How will the recent decision of the German Federal Court of Justice (BGH) affect the future of M&A transactions for buyers and sellers? To answer this question, Drooms hosted a webinar on 12th December 2023 entitled “Liability traps in the M&A process: What does the BGH decision change?”. This webinar provided an in-depth insight into the changing dynamics of M&A transactions and also served as a platform for discussing and analysing the consequences of the BGH ruling of September 15th.
Alexandre Grellier, CEO of Drooms, Rolf Martin Blume, Director Corporate Finance and M&A, and lawyer Dr. Stefan Glasmacher discussed the challenges and consequences as recognised experts. The webinar was moderated by Sonja Rösch, partner at PB3C.
The court’s decision represents an important turning point in the handling of liability issues in M&A processes. It emphasises the increased disclosure requirements for the seller, who must now provide more comprehensive and accurate information. The importance of even more intensive due diligence on the part of the buyer to identify potential risks and liabilities was also emphasised. The verdict aims to increase the transparency and integrity of the M&A process, but also brings with it new challenges for all parties involved.
The BGH verdict and its implications
The webinar discussion focused on the increasing importance of digitalisation and professionalisation of the due diligence process. Efficiency and transparency are crucial in order to fulfil the new requirements. In addition, the need for a more detailed risk assessment and a more careful examination of information was emphasised. Another important aspect was the impact of the legal changes on contract design and dealing with liability issues. It became clear that a sound understanding of the legal framework is essential for success in the changing M&A landscape.
New strategies are necessary
The discussion also centred on the necessary strategic adjustments of buyers and sellers regarding the new legal framework. One key topic was the increasing importance of sellers providing transparent and comprehensive information. Professional data rooms were particularly emphasised as an important tool for increasing efficiency in due diligence and minimising risk. Equally important is precise data structuring and management to fulfil the increased requirements for transparency and disclosure.
Careful examination and analysis of the information provided is becoming increasingly important for buyers. They must actively deal with the assessment of possible risks. The adaptation of contracts to the new legal requirements, in particular the minimisation of risk through precise contract wording, was another important point of discussion. The participants emphasised how important it is that all parties involved understand the new rules and integrate them into their strategies.
Contract amendments and legal considerations
The adaptation of contracts to the new requirements of the BGH and the resulting importance of precise wording play a central role. Good contract drafting that creates clear and binding agreements between the contracting parties is crucial to avoid legal disputes. Equally key elements of risk management are careful documentation and communication, which promote transparency and protect against potential liability claims.
Seller responsibility for structural decisions: Focus on leasing and loan agreements
In M&A, decisions by sellers regarding the structuring of contractual relationships, such as the conversion of leasing agreements into loan agreements, represent a critical point. This raises the question of the extent to which sellers can be held liable for the consequences of such decisions, especially if these were overlooked by buyers during legal due diligence. The clarification of such structural decisions is greatly important for transparency and understanding on the buyer’s side. Sellers therefore have a significant responsibility to clearly communicate contractual details and the associated strategic decisions. This should avoid misunderstandings and enable buyers to make an informed decision.
Tracking and last-minute information
In the context of M&A transactions, careful tracking of document views in the data room is crucial. The ability to track exactly which documents have been viewed by potential buyers is essential for the transparency and legal certainty of the entire process. This type of traceability makes a significant contribution to fulfilling disclosure obligations and reducing liability risks. Equally critical is the handling of last-minute documents in the data room. Content added late can increase the risk of inadequate due diligence and the resulting liability issues. A modern and strategic design of the data room is therefore of enormous importance.
Practical tips and future developments
In addition to theoretical insights, the webinar also offered practical tips and strategies. Participants emphasised the importance of early identification and proactive assessment of liability risks in the M&A process. Risk analyses and the consideration of all available information in the run-up to a transaction are essential. Adapting contracts to new legal frameworks, including precise contract drafting to reduce risks and ensure clarity and certainty in negotiations, was identified as a key element. In addition, participants emphasised the role of specialised advisors, including legal experts, in the effective evaluation and execution of complex M&A transactions.
Summary and outlook
The BGH verdict marks a turning point in M&A processes with far-reaching implications for future transactions. These changes require constant adaptation and further training in order to do justice to the new legal and practical circumstances. Flexibility and in-depth expertise are essential in this new era. Collaboration between lawyers, M&A advisors and companies is also becoming increasingly important. The participants of the webinar thus gained insights into current trends as well as concrete strategies for success in a dynamic market environment.
For more details, watch the full webinar here (only available in German):