External growth is one of the quickest ways, for SMEs to grow their business and expand their operations (activities, services, clients) abroad. However, a Merger & Acquisition process faces many challenges, especially in an international
5 prerequisites are critical, before beginning your M&A operation in Germany.
Integrate external growth into your development strategy
/ External VS Organic growth: Define the best way to enter a new country, new market. External growth strategies (M&A or Strategic alliances), can be quicker in most cases, but preliminary analysis is mandatory before launching a full process. It can lead to value loss if not done correctly.
/ Verify your financing capacity (level of Enterprise Value) to assess the size of the target you can aim for.
Appoint a Project Manager
/ Name a Project Manager within your organization that will be the link between all the parties involved in the M&A operation (advisors, targets, banks, etc.)
/ Depending on the size of the project, define the scope of responsibilities of each member involved in the project.
In Germany: It may take some time to get initial feedback from the German targets, but once the interest of a target has been validated, it is important to be reactive and to be able to introduce the same people to the Germans, to ensure a good follow-up throughout the mission.
Define the ideal target
/ Define the company size (employee, revenue/EBITDA, balance sheet.)
/ Define the activity / services / products / sectors / clients
/ Define the geographical scope (region, country)
/ Define the other criteria (type of ownership, type of acquisition, type of clients, management team, etc.)
Adapt to cultural differences
/ Approach the potential targets: The first approach in the M&A operation is always complicated as we do not know if the targets are ready to sell their companies or open to sharing information. The idea is to create the opportunity. Each approach must adapt to cultural specificities to maximize the chances of opening the door and getting information.
In Germany: Our local teams approach the targets directly by phone and organize the first meeting in German to discuss your company and your objectives and those of the targets. The first approach in German allows to reassure the interlocutors a little and allows first fluid exchanges.
/ Negotiation phase and the M&A process: Adapting to cultural differences is key: respect the agenda/calendar, communicate clearly, do not rush, and communicate in advance, if changes any.
In Germany especially: Your presentations and arguments have to be explicit. well-founded, short, straight to the point, instructive and technical during exchanges. The relationship is not limited to meetings: make sure you stick to the schedule and if you have to cancel or postpone a meeting or a call, let your contact know well in advance and agree on a new date.
/ In the post-deal integration: Put in place a planning and a project manager to run properly the integration. Decide to change branding (depending on the market), decide to mutualize tools (IT, finance, HR, etc.).
Specify the schedule & prepare your documents
/ Define the planning of the M&A operation for the main steps: Duration of each step (2 months for the screening, 2-3 months for the approach phase, 4 months for Due Diligence, etc.). It’s mandatory to be structured and plan.
/ Adapt to the agenda/calendar of each target (might be quicker than expected if the target is in an active sale process/longer if the target is initially not ready to sell).
/ A M&A operation requires a large number of documents. You need to prepare the following:
- The Letter of Intent (LOI): A document outlining an agreement between two or more parties before the agreement is finalized.
- Data rooms (online data room): running a data room process requires gathering confidential documents that third parties (lawyers, investment banks, chartered accountants, etc.) may then access more easily during the process
- Due diligence: the process through which a potential acquirer evaluates a target company or its assets for an acquisition. The relevant areas of concern may include the financial, legal, labor, tax, IT, environment, and market/commercial situation of the company.
- After due diligence is completed, the parties may proceed to draw up a Definitive Agreement, known as a “merger
agreement,” “share purchase agreement” or “asset purchase agreement” depending on the structure of the transaction.
Looking to move into Germany?
Today, Murielle Taisne, Managing Director at Altios Germany, is giving you the keys to a successful talent acquisition in Germany!
The establishment of a subsidiary is the preferred way to set up a company in Germany, as it is a genuine, legally independent company under German law.
It is the most advanced form of establishment for carrying out the economic activity with a strong grip on the German market, due to the fact that it has a legal structure that the Germans know, and which reassures them.
Here are the 7 steps we have compiled to help you set up your subsidiary in Germany:
1) Getting an address/ business domiciliation in Germany
The first thing to do is to have an address or a business domiciliation in Germany, before taking any steps in the country, to be able to start the process of creating a subsidiary.
