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Across the Pond – Doing Deals in Europe 
CLO Conference, Chicago, 17 September 2014
CLO Conference | Chicago, 17 September 2014 2
CLO Conference | Chicago, 17 September 2014 3
CLO Conference | Chicago, 17 September 2014 4
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Creative-Commons-Jan-9-2012.jpg 
CLO Conference | Chicago, 17 September 2014 5
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Creative-Commons-Jan-9-2012.jpg 
CLO Conference | Chicago, 17 September 2014 6
CLO Conference | Chicago, 17 September 2014 7
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CLO Conference | Chicago, 17 September 2014 8
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Creative-Commons-Jan-9-2012.jpg 
CLO Conference | Chicago, 17 September 2014 9
Key Differences 
 Purchase Price Adjustment vs. Locked Box 
 Cash Pooling in Europe – Implications on M&A Transactions 
CLO Conference | Chicago, 17 September 2014 10
CMS European M&A Study 2014 
 Sixth edition 
 More than 2,100 deals 
 Seven-year period (2007 – 2013) 
 Insight into M&A agreements 
 Sector Focus 
 Comparison of Europe / US 
CLO Conference | Chicago, 17 September 2014 11
Purchase Price Adjustment Europe/US 
Europe 2013 US* 
43% 
57% 
100% = all evaluated transactions 
Yes 
No 
15% 85% 
* US data derived from “2013 Private Target Mergers & Acquisitions Deal Points 
Study” by the American Bar Association (ABA), Business Law Section 
CLO Conference | Chicago, 17 September 2014 12
Purchase Price Adjustment 2007–2013 
Europe 2013 
100% = transactions 
with no purchase price 
adjustment mechanism 
47% 
53% 
Yes 
No 
41% 
59% 
Europe 2007–2012 
43% 
57% 
40% 
60% 
“Locked-box” 
2007–2012 
“Locked-box” 
2013 
Yes 
No 
100% = all 
evaluated 
transactions 
CLO Conference | Chicago, 17 September 2014 13
Locked Box - What is it? 
The locked box is a mechanism under which the parties agree a price 
payable for the target company based on an agreed historical balance 
sheet in advance of the SPA signing. 
CLO Conference | Chicago, 17 September 2014 14
Pricing/Completion Mechanism in the SPA 
Locked Box Date 
(balance sheet 
used for valuation) 
SPA signing date Closing date (no closing 
accounts prepared) 
Payment of final purchase 
price 
 Buyer takes over economic ownership of the target before it legally 
owns the business 
 No Leakage in the "Gap Period" (other than "Permitted Leakage") so 
buyer gets expected level of working capital / net debt at closing 
CLO Conference | Chicago, 17 September 2014 15
How does the box lock? 
 During the "Gap Period" no 
leakage is allowed 
 Only payments in the ordinary 
course of business are allowed 
(unless "Permitted Leakage" 
has been pre-agreed prior to 
signing the SPA and buyer has 
priced this into its equity value 
already e.g. agreed dividend 
amount) 
 Changes in working capital 
should be balanced by equal 
changes in net debt 
CLO Conference | Chicago, 17 September 2014 16
Relevant Contract Clauses 
 Definitions: "Leakage" vs. "Permitted Leakage" 
 Purchase Price / Interest 
 Transfer of benefit and risk 
 Conditions precedent 
 Conduct-of-Business 
 Warranties 
• Financial Statements 
• Changes since reference date 
 Remedies in the event of leakage 
CLO Conference | Chicago, 17 September 2014 17
Cash Pooling in Europe 
CLO Conference | Chicago, 17 September 2014 18
Cash Pooling in Europe 
 Introduction and Overview 
 Legal Frameworks for Cash Pooling 
 Liability Risks 
 Mitigating Liability Risks 
 Banking law and tax considerations 
CLO Conference | Chicago, 17 September 2014 19
Introduction and overview 
 Cash Pooling is a standard intra-group financing feature 
 Importance for post-merger integration 
• Up-stream securities 
• Pooling of liquidity 
 Importance for pre-merger preparation 
• internal sanity check 
• negotiating specific indemnifications from seller's and buyer's 
perspective 
CLO Conference | Chicago, 17 September 2014 20
Legal Frameworks in Europe 
 Generally no explicit, comprehensive, specific legal framework in 
most jurisdictions 
 Capital maintenance and liquidity protection rules 
• no distribution to shareholders if payment would cause adverse balance 
or overindebtedness 
• treatment of repayment claim – fully recoverable? 
