The following provides a summary of issues that have attracted attention in the German M&A practice recently. For further information click the "Show More" link at the end.
- M&A - Balance Sheet Guarantees: German case law has recently developed new requirements for drafting Balance Sheet Guarantees in Share Purchase Agreements. If not properly drafted, such Balance Sheet Guarantees may be regarded as so-called objective guarantees which are extensively interpreted and as a consequence may result in rather severe liabilities for a seller. Therefore, such Balance Sheet Guarantees have to be carefully drafted taking into account the latest developments and judgements in this regard.
- M&A - Warranty and Indemnity Insurance: Warranty insurances have become more popular in Germany in recent years. However, the scope of their applicability and exclusions thereto, which are usually subject to the negotiations with the insurance providers, are now for the first time under review in a major litigation. As in Germany there is no established case law, precise drafting of the Representations & Warranties granted by a seller and mirroring this liability scheme in the Warranty and Indemnity Insurance is key.
- M&A - Foreign Investment Control: German foreign investment control has recently become a new factor in planning investments in Germany, in particular because certain Chinese investments have been stopped by German authorities on this basis. There is a tendency by German authorities to construe the German foreign investment control more extensively then before with regard to certain important sectors. The relevant legal frame work is still under development, however, in the future it will often be required to liaise with German public authorities in advance and M&A transactions may also require to agree on public law agreements with German authorities on the use of sensitive business data in the future.
- Data Privacy and Cybersecurity - New Legal Requirements: In about a year the new European Data Privacy Regulation will take effect, based on which companies in Germany and other European member states will have to boost their data privacy compliance programs and adjust their processing operations. Consequences for any non-compliance will be significant and will be based on a global turnover of the respective company. Companies which may be affected should take adequate actions for their German subsidiaries, such as getting an overview of the current status and starting to prepare for the following measures, purchasing data assets, reviewing data privacy compliance and overall taking a pro-active approach.
- Employment Law – Pre- and Post-Transaction Considerations: German employment law, other than in some European jurisdiction, does not in any relevant way affect timing and deal certainly for investments in Germany. However, consideration will have to be made in advance to any post-M&A action plans relating to workforce restructuring. In particular any employee related due diligence should be conducted with a view on how to integrate the target's business into the purchase's own business in the post-closing phase.
- Tax Law – Deduction of Interest on Acquisition Financing and Repatriation of profits: Investments by U.S. investors in Germany should from a tax perspective be structured in a way that ensures interest deduction possibility on acquisition financing and efficient repatriation of profits.
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