2) Selecting the right legal form
Here are the main types of companies in Germany:
– Gesellschaft mit beschränkter Haftung (GmbH): Limited Liability Company: This is the most widely used legal form for corporations. Here, the shareholders are not personally liable for the debts of the company. It does require €25,000 of startup capital, however, €12,500 of which must be present at the registration stage.
– Aktiengesellschaft (AG): Stock Corporation: It requires at least five founding shareholders and operates through a board of directors (Vorstand), which makes mutual decisions. The AG comes into existence upon registration in the commercial register (Handelsregister). The application must be signed by the founding shareholders, the members of the supervisory board, and the management board before a notary. In addition, an AG must be registered with the local trade office (Gewerbe- oder Ordnungsamt).
– Offene Handelsgesellschaft (oHG): General Commercial Partnership: This is the classic partnership form for small and medium-sized enterprises (SMEs). In order to establish an oHG, two or more partners must conclude a partnership agreement, who are all jointly and severally liable for the oHG’s debts and liabilities. The oHG must be entered in the commercial register and registered with the local trade office.
– Kommanditgesellschaft (KG): Limited partnership: It is a legal form related to the oHG, but with the option of limiting the liability of some of the partners. A KG is established when a partnership agreement between two or more partners (including at least one limited and one unlimited partner) is concluded and exists once it has been entered in the commercial register.
– GmbH & Co. KG: a limited partnership (KG) in which the general partner (Komplementär) is a limited liability company (GmbH): The GmbH & Co.KG is established through the conclusion of a partnership agreement between the general partner and the limited partners.
– Tochtergesellschaft: Subsidiary: These are companies separate from their parent company, with a certain autonomy, without being independent. These companies have their own management.
– Zweigniederlassung: Branche: These are dependent companies with a central administration. Subsidiaries and branches are different and must be noted differently in the commercial register
3) Confirm the name of your company with the commercial register (Unternehmensregister)
You must make sure that you can use the name of the company you want. Thanks to the Unternehmensregister website, you can easily and quickly search for already registered company names and check that yours is unique.
4) Open a bank account
You must then open your own bank account in Germany. Opening a bank account does not involve a lot of red tapes, as it is done in accordance with standard international practice. Many German banks allow you to set up accounts online, which means you can do this step remotely – but be aware that most bank websites will be entirely in German. Make sure you provide proof of your identity – this can be done at your local post office, or you can ask a notary or lawyer to help you check your identity.
You can also make your request by going to the bank in person. In this case, you or your representative may be asked to present your passport or identity card, as well as a Meldebescheinigung (“certificate of registration” – your proof of residence in Germany).
5) Provide the necessary documents for setting up a business
The legal form of the company determines the necessary documents and evidence. In all cases, the following administrative formalities must be carried out:
– A declaration of existence must be made to the Gewerbeamt for the creation of any commercial or industrial exploitation.
– A declaration to the tax authorities (Finanzamt)
– A declaration to the competent Statistische Landesamt
– A declaration to the Labour Office (Arbeitsamt) if employees are hired.
– A declaration to the Social Security bodies and the relevant professional association (Berufsgenossenschaft)
– Registration with the professional chamber to which the company belongs
It should be noted that there are certain sectors of activity in Germany for which specific authorization is required (e.g. transports, estate agencies, surveillance companies, etc.). The Gewerbeamt is likely to indicate any additional steps to be taken.
6) Registration in the Commercial Register of the lower regional court (Amtsgericht)
Next step: Your entry in the Commercial Register of the lower regional court (Amtsgericht).
You must submit your documents to the Commercial Register through the notary. If the essential information about your registered company (company name and registered office, authorized representatives, legal form, as well as share capital or shares) is accepted, your new company will be published on the Handelsregister website.
7) Registering with the tax office
The final step is to register your new business with the local tax office within four weeks of opening and within one month of certification of the articles of association by a notary.
You now know the key steps to setting up your subsidiary!
ALTIOS is always at your disposal to guide you through all the steps involved in setting up a new German company or expanding an existing one. We will be happy to put you in contact with the appropriate lawyers, tax advisors, attorneys, and other experts needed to realize your investment project.
Please do not hesitate to call us on +49 (0)69 24 74 102 – 14 or contact us via the website https://altios.com/ for help and advice.