If you intend to start a business in the EU, acquire assets or a company in one of the member countries, we recommend that you read the current information in today's blog post, which discusses the specifics of M&A regulation in Germany. The article focuses on technology mergers, as European regulators have recently begun to closely monitor every major high-tech transaction.
Tighter controls on foreign investment in Germany
Most M&A pursues one of four goals aimed at increasing the company's competitiveness: defensive, investment, competitive, or information technology. The first group strengthens market positions or eliminates competitors. Achieving the goals of the second group, the company engages in more profitable business, purchases undervalued assets, uses new management approaches and techniques, and also invests surplus cash to acquire balancing or countercyclical assets.
The third group is directly aimed at expanding the tools of competition, designed to create a sustainable advantage by increasing barriers to entry for new players, consolidating the market and pursuing a single pricing policy. This is usually accompanied by the creation of additional production facilities, an increase in the company's market share, and the maintenance of market capacity and stability.
Achievement of IT goals allows companies to save on the development of new technologies, obtain additional information about consumer preferences in new markets and improve marketing tools for competition.
Laws related to the conduct of M&A transactions in Germany envisage some restrictions on FDI and certain rules applicable to regulated industries should be considered. These rules have been tightened in recent years.
The German Federal Ministry for Economic Affairs and Energy has the authority to check incoming transactions of foreign investors based outside the European Union. The ministry can prohibit or restrict the transaction if it identifies any signs of a threat to the economy or the security of the jurisdiction.
Those wishing to conduct a technology merger deal in Germany should be aware that certain business models in the area are regulated. In this sector, BaFin will provide access to the buyer's credit and financial soundness check. This means that the check will be serious and detailed. The regulator will go through your business plan to the smallest detail when it comes to acquiring a controlling stake.
Techno-transactions are governed by federal laws that relate to:
- innovative developments.
Please note that you can use IQ Decision UK services to speed up your M&A transaction in Germany.
M&A due diligence in Germany
Achieving the success and effectiveness of a merger or acquisition requires management to:
- predicting the reaction of the market and the actions of competitors;
- creating and evaluating the potential of your team;
- forecasting cash flows;
- determining the cost of capital to refine the cash flow forecast;
- comprehensive assessment of the acquired business and a comparative analysis of all the data obtained.
One of the mandatory stages of technological M&A deals in Germany is due diligence of the target, which includes:
- revealing all IP assets, as well as the scope of its protection;
- identification of unregistered IP objects and assets;
- reviewing employment agreements in relation to the IP creation and ownership, and trade secrets;
- definition and analysis of any claims and procedures for the settlement of IP disputes in Germany and the EU related to the purpose;
- analysis of agreements in relation to assets and equipment in the field of IT;
- verification of the purpose for compliance with privacy and data protection laws, contractual obligations and company policies, etc.
With regard to due diligence using AI products, it is advised to verify the following:
- the rights to AI, to its software, and to the databases on which it is based;
- ownership of what AI can create.
Legal advice on conducting M&A transactions in Germany
If you need assistance in conducting due diligence of a German company, as well as information on the regulation of mergers and acquisitions in the EU, do not hesitate to sign up for a consultation with the IQ Decision UK experts. Please fill out the form below, or use the Contacts section to reach out to us immediately.