Special aspects of negotiating with German medium-sized businesses for investors from USA

last updated on 22 February 2022 | Reading time: approx. 2 minutes

What special issues await US companies when they take over or acquire a stake in an owner-managed company in Germany?

German family businesses are very popular in the USA, and the Hidden Champions of German industry are regarded as highly attractive takeover targets. However, cultural differences should not be underestimated, especially as regards communication habits. A characteristic feature of German family companies is that employees bear high responsibility, and accordingly, managers are also involved in the negotiations while from the American point of view they would not be expected to participate. This is also connected with the much more pronounced co-determination of employees. The "social partnership" which is highly valued in Germany also plays a great role in the transaction process – the employee representatives will try to negotiate the best possible conditions for the staff when an investor buys a stake or an American company takes over the German enterprise. 

Also the great cultural differences across Germany itself, which – from an American perspective – is a small country, should not be underestimated. Swabian entrepreneurs have a different mentality than Mecklen­burgers, and even within the federal states there are considerable differences, which can really affect the negotiations. Just as Germans like to make the mistake of painting Wisconsin and California with the same broad brush, Americans should look closely at the region in which they plan to invest. 

A great opportunity arises from commercial law which forces even relatively small German companies to prepare a balance sheet, have it audited and published. U.S. companies, on the other hand, are usually only subject to a voluntary audit; the German obligation to publish financial information about the company is unknown there. This is a great advantage when conducting due diligence in the context of a transaction, as the key financial figures are usually available.
 

What aspects should U.S. companies take into account when negotiating with German medium-sized businesses?

When the owner of a German family business sells his company, he often sells the work of his life, if not the work of several generations. Thus, the sale is a highly emotional process and requires also a great deal of empathy on the part of the purchaser. The owner feels obliged to the employees and will do everything in his power to negotiate a good deal for them. Location and employment guarantees are often essential components of the purchase agreement or the related side agreements. Although the fact of selling a company is not generally perceived as "failure", an owner who sells is rarely looked at positively by the public. Accordingly, an internal and external communication strategy is important to make a success of the takeover.