• liquidity protection 
• interest and security → arm's length test 
• national particularities 
CLO Conference | Chicago, 17 September 2014 21
Liability Risks 
 Mainly: insolvency scenario 
 Personal liability of directors and (direct and indirect) shareholders 
• directors of participating company 
• directors of cash pool leader 
• cash pool leader and ultimate parent company 
CLO Conference | Chicago, 17 September 2014 22
Mitigating Risks 
 Articles of Association 
 Shareholder resolution 
 Information rights of participating entities 
 Termination rights of participating entities 
 Target balancing 
 Joint and several liability of participating entities 
CLO Conference | Chicago, 17 September 2014 23
Banking law and tax considerations 
 Banking law 
 Tax law 
• interest as income 
• hidden profit distribution 
• deductibility of interests – thin capitalization rules 
CLO Conference | Chicago, 17 September 2014 24
CLO Conference | Chicago, 17 September 2014 25
Contact 
Stefan Brunnschweiler 
Partner | Corporate / M&A 
Stefan Brunnschweiler is a partner and specializes in international and 
domestic mergers & acquisitions transactions, corporate restructurings, 
corporate law and general contract matters (e.g. joint ventures, 
partnerships and shareholders' agreements). He is experienced in a broad 
range of national and international transactions both sell- and buy-side 
(including corporate auction processes) and the assistance of clients in 
their ongoing corporate and commercial activities. 
Stefan Brunnschweiler graduated from the University of Zurich in 1997. In 
2000, after serving as a law clerk at the district court of Winterthur, he was 
admitted to the bar. He joined CMS von Erlach Poncet in 2001. Stefan 
Brunnschweiler completed a masters program (Master of Laws, LL.M.) at 
the University of San Diego School of Law and worked as a foreign 
associate with Higgs, Fletcher & Mack in San Diego (USA) before 
returning to CMS von Erlach Poncet by the end of 2003. He is a partner 
with CMS von Erlach Poncet since 2008. 
T +41 44 285 11 11 
M +41 76 419 97 97 
E stefan.brunnschweiler@cms-vep.com 
CMS von Erlach Poncet Ltd 
Dreikönigstrasse 7 
8022 Zurich 
Switzerland 
CLO Conference | Chicago, 17 September 2014 26
Contact 
Dr. Hendrik Hirsch 
Partner | Corporate / M&A / Private Equity 
Hendrik Hirsch is a Corporate/M&A partner with CMS Hasche Sigle in 
Frankfurt, Germany. His practice focuses on national and international 
corporate transactions for strategic and financial investors as well as 
corporate law, including corporate governance. He has more than 10 
years of experience advising numerous national and international 
investors and group companies on their investments and other business 
activities in Germany. 
Hendrik Hirsch is co-head of the Corporate/M&A group of CMS Hasche 
Sigle representing the Frankfurt office. 
Hendrik Hirsch studied law in Heidelberg and Carleton University / Ottawa, 
Canada. Doctorate with Prof. Dr Peter Hommelhoff (1997/1998) with a 
Ph.D. scholarship of Arbeitskreis Wirtschaft und Recht im Stifterverband 
für die Deutsche Wissenschaft. From 1999 to 2001 legal traineeship in 
Berlin, incl. Berlin Court of Appeal. Joined CMS Hasche Sigle in 2001. He 
is a partner since 2007. 
T +49 69 71701 226 
M +49 174 344 45 96 
E hendrik.hirsch@cms-hs.com 
CMS Hasche Sigle 
Barckhausstraße 12-16 
60325 Frankfurt am Main 
CLO Conference | Chicago, 17 September 2014 27

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Borderless Access - Global B2B Panel book-unlock 2024
 

Across the Pond- Doing Deals in Europe

  • 1. Across the Pond – Doing Deals in Europe CLO Conference, Chicago, 17 September 2014
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  • 10. Key Differences  Purchase Price Adjustment vs. Locked Box  Cash Pooling in Europe – Implications on M&A Transactions CLO Conference | Chicago, 17 September 2014 10
  • 11. CMS European M&A Study 2014  Sixth edition  More than 2,100 deals  Seven-year period (2007 – 2013)  Insight into M&A agreements  Sector Focus  Comparison of Europe / US CLO Conference | Chicago, 17 September 2014 11
  • 12. Purchase Price Adjustment Europe/US Europe 2013 US* 43% 57% 100% = all evaluated transactions Yes No 15% 85% * US data derived from “2013 Private Target Mergers & Acquisitions Deal Points Study” by the American Bar Association (ABA), Business Law Section CLO Conference | Chicago, 17 September 2014 12
  • 13. Purchase Price Adjustment 2007–2013 Europe 2013 100% = transactions with no purchase price adjustment mechanism 47% 53% Yes No 41% 59% Europe 2007–2012 43% 57% 40% 60% “Locked-box” 2007–2012 “Locked-box” 2013 Yes No 100% = all evaluated transactions CLO Conference | Chicago, 17 September 2014 13
  • 14. Locked Box - What is it? The locked box is a mechanism under which the parties agree a price payable for the target company based on an agreed historical balance sheet in advance of the SPA signing. CLO Conference | Chicago, 17 September 2014 14
  • 15. Pricing/Completion Mechanism in the SPA Locked Box Date (balance sheet used for valuation) SPA signing date Closing date (no closing accounts prepared) Payment of final purchase price  Buyer takes over economic ownership of the target before it legally owns the business  No Leakage in the "Gap Period" (other than "Permitted Leakage") so buyer gets expected level of working capital / net debt at closing CLO Conference | Chicago, 17 September 2014 15
