Also, the practice of challenging various shareholders' resolutions with actions for rescission is in focus. Due to the revised EU Shareholders' Rights Directive, which was transposed into German law in 2019, shareholder activism is likely to increase further in the coming years. One of the central concerns of the Shareholders' Rights Directive is to include certain types of shareholders more closely in the corporate governance of a stock corporation: institutional investors and asset managers monitor investment companies and their affairs, such as strategy, performance development and corporate governance.

The stated motive behind the provisions of the Shareholders' Rights Directive is a long-term increase in the value of the company. However, it remains to be seen what motives and approaches institutional investors and asset managers will actually have.

Shareholders can file actions for rescission against resolutions of the Annual General Meeting on major structural measures such as statutory mergers, control and profit transfer agreements or squeeze-outs to block the entry in the commercial register that is mandatory for them to become effective.

This practice of professional minority shareholders to use such legal proceedings to their own advantage is important for companies and investors to take into account. However, a court procedure introduced specifically to overcome this blocking effect faster, the release procedure (Freigabeverfahren), now considerably reduces the potential for interference by minority shareholders.

For the reasons previously stated (see 11.1 Shareholder Activism), shareholder activism is steadily growing in Germany. Activist shareholders in Germany pursue a wide variety of objectives. In recent years, shareholder activism has also increasingly focused on corporate strategy and restructuring measures (eg, Bilfinger and ThyssenKrupp) as well as takeover bids (eg, Deutsche Börse, Stada, Daimler and – as previously mentioned – Celesio). This upward trend is expected to continue.

In theory, activism itself does not jeopardise the completion of the announced transactions. However, if the bidder submits an offer subject to a certain quota of acceptance, an activist shareholder with a reasonable direct and/or proxy majority may be in a position to determine the fulfilment of the condition and thus influence the success of the offer.

More often, activist shareholders intervene in corporate and restructuring measures subsequent to a transaction (see 10.2 Stage of Deal), which can also influence the decision to make an offer in the first place.

Due to the already existing frequency and the current trend regarding the objectives of shareholder activism as well as the expected increase – not least due to the EU Shareholders’ Rights Directive – of such shareholder activism, future public transactions may be exposed to an increased risk in this respect. Thus, expert advice is strongly recommended in order to minimise these risks.

SZA Schilling, Zutt & Anschütz

Rechtsanwaltsgesellschaft mbH
Otto-Beck-Straße 11
68165 Mannheim

+49 621 4257 0

+49 621 4257 280
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Trends and Developments


Bub Memminger & Partner was founded in March 2019 as a result of the merger of the litigation division headed by Professor Dr Wolf-Rüdiger Bub of the litigation boutique firm Bub Gauweiler & Partner and the transaction boutique Memminger founded by Dr Peter Memminger. Together, they combine expert knowledge from the fields of litigation, transactions and trusted advisory. The Corporate M&A team consists of nine lawyers and has recently advised FSN Capital Partners on the cross-border acquisition of the iMPREG Group as well as Lafayette Capital on the restructuring of worldwide sports and leisure equipment producer Kettler.

Trends and Developments in the German M&A Market in 2020

The content of this section certainly would have been different if it had been written mid-February 2020. In mid-February 2020, there was already an increasing uneasiness about the ever increasing stock market levels despite already visible economic challenges in some industries, but the overall M&A deal flow and valuation levels where not yet directly affected by such concerns. Rather, the opposite was the case (as typical in late economic cycles), large cap transactions were aiming for a record year according to the number of transactions announced or known to be in the market in the first six weeks of 2020.

The impact of the COVID-19 outbreak was considered to have an impact on the supply chain for German/European based companies only (and then only for four to six weeks), and only very knowledgeable, and often Asian based or focused, investors and companies questioned whether the valuation levels at the major stock exchange could last in light of the outbreak.

