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M&A processes are characterised by different phases. Ultimately, with the closing of the transaction, the owner of the shares or assets has legally changed. Experience shows that the subsequent “post-closing” phase is not always afforded sufficient attention. During this period, however, findings from the entire transaction process must be followed up and implemented. This contributes to the successful continuation of operative business.
Post-closing relevant content depends significantly on the individual structure of the M&A process. In addition to legal, tax & financial due diligence as a source of information, the purchase agreement itself serves as a fundamental point of reference. In addition, operational “To Dos” often emerge in negotiations. Ideally, post-closing tasks should be collected during the entire process and structured in a post-closing agenda.
If the agenda is well-maintained, it then offers real added-value, as post-closing obligations regularly stem from a wide variety of areas and remain present over a long period of time.
Risky findings from due diligence can regularly be resolved not just by mapping them in the contractual documentation (e.g. by including guarantees and exemptions or purchase price adjustments). Rather, recommendations are regularly encountered that only need to be addressed in the post-closing phase and which should be given a place on the agenda.
A glance at the commercial register may render it necessary to adjust granted powers of procuration in internal and external relations. This is the case, for example, if employees have changed or their contracts or positions have been amended. What cannot be ascertained from the commercial register, but which remains elementary for daily operative business, are the powers of procuration actually granted, which – especially in the form of a general power of procuration – grant the authorised individual considerable room for manoeuvre, which in this form may no longer be desired by the buyer.
Regular post-closing action is required in contract management. In an asset deal, it is necessary to obtain the consent of the contractual partners, e.g. in order to be able to continue commercially significant customer contracts. It may also be appropriate to renegotiate existing framework agreements, in order to improve their conditions for the future or to extend their terms. Any incomplete contractual documentation that is uncovered should be completed – e.g. by way of supplements. It is not unusual for general terms and conditions to require revision if they contain clauses that have since become legally ineffective, or which have become unsuitable for the new business area. It is precisely in this field that case law is both very active and decisive for the drafting of contracts.
In terms of employment law, the contracts presented during due diligence – often expanded over years – reveal a mixed picture. An adjustment may be advisable in order to clear up erroneous business transfers from the past according to Section 613 a German Civil Code (BGB).
The insurance management of the target company is often neglected. There is often potential for (economic) optimisation by way of integration into a Group insurance policy.
Furthermore, tax or legal registrations and official procedures are regularly required. For example, business transfers after acquisition must be registered with the competent municipality and the pertinent commercial tax office. These contents should – as they are often linked to statutory deadlines – be scheduled and noted on the agenda.
Typically, the buyer’s payment obligations are not “settled” with the transfer of a fixed purchase price. The buyer party regularly withholds reten-tions (“escrow”) or divides the purchase price into several tranches (“earn out”). This is usually advantageous for the buyer, but also forms part of the negotiation outcome to fix downstream purchase price components and payment dates in the future. The buyer should not miss these deadlines, as otherwise “penalty payments” (e.g. in the form of interest on arrears) will be due to his or her disadvantage.
A typical post-closing agenda should also note limitation periods, e.g. from warranty claims, especially as these dates are usually in the distant future and can, therefore, quickly be lost from view. It is precisely here that individual agreements – often graduated in small steps – regularly overlap statutory deadlines. If such deadlines are missed, there is a risk that the buyer’s claims arising from the seller’s assurances or warranties become time-barred.
In order to be able to maintain an overview of due dates, the post-closing agenda should include all amounts to be paid, as well as the payees and deadlines.
Post-closing-relevant topics often stem from the operational business, but ultimately harbour a bright array of numerous issues. If due attention is paid to this, the continuation or integration can succeed smoothly. If a post integration manager is deployed, it is advisable to seek close coordination and cooperation (we reported on this in the May 2020 issue of M&A Dialogue).
Transaction advisory | Mergers & Acquisitions
