across the pond- doing deals in europe
Post on 21-Jun-2015
289 Views
Preview:
DESCRIPTION
TRANSCRIPT
Across the Pond – Doing Deals in Europe
CLO Conference, Chicago, 17 September 2014
CLO Conference | Chicago, 17 September 2014 2
3CLO Conference | Chicago, 17 September 2014
4CLO Conference | Chicago, 17 September 2014
French-Fries-Source-Brett-Jordan-Flickr-Creative-Commons-Jan-9-2012.jpg
5CLO Conference | Chicago, 17 September 2014
French-Fries-Source-Brett-Jordan-Flickr-Creative-Commons-Jan-9-2012.jpg
6CLO Conference | Chicago, 17 September 2014
7CLO Conference | Chicago, 17 September 2014
French-Fries-Source-Brett-Jordan-Flickr-Creative-Cmmons-Jan-9-2012.jpg
8CLO Conference | Chicago, 17 September 2014
French-Fries-Source-Brett-Jordan-Flickr-Creative-Commons-Jan-9-2012.jpg
9CLO Conference | Chicago, 17 September 2014
Key Differences
- Purchase Price Adjustment vs. Locked Box
- Cash Pooling in Europe – Implications on M&A Transactions
10CLO Conference | Chicago, 17 September 2014
- Sixth edition
- More than 2,100 deals
- Seven-year period (2007 – 2013)
- Insight into M&A agreements
- Sector Focus
- Comparison of Europe / US
CMS European M&A Study 2014
11CLO Conference | Chicago, 17 September 2014
CLO Conference | Chicago, 17 September 2014
43%
57%
Purchase Price Adjustment Europe/US
Europe 2013 US*
100% = all evaluated transactions
Yes
No
* US data derived from “2013 Private Target Mergers & Acquisitions Deal Points
Study” by the American Bar Association (ABA), Business Law Section
85%15%
12
CLO Conference | Chicago, 17 September 2014
Purchase Price Adjustment 2007–2013
100% = transactions with no purchase price adjustment mechanism
47%
53%
Yes
No
41%
59%
Europe 2007–2012
43%
57%
Europe 2013
40%
60%
“Locked-box”2007–2012
“Locked-box”2013
Yes
No
100% = all evaluated transactions
13
Locked Box - What is it?
The locked box is a mechanism under which the parties agree a price payable for the target company based on an agreed historical balance sheet in advance of the SPA signing.
CLO Conference | Chicago, 17 September 2014 14
Pricing/Completion Mechanism in the SPA
- Buyer takes over economic ownership of the target before it legally owns the business
- No Leakage in the "Gap Period" (other than "Permitted Leakage") so buyer gets expected level of working capital / net debt at closing
Locked Box Date (balance sheet used for valuation)
SPA signing date Closing date (no closing accounts prepared)
Payment of final purchase price
CLO Conference | Chicago, 17 September 2014 15
How does the box lock?
