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Focus on Germany
OCTOBER 2013
Germany Focus
Continuing with our special focus on Germany and the legal issues the German business world faces, we speak to Matthias Gehrke, founding partner of Gehrke Zumbroich & Partner, an independent integrated MDP firm advising clients of all sizes in all corporate and industrial aspects with a strong focus on real estate and transactions.
Please introduce yourself, your role and your firm.
Based in Bonn and Berlin Gehrke Zumbroich & Partner mainly focuses on domestic and in-bound activities but has a wide range of international clients and a sound experience in cross-border activities.
I am the founding partner and manage the Berlin offices. My focus is on long term advice for enterprises combining a strategic and a pragmatic solution- oriented approach.
What are the most complex legal issues that foreign investors should be aware of when looking to invest in Germany?
Germany provides for a very elaborate legal system which has
significant advantages.
Nonetheless the German legal system also has significant particularities. Inter alia the specific German concept of the so-called Abstraktionsprinzip (abstraction principle) separating the law of obligations, the contractual transaction, from the material transaction. The German law also clearly distinguishes from the Anglo-American contractual culture of enormous contracts by reducing the sometimes extensive volume of the transaction contracts to more acceptable and digestible amounts of pages. Further, although comparable to other legal systems, the German tax law regime sometimes produces concerns of foreign investors. Often unsettling for investors from other legal systems is the very consumer and especially employee friendly legal system of Germany, with a very strict and efficient control by the courts.
Germany has long been viewed as a popular destination for investment. to what do you attribute this?
Of course, the predictable and effective legal system ranks high on the list of positive moments for investments in Germany, as well as a stable political environment. The most important reasons why Germany ranks constantly on the top ten of the world wide targets for M&A are related to economics:
• Germany is the world fourth largest economy (based on GDP) (according to the IMF, World Economic Outlook Database).
• Germany is the world third largest exporter of merchandise.
• Germany is the European largest economy. • Germany has a very well-developed manufacturing industry.
In summary: Germany is an economic stable country with a highly developed industry and a trustworthy legal system providing interesting investment opportunities.
What is the current state of the German M&a market?
Obviously, Germany is still recovering from the financial crisis and the credit crunch. Therefore, 2011 was a very difficult year for M&A activities and 2012 continued to be problematic. Yet, 2013 shows a slow recovery allowing Germany to remain in the top ten of the M&A targets (as the only one of the Eurozone countries). This is mainly due to the (still increasing) appetite of the BRIC nations, esp. China and India. A specific attention is currently given to Public M&A and Distressed M&A. Leveraged financing remains difficult.
What are the main issues to arise when dealing with cross-border M&as? How can you help your clients to navigate these issues?
In cross-border M&As the most obvious issue is the syn- chronization of different legal systems and cultures. Depending on the origin of the investor a challenging task for a M&A lawyer is to make these differences transparent and understandable.
Navigation guidance may only be given to the in- vestors on the basis of experience. Experience not only with the domestic legal systems and market but also experience with the legal system and market of the investor.
Gehrke Zumbroich & Partner, therefore, aims at the establishment of on-going and intense relations with its clients allowing us to provide not only excellent legal work but also a comprehensive understanding of the clients’ individual needs and concerns.
What, in your opinion, are the incentives and restrictions of doing business in Germany?
As already pointed out, one of the important reasons for investing in Germany is the effective and predictable legal system. This gives comfort and allows for a proper preparation of any transaction and the consummation of such transaction without significant risks of completely unexpected events. On the downside Germany also has a very well- established administration. The result is often an overregulated and overburdened procedure without much flexibility for individual reactions to specific needs of an investor.
What do you feel the future holds for the legal world in Germany? are there any legislative changes on the horizon that you are aware of? Is there any need for legislative change in any legal area in your opinion?
In the recent past, several significant changes in the legal environment for M&A have been implemented and came into force. This concerns inter alia (i) public-to-private transactions (implementation of the EU Shareholders Rights Directive, ARUG, reducing risks of blocking shareholders, (ii) stakebuilding strategies (implementation of the Investor Protection and Functionality Improvement Act - Anlegerschutz- und Funktionsverbesserungsgesetz, with increased disclosure requirements), (iii) the implementation of the AIFMD Directive or (iv) the recent changes in the German Foreign Trade and Payment Act (Außenwirtschaftsgesetz).
Currently, despite possible changes in the tax laws and regulations, changes may be expected with regard to the review of the EU Takeover Directive.
With regard to the future of M&A in Germany and the continuing foreign investments in Germany it should be expected that the constant consolidation of the European financial markets and the diligent political work may result in a further stabilization of the financing market. This would significantly push the transaction market. In the near future increased activities in Public and Distressed M&A may be expected. LM
Contact Details:
Matthias Gehrke Managing Partner Email: gehrke@gzp-legal.de Tel.: +49-30-8872950-0 Fax: +49-30-8872950-66
Gehrke Zumbroich & Partner Bregenzer Straße 3, 10707 Berlin Germany Website: www.gzp-legal.de