International takeovers are more common than you think: in the past, in the newspaper, we used to read about takeovers between big companies. Big only did it with big. That is over.
In the West, capital flows easily across the country's borders, the adoption of English as a general business language is only increasing, even in Eastern and Southern Europe. Large and international businesses also buy SMEs in the Netherlands. And increasingly so.
What is different in an acquisition if the buyer comes from outside the Netherlands? Below are a number of points for attention built up on the basis of several international takeovers:
1) Information memorandum
The information memorandum should properly clarify the Dutch context for a foreign party: do not assume that this foreign party knows the local labor market situation or is aware of the meaning of a tax deferral such as the revaluation reserve on the balance sheet, to name just one example.
As a tip, we can in any case also give you the following: be consistent with international financial terminology and if, for example, IFRS accounting standards are not used, explain the difference, using IFRS as a reference point. It will benefit the bid and perhaps prevent disappointment later in the process.
2) Negotiations
Culture! Poland, Italy, France, Germany, Norway, USA: we in our egalitarian country are used to addressing each other as equals. This is very different in the aforementioned countries. Do not assume Dutch customs, do not start too informal and not too jovial. Certainly not at the beginning of the project, and invest time in researching at what level decisions are made with the buyer.
In the Netherlands, the decision-making authority can be found in the trade register. However, this is often not the case abroad. Have you agreed on a purchase price with a cash-debt-free balance sheet? The interpretation of this can still vary from country to country: in the U.S. this literally means that the bank account is brought to 0 and the interest-bearing loans are repaid. This can lead to a liquidity shortage at the time of acquisition because in the Netherlands we often see cash-debt-free as a settlement item on the purchase price. The bank balance is then maintained in the Dutch situation.
3) Due diligence
For acquisition advice, a foreign buyer will usually turn to the larger Dutch advisors, who may or may not have an international network of offices or belong to an international association and whose working language is English. This in itself is not a problem, as the seller and his adviser have a knowledge advantage over the buyer and his adviser. But in the due diligence process this gives reason to be prepared to count to 10 several times.
Because to close the knowledge gap, there will be long questionnaires. Buyers from the US in particular are known for their very extensive book research. Even then, the seller cannot automatically assume that although the buyer was aware of findings in the due diligence, the buyer cannot make a warranty claim about this through the purchase agreement.
4) Purchase agreement
Not entirely surprisingly, the U.S. is very legalized in acquisitions: extensive purchase agreements, which get even longer if private equity or venture capital is involved.
Are you still owed an amount by the buyer? Do you know where it 'stands'? In the Netherlands this is often placed with an escrow agent or a notary. In foreign countries this does not have to be the case, where a Bar Association can also act as an escrow agent. In both cases this can work well, but do not let it be a surprise where the possibly large amounts are placed and under what conditions and according to what procedures they are released.
It is obvious that the buyer refers to his local legal system (jurisdiction) in the purchase agreement. But do you, as the seller, know that system? Or your adviser? And what if litigation does take place in another legal system? It is good to look into this in advance, but of course within the Netherlands it is usually preferable that Dutch law is declared leading.
5) Post-merger
After the acquisition, the seller may still have a role as, for example, shareholder or co-manager. If the buyer pays with an issue of shares in the foreign company, the foreign regulations will also apply. Dilution you may not be able to stop, do you know your position in the foreign shareholder agreement, the articles of association or their equivalents? When can you redeem the foreign shares? What is the tax regime and how will you eventually get the funds from the sale proceeds to the Netherlands? These are steps, which may not be taken until years after the original business sale and which make whether a transaction can ultimately be completed successfully, or not.
The foreign buyer will almost certainly impose its management and control systems on the newly acquired Dutch subsidiary. Perhaps the financial reporting structure will be different, approval must be requested for investments or an (English) plan must first be submitted.
It will also often be the case that the buyer will impose a new cost structure on its existing software structures and subscriptions. Whether or not through an extra fee from the head office that was not announced in advance. This of course has its effect on the earn-out or distributable dividend. Also consider AVG (General Data Protection Regulation), which is viewed differently abroad and certainly outside Europe.
6) Listed buyer?
Buyers listed on one of the Western stock exchanges will also have to follow the regulations of that exchange. Think of timeliness of reporting (annual figures), which usually requires a higher reporting speed than what a stand-alone SME was used to. But there are other examples as well: It could also be that there is a corporate mission/vision that focuses, for example, on greening, sustainability, man-woman ratios that we in the Netherlands interpret differently. Almost certainly this theme is going to require extra time, energy and communication to meet the (imposed) expectations of the listed parent company.
As already mentioned in the due diligence process, the international buyer will often engage specialized advisors. They may cut the due diligence into pieces and assign a specialist or specialist team to each discipline. Often these are ambitious twenty-somethings who investigate a very narrow topic in depth (VAT, the premises, environmental legislation, etc.), which they then report to their foreign client, in English.
Sometimes questions are asked to put check marks, some questions are somewhat 'bleu' and it happens regularly that questions are asked repeatedly but from different angles or disciplines. Extremely inefficient sometimes, also because the same questions are asked repeatedly and the cross connections (the reason why certain choices were made in the past) go unnoticed. It is important for the seller to have an acquisition advisor who: 1) tempers the emotions and 2) does see and emphasize these connections and 3) monitors consistency in the answers from the seller.
Conclusion
And that brings us to the final conclusion: when selling to a foreign buyer, the process is more extensive and possibly more complex. Both before the sale and after the sale. It is important for the seller to have an acquisition advisor who oversees all of this in terms of content, who understands the cultural differences, who speaks and writes the languages, who knows the business to be sold and who has sufficient superiority to lead this sales process and thus be the interlocutor for the (advisor of the) buyer. Only if this structure is in good shape are the country specific or cultural elements to be managed well.