- During the "Gap Period" no leakage is allowed
- Only payments in the ordinary course of business are allowed (unless "Permitted Leakage" has been pre-agreed prior to signing the SPA and buyer has priced this into its equity value already e.g. agreed dividend amount)
- Changes in working capital should be balanced by equal changes in net debt
CLO Conference | Chicago, 17 September 2014 16
Relevant Contract Clauses
- Definitions: "Leakage" vs. "Permitted Leakage"
- Purchase Price / Interest
- Transfer of benefit and risk
- Conditions precedent
- Conduct-of-Business
- Warranties
• Financial Statements
• Changes since reference date
- Remedies in the event of leakage
CLO Conference | Chicago, 17 September 2014 17
Cash Pooling in Europe
18CLO Conference | Chicago, 17 September 2014
Cash Pooling in Europe
- Introduction and Overview- Legal Frameworks for Cash Pooling- Liability Risks- Mitigating Liability Risks- Banking law and tax considerations
CLO Conference | Chicago, 17 September 2014 19
Introduction and overview
- Cash Pooling is a standard intra-group financing feature- Importance for post-merger integration
• Up-stream securities• Pooling of liquidity
- Importance for pre-merger preparation• internal sanity check • negotiating specific indemnifications from seller's and buyer's
perspective
CLO Conference | Chicago, 17 September 2014 20
Legal Frameworks in Europe
- Generally no explicit, comprehensive, specific legal framework in most jurisdictions
- Capital maintenance and liquidity protection rules• no distribution to shareholders if payment would cause adverse balance
or overindebtedness • treatment of repayment claim – fully recoverable?• liquidity protection• interest and security → arm's length test• national particularities
CLO Conference | Chicago, 17 September 2014 21
Liability Risks
- Mainly: insolvency scenario- Personal liability of directors and (direct and indirect) shareholders
• directors of participating company• directors of cash pool leader• cash pool leader and ultimate parent company
CLO Conference | Chicago, 17 September 2014 22
Mitigating Risks
- Articles of Association- Shareholder resolution- Information rights of participating entities- Termination rights of participating entities- Target balancing- Joint and several liability of participating entities
CLO Conference | Chicago, 17 September 2014 23
Banking law and tax considerations
- Banking law- Tax law
• interest as income• hidden profit distribution• deductibility of interests – thin capitalization rules
CLO Conference | Chicago, 17 September 2014 24
CLO Conference | Chicago, 17 September 2014 25
Contact
Stefan BrunnschweilerPartner | Corporate / M&A
Stefan Brunnschweiler is a partner and specializes in international and domestic mergers & acquisitions transactions, corporate restructurings, corporate law and general contract matters (e.g. joint ventures, partnerships and shareholders' agreements). He is experienced in a broad range of national and international transactions both sell- and buy-side (including corporate auction processes) and the assistance of clients in their ongoing corporate and commercial activities.
Stefan Brunnschweiler graduated from the University of Zurich in 1997. In 2000, after serving as a law clerk at the district court of Winterthur, he was admitted to the bar. He joined CMS von Erlach Poncet in 2001. Stefan Brunnschweiler completed a masters program (Master of Laws, LL.M.) at the University of San Diego School of Law and worked as a foreign associate with Higgs, Fletcher & Mack in San Diego (USA) before returning to CMS von Erlach Poncet by the end of 2003. He is a partner with CMS von Erlach Poncet since 2008.
T +41 44 285 11 11M +41 76 419 97 97E stefan.brunnschweiler@cms-vep.com
CMS von Erlach Poncet LtdDreikönigstrasse 78022 ZurichSwitzerland
CLO Conference | Chicago, 17 September 2014 26
Contact
Dr. Hendrik HirschPartner | Corporate / M&A / Private Equity
Hendrik Hirsch is a Corporate/M&A partner with CMS Hasche Sigle in Frankfurt, Germany. His practice focuses on national and international corporate transactions for strategic and financial investors as well as corporate law, including corporate governance. He has more than 10 years of experience advising numerous national and international investors and group companies on their investments and other business activities in Germany.
Hendrik Hirsch is co-head of the Corporate/M&A group of CMS Hasche Sigle representing the Frankfurt office.
Hendrik Hirsch studied law in Heidelberg and Carleton University / Ottawa, Canada. Doctorate with Prof. Dr Peter Hommelhoff (1997/1998) with a Ph.D. scholarship of Arbeitskreis Wirtschaft und Recht im Stifterverband für die Deutsche Wissenschaft. From 1999 to 2001 legal traineeship in Berlin, incl. Berlin Court of Appeal. Joined CMS Hasche Sigle in 2001. He is a partner since 2007.
T +49 69 71701 226M +49 174 344 45 96E hendrik.hirsch@cms-hs.com
CMS Hasche SigleBarckhausstraße 12-1660325 Frankfurt am Main
CLO Conference | Chicago, 17 September 2014 27
top related