Management Buy Out in the Netherlands
Written by:
Marcel van den Ende
Forms of the management buyout in the Netherlands
Employees Buy Out | Management Employees Buy Out | Investors Buy Out
Buy-outs are a form of acquisition where a company's existing managers acquire a large part or all of the company from either the parent company or from the private owners. Dependent on the identity of the actual buyers, the name of the transaction will vary. So a purchase by the management or the board is called a management buy out (MBO, in case the staff purchase it is called an employees buy out (EBO), and a combination of the previous two is called a management employees buy out (mebo). Finally we have the investors buy out (IBO).
Contract type
Most MBOs are stock transactions. Asset-liability transactions are much less common.
This is largely due to the fact that asset-liability transactions are complicated because each individual aspect of the business must be transferred separately. What is not specified does not transfer. In addition, in the case of asset-liability transactions, the cooperation or even permission of third parties (contract parties, sometimes also governments) must be obtained to make the MBO successful.
Financing of the management buyout
The term leveraged buy out (LBO) refers to the way in which the acquisition is financed. Hereby the purchase price (or the liquidity requirement) of the company is financed with loan capital. The financier obtains collateral against this. However, this is not permitted without restriction in the case of a share transaction (Article 207c of the Dutch Civil Code and Article 2: 98c of the Dutch Civil Code). This problem does not apply to acquisitions where investors acquire shares. But with this construction, investors have direct control over the company, which is not always desirable.
Mezzanine financing is financing through intermediary or mixed forms of debt and equity. Mezzanine financing is a collective term for often complex constructions in which different forms of shares are issued and different forms of loans are concluded. This group of forms of financing is widely used by private equity firms and came into vogue in the nineties of the last century.
Negotiating parties
Who is authorized to transfer the acquisition? It depends. The company can be part of a group of companies, or even a multinational. The company can be a financially important part or maintain a core activity. The more important the company to be transferred is, the deeper the MBO will intervene in the structure of the company and group or company. The more this is the case, the fewer independent powers the board has.
For BVs, this quickly leads to the obligation to ask the general meeting of shareholders for approval, and for structural companies approval must be obtained from the supervisory board.
Principles of good entrepreneurship
Moreover, the board always has the obligation to respect the basic principles of good entrepreneurship. The law also sets standards of care: the relationship between those involved is governed by reasonableness and fairness.
Conflicting interests
Conflicts of interest arise quickly. This is automatically the case, for example, if one or more members of the acquiring management are also members of the company's board and negotiate on behalf of the company. So be careful. The law (Article 2: 146 of the Dutch Civil Code and Article 2: 256 of the Dutch Civil Code) provides a handle here: others can be appointed who, instead of the management, negotiate on behalf of the company.
The MBO process
Initial phase
If initial exploratory discussions have led to the desire to enter into negotiations, agreements must be made about how those negotiations will proceed. Consideration can be given to negotiating exclusivity, confidentiality, cost distribution, degree of non-commitment etc.
Business plan
Good entrepreneurship requires management to be aware of the interests of the company and the interests associated with it. These interests go considerably further than just the shareholder interest in maximizing profit in the short term.
For this reason, the success of a management buy-out requires insight into the factors that can make the acquisition a success or get it right. For this insight, a business plan (including an analysis of strengths, weaknesses, opportunities and threats - "SWOT analysis") is generally indispensable. The business plan also contains a description of the company and the relationships with its direct and indirect environment.
Structure of the acquisition
(Partly) on the basis of the business plan, consideration must then be given to the choice of the acquisition variant, the method of determining the price, financing and the role of third parties (venture capital company, important buyers, ex-mother, banks).
Middle phase
Letter of intent
If there is a prospect of an outline agreement, a letter of intent must be drawn up, which the parties use as a guide for further negotiations and final transfer.
Informing employees and "the market"
Depending on the size of the company, the trade unions and the works council (OR) or central works council (COR) or other form of staff representation must be informed or even their advice requested (art. 25 WOR, art. 35 WOR) .
If it is necessary or desirable that "the market" is also informed, a press release is generally distributed at the same time and information about the intended acquisition is published on the company's website.
Consultation with trade unions and works council
On the basis of the wishes and thoughts of the employee representatives, an assessment must be made as to whether the chosen MBO variant and / or the letter of intent requires adjustment and whether, subject to this, agreement can still be reached between buyer and seller.
Final phase
The due diligence investigation takes place in the final phase. This includes auditing, legal research, commercial research, human resources research and / or environmental reporting.
Taking into account the results of the due diligence investigation, definitive agreement will have to be reached on the price and method of determining the price. The same applies to the statements and guarantees ("reps and warranties") and the final text of the acquisition agreement including penalty clauses and dispute settlement.
Agreements between new participants
The acquired company gets new owners. That can be (combinations of) management, staff, investors or others. Good agreements must be made between the new owners on time - that is, before the takeover.
These agreements must not only regulate the positive aspects of cooperation, but also what should happen if the cooperation or the business development of the company does not go as expected.
These agreements can be laid down in the company's articles of association, in a shareholders' agreement or in both.
Your lawyer for a management buyout in the Netherlands
We guide our clients in taking the necessary steps in the various phases until completion. We often assist and advise our clients for years thereafter, because our motto is: "Your problem, our concern."
More information?
Marcel van den Ende will gladly help you further.
