Stefan Brunnschweiler, partner for CMS von Erlach Poncet (Zurich), and Hendrik Hirsch, partner for CMS Hasche Sigle (Frankfurt), discussed their most recent study of transactions in Europe and how they differ from U.S. on issues such as purchase-price adjustment and cash-pooling during their presentation at the 2014 Chief Legal Officer Leadership Forum in Chicago on 17th September 2014. In the presentation, the duo pointed out that there are many differences between the U.S. and Europe when it comes to M&A transactions.
According to Brunnschweiler, purchase-price adjustment varies greatly between the U.S. and Europe. In the U.S., Brunnschweiler said, more than 85 percent of the deals have a classical purchase-price adjustment, but in Europe, more than half of the transactions don’t have such an adjustment mechanism. In addition, Hirsch noted that the lockbox mechanism is viewed differently in the U.S. and Europe, and cash-pooling varies across these regions too: “You need to look at whether your cash-pooling arrangement is in compliance with applicable laws, because there are various differences within Europe. With participating European entities it is extremely important which jurisdiction they come from, [as] cash-pooling might require certain specific indemnifications from the seller’s side and probably from the buyer’s side as well.”
There are risks with cash-pooling arrangements, Hirsch said. However, an organization that understands how to minimize these risks, Hirsch noted, can avoid problems down the line: “How can you reduce these liability risks? Sometimes it is necessary to adjust the articles of association of the participating entity and clearly stating that it is allowed to enter into intragroup arrangements. Sometimes it is necessary to come up with a shareholder resolution approving the entering into the cash-pooling arrangement for the participating entity. This is particularly valid for the European market.”