Germany
Answer ... A private M&A transaction is usually structured as either:
- a bilateral negotiation between the seller and a single potential buyer; or
- an auction process with a number of interested parties.
There are other options too – for instance, in distressed environments – but most private sales will follow one of these routes.
Germany
Answer ... If the auction process is professionally managed, this structure allows the seller to optimise the outcome of the sales process. Not only is there a higher probability that the sale will be closed, an auction also usually leads to more favourable commercial and legal conditions for the seller. On the downside, the costs of this process will most often exceed those of a direct bilateral negotiation. It is even more vital that the seller’s advisers have both capacity and experience in managing large auction processes at all stages; otherwise, the seller may lose control of the process and thus its credibility in the market.
A bilateral negotiation – in particular, between existing contacts – may turn out to be more constructive and less focused on optimising the position of one party. However, this will often depend on:
- the parties involved;
- their existing relationship; and
- their mutual interests in the transaction.
If that is the case, the logistics of managing the transaction process may be easier than under an auction structure. On the other hand, a personal relationship between seller and buyer can also negatively influence the parties’ headroom to negotiate their positions. If there is no existing personal relationship, a bilateral discussion may effectively turn out similar to the later stages of an auction, where there is:
- a formalised due diligence process with Q&A and management sessions;
- negotiation of the documentation; and
- balanced legal and commercial terms of the definite sales agreement.
Germany
Answer ... A bilateral negotiation often results from an existing business relationship between the seller and the buyer, either on an operational level or at a senior (or owner) level. It is typical for German family-owned companies to have personal contact with the owners of business partners or other players in the market, which facilitates bilateral discussions on the acquisition or disposal of a company. This is often the preferred route if the seller is primarily interested in ensuring the continued existence of the company and preserving the jobs of employees. Also, if time is of the essence, a bilateral negotiation may be preferable, as this cuts short a number of preparatory steps (setting up the auction and running through the initial phases until a handful of preferred bidders can be selected).
Where there is no personal contact or where other interests come into play – such as additional capital requirements of the company or new strategic options for the business – an auction process can offer advantages to the seller and the target. Also, if the seller is an equity investor (fund or family office), the choice will usually be an auction process, as this allows for a diversification of the process risk and the potential optimisation of the deal conditions.
Germany
Answer ... An auction process requires professional advice from a very early stage: the entire process must be professionally set up and managed to avoid disadvantages or legally relevant issues, starting with the preparation and management of:
- an adequate confidentiality agreement for all bidders;
- a suitable teaser;
- a process letter;
- the information memorandum; and
- a single external point of contact for all communications with bidders.
Also, many private equity transactions involve warranty and indemnity (W&I) insurance. It is essential for the seller to have experienced advisers who can integrate the W&I process into the auction process and into the sales documentation, as it may expedite the process if the seller can provide an initial set of transaction documents which is already aligned with a possible provider of W&I insurance.