Many corporations, or their professional legal advisors, about to embark on the acquisition trail in Europe, and particularly France, will undoubtedly be well aware of the following points.
- Not the way you do business in France?
There is an apocryphal story of a deal involving an American businessman, a British businessman and a French businessman: the American was assisted by ten attorneys, the Brit by a solicitor and the Frenchman by his accountant. The point of the story is that French business deals have traditionally been influenced by accounting and tax concerns, rather than legal issues. Balance sheet warranties, providing cover against increased liabilities when compared to a given accounting statement have meant that warranties would be measured against a monetary amount viz. measured against that specific figure, is the business worth less because of subsequent events or not?
The French approach has relied on elegant mathematics. French law, too, is informed by a reliance on principles, so that a French contract will almost always be much simpler than its equivalent from a common law jurisdiction. A UK or US purchaser of a French business will be used to extensive warranties; a hundred pages would not be unusual even in a small deal. In France, obtaining warranties from a seller of a company or a business is an uphill struggle. A buyer will receive the retort that “this not the way you do business in France”. Warranties and indeed legal as opposed to accounting due diligence are perceived to be Anglo-Saxon imports, another onslaught of cultural hegemony from across the water.
- Mergers are not international
Despite EU Directives, in practice there are no truly cross-border mergers: only two or more French companies can become one. Our experience is principally of restructuring within the same group, as opposed to mergers between companies having different controlling interests.
- The third player
US and UK deal-makers are used to negotiating behind closed doors, accompanied only by their financial, accounting and legal advisors. Often confidentiality will be paramount, particularly if one or both of the parties or their ultimate parent is listed. In France, as in certain other Continental countries, the paradigm of a two-player chess-match away from public view will often be unsettled by the presence of a third player: the works council. Any acquisition involving a target company with at least fifty employees will mean that there is likely to be a works council. The representatives of the workforce within the council cannot veto the deal, but they must be informed and consulted before any no-going back decisions are taken. And French criminal law protects the works council’s prerogatives. It follows that a foreign purchaser must be aware that local French management will need to go through the information and consultation process with its obvious strains on confidentiality. A purchaser should therefore be prepared to accommodate the concerns of the employees and provide a vision of the way forward in terms of employment and working conditions. Often a prospective US or UK buyer should meet the works council or indeed the whole workforce to provide assurances about the ‘social’ consequences of the takeover.
- Parlez-vous anglais?
Despite the resistance to external influences, many French deals are conducted solely in English and sometimes in German. It is possible to have all core documentation relating to a share transfer drafted in the English language, which means that an English speaking party is directly aware of the wording. Triplet is one of a relatively small circle of law firms in France able to draft and negotiate in English. French documentation is however strictly only necessary where records need to be kept (such as company minute books, share transfer forms) or where agreements need to be lodged with the authorities (such as the tax authorities or the Commercial Court in the case of the sale of a going concern or business).
- At the interface
The European Union comprises a patchwork of national jurisdictions each of which currently has its own company law and tax law regimes. When embarking on an acquisition in France, thought should be given to the manner in which dividends and other income such as intercompany sales pass upwards through a group structure. The location of holding companies could be based either in France or in other EU jurisdictions, depending on the tax optimisation sought. Both a purchaser and a vendor will frequently need advice on how to juggle with the differing company structures in the various jurisdictions.
The acquisition or disposal of a business may also involve the sale and purchase of several companies located in different countries. The principal target may be a parent in Canada or Scotland, with one or more subsidiaries in France which are also part of the deal. The transaction will involve advisors in different jurisdictions who will need to be able understand one another. Mechanisms which work in one jurisdiction may be prohibited in another.
This type of cross-border transaction may involve financing arrangements with a bank or venture capitalist based in one country only which involve taking charges over assets or shares in another country where other parts of the group are situated. The funding institution will frequently require legal opinions in an internationally recognised form on the validity of the security put in place in the other jurisdictions.
- Satellite agreements
Although the share or asset transfer is at the heart of any deal, frequently there will be other appendant agreements which are critical to the structure of the transaction: earn-out for key-members of the existing management to stay with the business; manufacturing or distribution agreements with the vendor’s group; contributions of assets prior to the share transfer with the vendor’s group; mergers within the purchaser’s group subsequent to the share transfer. The focus of the energies and efforts of the negotiators will be drawn by the gravitational force of the satellite agreements away from the core agreement: without the satellite agreement there will be no deal.
The foregoing is not by any means intended to be exhaustive and for specific information on questions relating to French Mergers and Acquisitions please click here.