This picture has drastically changed over the last six weeks due to the increasing importance and impact of the COVID-19 outbreak in Germany, the rest of Europe and in the world. Deal flow has paused across all deal size levels with some variances to be observed, and the only area which is promising to boom in 2020 is the segment of insolvency and restructuring.

Standard M&A Work

Transactions of all sizes and across all industries have been put on hold, or are continuing at a slower pace due to the uncertainty of the economic outlook of 2020 and beyond. While governments around the globe have promised to make available state funds in vast, sometimes unprecedented amounts, this does not greatly change the pessimistic outlook of market participants.

Even before the emergence of COVID-19, the economic outlook was already uncertain in Germany

An economic downturn and accompanying market reaction had already been anticipated for more than a year. Signs of it had become visible in an increasing number of industries over the last 12 months. Germany’s core industries of the past have been hit hard by digitalisation and other evolving trends and, as such, could not actively participate in the international market consolidation (and if they did, then they did so as the target or seller of assets rather than being the acquirer).

For these reasons, major German banks had already increased their watch list of companies potentially in trouble by two to three times by the end of 2019 (ie, COVID-19 acted as a catalyst, but was not the sole trigger of the current economic outturn).

The measures against the outbreak of COVID-19, and the uncertainty caused by it, significantly affect the economic outlook

Even though the German government has swiftly introduced measures to delay the number of lay-offs or insolvency filings, the longer the current shut-down last, the more businesses will lose sales and incur losses and will need to take measures against it. The vast majority of German businesses have to deal with crisis related topics, such as how to cut costs and reduce risk exposure, and the willingness to incur additional risk or make investments is minimal. It is uncertain how big its impact is or how long it will last.     

The impact of this on M&A activity is obvious

As of this moment, the vast majority of transactions are currently on hold, as it is unclear what impact the current situation may have on the business of the target or its valuation. As such, pricing discussions between sellers and buyers are finding it difficult to reach an agreement. Even if an agreement can be reached, financing banks currently demand high risk premiums to accommodate for the uncertain times making it unattractive to finance transactions with a significant debt portion. As a side note, the trading of loans at a discount has, in turn, picked up, and leverage loans are competing with the returns to be made by simply acquiring existing loans at a discount.

The decrease in deal number and volume currently affects all industries (even healthcare transactions), with the only exceptions being medicine and medical equipment manufacturers and producers or retailers of standard food and sanitary products.

Against this background, it can be expected that the deal flow will continue to be very slow at least until summer this year, and even beyond this, large and mid-cap transactions where a significant amount of debt is required will be slow. Private equity backed transactions will be more affected than corporate buyers which may utilise their strong balance sheet to secure financing out of existing credit lines. Also, unless stable businesses such as stationary products or food production are concerned, an adjustment in pricing and a trend to quality businesses will be seen, both leading to a reduced number of transactions as well.

While it can be expected that deal flow will pick up again after the summer break, this will not make up for the 60% to 80% decrease of active transactions that can currently be seen. 

Besides the reduction in deal volume and terms, a change in the legal terms of transactions and how they are conducted as such, is expected. By looking at the questions raised over the last few weeks, it is clear that the parties will put more emphasis on deal terms, including the importance of force majeure clauses and seller guarantees, than in the past.

In contrast, for any seller deal certainty will become paramount, ie, that the negotiation of transactions will take more time and become more controversial, similar to the situation in 2009/10. It would not be a surprise if due diligence and SPA negotiation skills regain the importance they once had before W&I insurance products became vastly accepted and assumed much of the risks and issues the parties otherwise would have needed to deal with in the negotiation of a transaction. 

VC-Related Investments

VC-related investments are also negatively affected by the current market situation. A correction in valuation was already visible towards the end of 2019, with 2020 being forecasted as a challenging year for fundraising of new start-ups, but with late stage financing rounds and exits still expected to be strong. Now, late-stage financing rounds not only face downrounds, but also increased challenges regarding getting a financing transaction through at all. The same applies to exits for the same reasons as for “standard” M&A work.

