In the Netherlands, typical deal structures in private M&A are bilateral or (controlled) auction processes for the acquisition and disposal of shares in the share capital of private companies.
Auction processes are fairly common in the Netherlands, but whether auctions are ultimately successful from a seller's perspective depends heavily on the market conditions and performance of the target company. Since the Russian invasion into Ukraine in February 2022 and the rising interest rates, a number of auction processes have failed and either: (i) the process turned into a bilateral process with one exclusive bidder; or (ii) the target company was withdrawn from the market.
In bilateral processes, after signing a confidentiality agreement, parties start negotiating the terms of a (usually non-binding) letter of intent or term sheet. Such document would describe the key principles of the transaction and usually also contain some form of binding exclusivity provisions.
In auction processes, after signing the confidentiality agreement, bidders receive the vendor assistance documents before submitting an indicative or non-binding offer. In phase two, the bidders that have submitted the most attractive non-binding offers will have the opportunity to conduct more detailed due diligence, supported by their external advisors, before being requested to submit a binding offer. The binding offer is usually accompanied with a detailed mark-up of the key transaction documents to enable the seller to make an informed decision on the best bid, including detailed transaction terms. The final process from binding offer to signed share purchase agreement is usually very short as a seller will want to sign binding transaction documents as soon as possible after having made up its mind on the bids.
Dutch insolvency law does not oblige a scheme of arrangement procedure to restructure debts outside of bankruptcy. However, based on a recent amendment of the Dutch Bankruptcy Act and the Act on Court Confirmation of Extrajudicial Restructuring Plans (Wet Homologatie Onderhands Akkoord ter voorkoming van faillissement (WHOA)) or CERP, a scheme of arrangement procedure has become optional when a company is in financial distress and in danger of bankruptcy. The CERP is inspired by the scheme of arrangement procedure in the US and UK, and should enable companies in financial difficulties to offer a compulsory composition to their creditors outside of bankruptcy. The composition can be initiated by the company or creditors (an expert may be appointed through the court) and offered to co-creditors and shareholders, leading to amendments of their (contractual) rights and positions. If the composition is supported by a majority of creditors and/or shareholders, the company can request the court to approve and declare the composition generally binding for all creditors and shareholders, unless the interest of certain creditors will be unreasonably damaged.
Furthermore, new legislation came into effect on 15 November 2023, referred to as the Temporary Law Transparency Turbo Liquidation (Tijdelijke Wet Transparantie Turboliquidatie). The legislation introduces temporary amendments to the Dutch Civil Code provisions that deal with turbo liquidation (dissolution without liquidation). A significant number of entrepreneurs, partly as a result of the economic impact of COVID-19, are expected to consider turbo liquidation. The legislation provides for an obligation of the management board to disclose certain information if the entity has been dissolved by a dissolution resolution due to the lack of assets. The financial accountability and disclosure obligations include filing the balance sheet and statement of income and expenses relating to the fiscal year in which the legal entity was dissolved with the trade register. The intention behind the legislation is to increase transparency, improve the legal protection of creditors and combat abuse more effectively.
Apart from share and asset transactions, which are not mergers in a legal sense, Dutch law permits legal mergers of companies, whereby all the assets and liabilities of a company are acquired and assumed, respectively, by an existing company or by a new company formed for the purpose, while the company whose assets and liabilities have thus been acquired or assumed ceases to exist by operation of law. The shareholders of the disappearing company become shareholders of the acquiring company.
The merger procedure is used primarily for intragroup reorganizations. On 1 September 2023, the Dutch Mobility Directive Implementation Act entered into force. The Dutch Mobility Directive Implementation Act governs the implementation of Directive (EU) 2019/2121 of the European Parliament and of the Council of 27 November 2019 amending (and extending) Directive (EU) 2017/1132 as regards cross-border conversions, mergers and demergers. The new legislation introduces a number of important changes to cross-border mergers and introduces a legal framework for cross-border conversions and demergers. Although it was already possible to carry out cross-border conversions (and to a lesser extent demergers) based on the case-law of the Court of Justice of the European Union, a regulatory framework was lacking. This was an obstacle to the exercise of freedom of establishment within the EU, as it entailed legal fragmentation and legal uncertainty. The new legislation seeks to remove this obstacle in order to make it easier to implement a cross-border conversion, merger or demerger between Dutch companies and companies organized and existing under the laws of EU member states and European Economic Area countries. A demerger is a legal act whereby either of the following applies:
- All assets and liabilities of a company (which ceases to exist) are acquired and assumed respectively by two or more companies.
- All or part of the assets and liabilities of a company that remains in existence are acquired and assumed, respectively, by one or more other companies, of which at least one issues shares to the shareholders of the demerging company, or of which at least one is incorporated by the demerging company.
Share deals whereby a buyer acquires the shares of a company from a seller are by far the most popular in the Dutch market. However, all types of transactions (share and asset deals or legal mergers or demergers) are seen in the Dutch private M&A market. The specific structuring of these transactions is largely tax-driven.
Private limited liability companies (besloten vennootschap met beperkte aansprakelijkheid or BV)
Dutch law distinguishes between two types of limited liability companies: public limited liability companies (naamloze vennootschap (NV)) and private limited liability companies (besloten vennootschap (BV)). An NV can issue (depositary receipts of): (i) registered shares; or (ii) bearer shares. A BV can only issue (depositary receipts of) registered shares, a significant feature illustrating its private character. On the other hand, a BV is exempt from some of the formal requirements of an NV. For instance, a BV does not require a minimal level of share capital to register or commence trading.
The transfer of shares in a BV or NV requires executing a notarial deed before a Dutch civil law notary in the Netherlands. This obligation does not apply to NVs whose shares or share certificates are in bearer form or are officially listed on a regulated stock exchange.
Asset transactions are normally used for tax reasons, to minimize risk (e.g., to minimize the risk of undisclosed or contingent liabilities of the target company), or to sell only a portion of a company's business.
Asset transactions tend to be more complicated since each category of asset has to be transferred separately in accordance with applicable legal transfer requirements. In an asset sale, contracts with suppliers, customers and other contractual counterparties of the acquired business need to be transferred, so the co-operation or consent of those parties must be obtained (remembering that the parties can ultimately refuse to deal with a buyer and instead terminate the agreement). This means that in asset sales, there is a risk that government or other approvals, licenses and permits held by the business may be lost.