Corporate takeover – take good advice!
Now that the economy is improving again, we see an increasing number of corporate takeovers. Taking over a company is an important process both for the buyer and the seller, in which unfortunately many things can go wrong. Most disputes occur because the parties have not taken good advice or have not (have) committed their agreements in writing in a clear manner. Corporate lawyer Hidde Reitsma explains the in and outs of a takeover process and what the parties should consider.
Negotiations in takeovers
Corporate takeovers are often the result of long-term ongoing discussions between the buyer and the seller. The parties often feel that they have entered into far-reaching negotiations, while, for example, the buyer is completely unaware whether the company that he wants to buy is as successful as the seller alleges. The seller may also not have investigated the buyer properly:
• is he capable of leading the company?
• how is the transition from the old board of management to the new board of management handled?
• what are the agreements on payment of the purchase price?
• is the buyer capable of paying the purchase price in installments over a number of years?
The negotiations about a takeover can roughly be divided into three stages: Explorations, negotiations resulting in the purchase agreement and the actual transfer.
The takeover process: discussions and negotiations
If a party wants to take over a company, it is in his best interest, after he has been acquainted with the potential seller, to involve his financial and legal advisers in this process. The buyer will want to obtain confidential information, for which the seller shall have the buyer sign a confidentially agreement. Based on this agreement, the buyer will sometimes have the opportunity to conduct an exclusive investigation for a limited period of time. The manner in which this investigation is conducted and the number of questions that are asked in this investigation, are later of interest for the substance of the guarantees to be provided by the seller. Also, the buyer’s financial advisers can analyze the company’s financial administration and form a proper image of the real value of the company and the company’s potential.
The takeover agreement: shares or assets
After the investigation has been conducted and the results are known, the parties enter into negotiations about the contents of the purchase agreement. Corporate takeovers are most often affected by a share transfer. The buyer buys the share(s) in the company held by the seller. Sometimes the transactions have to take other forms, for example if the company is not run by a legal entity, but by a self-employed person or by a general partnership. In such cases there is often an assets/liabilities transaction, where all assets and obligations of the company are taken over by the buyer. Drawing up a proper takeover agreement, with the right guarantees and conditions, is specialized work. It is recommended to leave this to the specialist, also if it concerns a relatively minor takeover.
Completing the purchase : the closing
After the purchase agreement has been signed, it often takes time before the transaction is completed. On a usually predetermined date, generally known as “closing”, the part of the purchase price to be paid on transfer is paid out, and the shares or assets are legally transferred to the buyer. Often other agreements are also implemented, for example the seller withdrawing from the company as managing director, entering into a consultancy agreement by the seller, or other aspects. Closing usually takes place in the offices of the civil-law notary: in The Netherlands, shares in a private or in a public company have to be transferred by notarial deed.
Corporate lawyers for corporate takeovers
AMS Advocaten has a great deal of experience and regularly consults in such processes. We work with experienced financial and tax consultants to enable you to make a success of the takeover. Feel free to contact us!