Forms of mergers and acquisitions

Before or during the orientation phase, it is important to consider the best way to merge, acquire or be acquired. What types of mergers and acquisitions should we distinguish and what are the various consequences? Some of the most commonly used types are explained below.

Sale of shares

A large proportion of all companies have incorporated their activities in a private limited company (Besloten Vennootschap, B.V.) or public limited company (Naamloze Vennootschap, N.V.). One of the advantages of incorporating the company in a B.V. or N.V. is that, through the sale of the shares, the legal and economic ownership of the company (i.e. the partnership) is transferred. The simplest form is when the seller, who holds 100 per cent of the shares, negotiates with a (potential) buyer and a purchase agreement is concluded whereby the shares are sold to the new owner. A share purchase agreement is often referred to as an SPA (Share Purchase Agreement).

What exactly does an SPA (Share Purchase Agreement) entail?

This agreement not only specifies the purchase price and transfer date, but also crucial elements such as guarantees from the seller, indemnities, payment structures, agreements about personnel and any non-competition clauses. The SPA thus forms the legal basis of the transaction and regulates the rights and obligations of both parties before, during and after the acquisition.

Asset transaction

An alternative to the sale of shares is the asset transaction. In an asset transaction, the shares of the company are not sold. “Only” certain goods or activities are sold. The purchase agreement, which describes the goods being sold, is often a more extensive document because it describes exactly what is being sold and which rights and obligations are or are not attached to it. This purchase agreement will describe which goods and/or activities are being sold. These could include, for example, the machinery, the customer base, the orders, the stock, etc., but also, for example, the staff members. It may be that, as a result of this transfer, the company ceases to exist and the activities are incorporated into the company of the party that has purchased these goods and activities. The staff members who are transferred will have a new employer. Only the assets will be taken over by another legal entity, which will also become the new employer. The request for advice will therefore have to pay close attention to the consequences for staff. Please note that such a transfer often also has consequences for employees who are not taken over by the purchasing party.

Legal merger or demerger

If two or more parties wish to continue as a legal entity, they may decide to merge legally into a single legal entity. This can be done, for example, by establishing a legal entity into which the two merging parties are incorporated. Alternatively, there may be a receiving company into which the other company is incorporated. The consequence of a legal merger is that all rights and obligations incumbent on the legal entities are transferred. This therefore also applies to all rights and obligations of the employees.

The opposite variant is the legal division or demerger: this involves dividing one legal entity into two or more new legal entities.

Due diligence

When considering a merger or acquisition, always remember to conduct a thorough due diligence investigation. This is not just an audit of the books, but also looks at the legal, financial, tax and commercial aspects of the company or companies involved. This will give you as complete a picture as possible of what you are buying or with whom you are going to collaborate. A due diligence investigation also helps you to minimise the risks involved in mergers and acquisitions. Due diligence is essential for the buyer. Based on the results of the investigation, the purchase price or enterprise value may be reconsidered and additional guarantees or specific indemnities may be included in the purchase agreement. This gives the buyer more certainty about what they are buying. And, not unimportantly, this is also to the seller’s advantage because it reduces the likelihood of disputes between the parties about parts of the transaction afterwards.

Still in the exploratory phase?

Would you like to know what options are available for your company during the exploratory phase, or are you considering a takeover? Then please contact one of our specialists. They can help you further in a no-obligation exploratory meeting.