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June 24, 2024

M&A processes can vary from country to country, making cross-border deals extremely challenging. Understanding the cultural differences is crucial for a smooth transaction. In this article, we focus on how to do M&A deals in Germany, featuring Frank Tepper-Sawicki, Partner, Corporate M&A, Private Equity, and Venture Capital at Dentons. 

Understand codified law 

One of the most significant differences that makes M&A transactions unique in Germany is the legal framework. Germany operates under a codified law system, where many regulations are standardized and do not need to be explicitly stated in contracts. This results in shorter documents with fewer definitions compared to the US, where every detail must be documented due to the reliance on precedents and case law. But on the flip side, foreigners who don’t understand what is codified will have a more difficult time. 

Role of the notary

In Germany, notaries play a critical role in the M&A process. They ensure all documents are valid and effective before the signing can take place. The notary also remains neutral, representing both parties to ensure fairness. This contrasts with the US, where attorneys typically handle the closing process and documents are exchanged directly between lawyers.

Employment structures and employee representation

Germany has strict regulations regarding employee representation. Companies with over 500 employees are required to have employee representatives on their boards, making up one-third of the board members. This requirement increases to 50% representation for companies with over 2,000 employees. 

This rule will make it hard for companies to acquire businesses in Germany with the intent to terminate many employees as part of their strategy. 

Due diligence and data protection

Due diligence in Germany requires a deep dive into data protection practices, especially when dealing with tech companies or handling customer data. The EU’s General Data Protection Regulation (GDPR) imposes strict rules that must be followed, and non-compliance can lead to hefty penalties. 

A more complex Power of Attorney (POA)

In Germany, a Power of Attorney (POA) must be notarized and apostilled, requiring validation from an authority. This process can be time-consuming, especially when dealing with foreign jurisdictions. Unlike in the US, the POA process is typically simpler and faster, without the need for apostille in many cases.

Transparency and shareholder information

Germany offers significant transparency through its commercial registry, where one can access detailed shareholder information and company documents. This level of public access to company data is less common in the US, where such information is typically less accessible.

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