With investors and buyers become more careful, growth forecasts that were already considered overly ambitious in boom years are now considered mere illusions; existing investor money is running out even faster because of spending cuts from customers and the potential exit paths and achievable valuations have deteriorated. The impact of this will have an even greater and long-lasting impact than the expected down-turn in M&A transactions Hence, it does not come as a surprise that the German Venture Capital Association has called for a state aid program specifically tailored to German start-ups.

No rule without exceptions

As is already visible, VC-backed companies active in the life science space (particularly in testing and medical research) will do well, and it is a pleasure to see that this niche area where only the boldest investors (or those considered as philanthropist as it was said that one could not seriously make money with these type of investments) are active are now rewarded for the risks they took. 

Insolvency-Related Transactions

One of the few segments that will also do very well in 2020 are insolvency/restructuring related deals. Although the German legislator has changed the insolvency filing requirements, now allowing companies affected by the COVID-19 outbreak to postpone the insolvency filing until autumn 2020 (and providing state loans in large amounts to avoid insolvency even then), this does not remedy the losses that the companies are currently incurring, nor the effects of a generally more pessimistic economic outlook caused by the shut-down of the last weeks and higher unemployment numbers.

It may have mitigated the large numbers of companies would have needed to file for insolvency a few weeks from now, but the impact of the current economic crisis on public and private spending and, as a knock-on effect, on sales and profits (or rather, losses) for companies from a wide range of industries and setting will, unfortunately, continue. It should be expected that the trend of an increasing number of insolvency filings (visible already from summer 2019 onwards) will not only continue but gain traction in the next two months and accelerate even more into autumn of this year.

Already, a number of companies are investigating very closely whether insolvency might help them to get rid of long-term contracts (such as, eg, rental agreements) that they otherwise may not be able to renegotiate. If the respective contractual party does not consent, and business does not pick-up again, and soon,, German insolvency laws offers effective tools to restructure a business, usually combined with new investors and owners coming on board. Many more of these transactions will be seen and some are already in the early stages, news of which has not yet reached the general public.


Having experienced year-over-year higher deal volumes and numbers, 2020 will be the tipping point for a worsening outlook for the German M&A market. Despite the fact that the market is expected to pick up in the second half 2020 from the very low-level that can currently see, the full year will be significantly below 2019.

Bub Memminger & Partner

Eschersheimer Landstrasse 14
60322 Frankfurt am Main

+49 69 870 047 800

+49 69 870 047 849
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Law and Practice


SZA Schilling, Zutt & Anschütz has been one of the most reputable German corporate law firms for many decades, and currently houses approximately 100 attorneys advising domestic and international clients on nearly all areas of corporate and commercial law. The firm has offices in Frankfurt, Mannheim, Munich and Brussels. Its core advisory services in the field of M&A cover matters such as acquisitions and divestments of businesses and company takeovers in accordance with the German Acquisition and Takeover Act. SZA is reinforced by an extensive international network of law firms to assist with cross-border projects. Issues concerning labour law, intellectual property, etc often arise in this complex legal field, and the firm is also able to deploy specialised attorneys to deal with these matters. Representation in post-M&A disputes is a further strongpoint at SZA.

Trends and Development


Bub Memminger & Partner was founded in March 2019 as a result of the merger of the litigation division headed by Professor Dr Wolf-Rüdiger Bub of the litigation boutique firm Bub Gauweiler & Partner and the transaction boutique Memminger founded by Dr Peter Memminger. Together, they combine expert knowledge from the fields of litigation, transactions and trusted advisory. The Corporate M&A team consists of nine lawyers and has recently advised FSN Capital Partners on the cross-border acquisition of the iMPREG Group as well as Lafayette Capital on the restructuring of worldwide sports and leisure equipment producer Kettler.

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