  • 16. How does the box lock?  During the "Gap Period" no leakage is allowed  Only payments in the ordinary course of business are allowed (unless "Permitted Leakage" has been pre-agreed prior to signing the SPA and buyer has priced this into its equity value already e.g. agreed dividend amount)  Changes in working capital should be balanced by equal changes in net debt CLO Conference | Chicago, 17 September 2014 16
  • 17. Relevant Contract Clauses  Definitions: "Leakage" vs. "Permitted Leakage"  Purchase Price / Interest  Transfer of benefit and risk  Conditions precedent  Conduct-of-Business  Warranties • Financial Statements • Changes since reference date  Remedies in the event of leakage CLO Conference | Chicago, 17 September 2014 17
  • 18. Cash Pooling in Europe CLO Conference | Chicago, 17 September 2014 18
  • 19. Cash Pooling in Europe  Introduction and Overview  Legal Frameworks for Cash Pooling  Liability Risks  Mitigating Liability Risks  Banking law and tax considerations CLO Conference | Chicago, 17 September 2014 19
  • 20. Introduction and overview  Cash Pooling is a standard intra-group financing feature  Importance for post-merger integration • Up-stream securities • Pooling of liquidity  Importance for pre-merger preparation • internal sanity check • negotiating specific indemnifications from seller's and buyer's perspective CLO Conference | Chicago, 17 September 2014 20
  • 21. Legal Frameworks in Europe  Generally no explicit, comprehensive, specific legal framework in most jurisdictions  Capital maintenance and liquidity protection rules • no distribution to shareholders if payment would cause adverse balance or overindebtedness • treatment of repayment claim – fully recoverable? • liquidity protection • interest and security → arm's length test • national particularities CLO Conference | Chicago, 17 September 2014 21
  • 22. Liability Risks  Mainly: insolvency scenario  Personal liability of directors and (direct and indirect) shareholders • directors of participating company • directors of cash pool leader • cash pool leader and ultimate parent company CLO Conference | Chicago, 17 September 2014 22
  • 23. Mitigating Risks  Articles of Association  Shareholder resolution  Information rights of participating entities  Termination rights of participating entities  Target balancing  Joint and several liability of participating entities CLO Conference | Chicago, 17 September 2014 23
  • 24. Banking law and tax considerations  Banking law  Tax law • interest as income • hidden profit distribution • deductibility of interests – thin capitalization rules CLO Conference | Chicago, 17 September 2014 24
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  • 26. Contact Stefan Brunnschweiler Partner | Corporate / M&A Stefan Brunnschweiler is a partner and specializes in international and domestic mergers & acquisitions transactions, corporate restructurings, corporate law and general contract matters (e.g. joint ventures, partnerships and shareholders' agreements). He is experienced in a broad range of national and international transactions both sell- and buy-side (including corporate auction processes) and the assistance of clients in their ongoing corporate and commercial activities. Stefan Brunnschweiler graduated from the University of Zurich in 1997. In 2000, after serving as a law clerk at the district court of Winterthur, he was admitted to the bar. He joined CMS von Erlach Poncet in 2001. Stefan Brunnschweiler completed a masters program (Master of Laws, LL.M.) at the University of San Diego School of Law and worked as a foreign associate with Higgs, Fletcher & Mack in San Diego (USA) before returning to CMS von Erlach Poncet by the end of 2003. He is a partner with CMS von Erlach Poncet since 2008. T +41 44 285 11 11 M +41 76 419 97 97 E stefan.brunnschweiler@cms-vep.com CMS von Erlach Poncet Ltd Dreikönigstrasse 7 8022 Zurich Switzerland CLO Conference | Chicago, 17 September 2014 26
  • 27. Contact Dr. Hendrik Hirsch Partner | Corporate / M&A / Private Equity Hendrik Hirsch is a Corporate/M&A partner with CMS Hasche Sigle in Frankfurt, Germany. His practice focuses on national and international corporate transactions for strategic and financial investors as well as corporate law, including corporate governance. He has more than 10 years of experience advising numerous national and international investors and group companies on their investments and other business activities in Germany. Hendrik Hirsch is co-head of the Corporate/M&A group of CMS Hasche Sigle representing the Frankfurt office. Hendrik Hirsch studied law in Heidelberg and Carleton University / Ottawa, Canada. Doctorate with Prof. Dr Peter Hommelhoff (1997/1998) with a Ph.D. scholarship of Arbeitskreis Wirtschaft und Recht im Stifterverband für die Deutsche Wissenschaft. From 1999 to 2001 legal traineeship in Berlin, incl. Berlin Court of Appeal. Joined CMS Hasche Sigle in 2001. He is a partner since 2007. T +49 69 71701 226 M +49 174 344 45 96 E hendrik.hirsch@cms-hs.com CMS Hasche Sigle Barckhausstraße 12-16 60325 Frankfurt am Main CLO Conference | Chicago, 17 September 2014 27