Acquiring a Company in Germany: From the Letter of Intent (LOI) to Closing

How does acquiring a company work?

The sequence is essentially the same across every sector. It divides into six phases that build on one another, each leaving a tangible result.

During the initial approach, the parties address contact, indicative valuation and confidentiality, usually through a non-disclosure agreement. The letter-of-intent phase then records the proposed structure, commercial terms, timetable and exclusivity in an LOI or term sheet.

Due diligence examines the business from legal, tax, financial and commercial perspectives. Its findings are intended to drive the purchase price, warranties, indemnities and conditions to completion. In parallel or immediately afterwards, the contract negotiation translates those points into the draft purchase agreement and ancillary documents.

At signing, the purchase agreement is executed and, for GmbH shares, notarised. Closing follows once the conditions precedent have been satisfied. The purchase price, transfer of shares or assets and the other completion actions are then implemented under a closing memorandum or completion checklist.

Whether you walk this path alone with the seller or against other bidders depends on how the sale is run. When a shareholder sells by private treaty, you negotiate exclusively. In a structured auction the sell side sets the pace, works with deadlines and a prepared data room, and the room for negotiation shifts in its favour. For the buyer the lesson is simple: the sooner your own structure is in place, the less you are exposed to the seller's time pressure.

What does the letter of intent cover?

The LOI or term sheet sets the commercial and procedural framework before both sides incur substantial advisory cost. Typical points include:

Commercially, the LOI describes the transaction perimeter and preliminary structure together with the indicative valuation and price logic. This includes assumptions on net debt, working capital and the choice between locked box and closing accounts. A management rollover, earn-out or vendor loan should also be captured at the appropriate conceptual level.

Procedurally, the document sets the diligence scope and timetable, financing assumptions and regulatory clearances. Exclusivity, confidentiality and communications govern how both sides may act before signing.

Costs, governing law, dispute resolution and target dates for signing and closing complete the framework. The drafting should make clear which provisions are binding and which become legally effective only in the final purchase agreement.

Commercial terms are usually expressly non-binding. Confidentiality, exclusivity, costs, governing law and sometimes non-solicitation are commonly binding.

Walking away does not automatically create liability. Pre-contractual liability requires a specific breach of duty and legitimate reliance. The threshold is particularly high for transactions requiring notarisation, because the parties know that binding effect generally arises only on execution before the notary. Misrepresentation, wrongful withholding of information, misuse of confidential material or continuing negotiations without a genuine intention to transact may nevertheless create exposure.

Where the LOI itself is intended to create a binding obligation to acquire or sell GmbH shares, Section 15(4) GmbHG requires notarisation. Indirect commitments may also create form risk. Binding and non-binding provisions should therefore be separated expressly and unambiguously.

What does the buyer examine in due diligence?

Due diligence is not intended to investigate every conceivable legal issue exhaustively. It identifies and assesses the risks material to the investment decision and the contract.

Typical workstreams include:

Legal diligence usually starts with corporate status and title to the shares. Material customer, supplier, financing and cooperation agreements follow, together with permits and regulatory requirements. Employment, management and pensions form another core workstream.

Depending on the business, IP, IT, cyber and data protection, real estate and environmental matters and compliance, sanctions and export controls require deeper review. Disputes and insurance need to be considered alongside tax, financial and commercial diligence. The key is not the length of the list but a clear assessment of which findings affect price, contract, completion or integration.

Materiality, sampling and focus should reflect price, sector and risk profile. The best output is not only a report but an actionable issue list: deal breaker, price or structure point, condition, indemnity, warranty, covenant or post-closing action.

Data-room disclosure does not automatically have the same effect for every contractual claim. Section 442 BGB concerns statutory defect remedies. Whether knowledge or disclosure qualifies claims under independent warranties depends on the SPA and its disclosure and knowledge regime. The parties should define what constitutes fair disclosure and its consequences.

Asset deal or share deal: what does the buyer acquire?

A company can be acquired in two ways, and the choice between them shapes the entire contract. In a share deal the buyer acquires the shares in the legal entity, the GmbH shares (Geschäftsanteile) or the stock. You take the company as it stands, with all its assets and all its liabilities. Its existing contracts remain untouched, because the contracting party does not change in law. The transfer itself is lean, but with a GmbH it requires notarisation, both for the assignment of the shares and for the underlying obligation to assign them (Section 15(3) and (4) GmbHG).

In an asset deal, by contrast, the buyer acquires individual assets: machinery, inventory, trademarks, particular contracts, real property. Each item must be described in the contract with sufficient precision, or it does not pass. Contracts can be transferred only with the consent of the counterparty concerned, which becomes laborious across many customer or supplier agreements. If a piece of real property is included, the contract must be notarised (Section 311b(1) BGB); the same applies where the entire present assets are transferred (Section 311b(3) BGB).

One point in the asset deal deserves particular attention. Where the buyer takes over a business or part of a business, the employment relationships pass to them by operation of law (Section 613a(1) BGB). The employees affected must be informed beforehand in text form (Section 613a(5) BGB) and may object to the transfer within one month of receiving that information (subsection 6). Anyone who treats the workforce as part of what they are buying has to plan for this mechanism early.

Structure is usually decided on tax and liability grounds: buyers often prefer the asset deal because it shuts out historic liabilities and creates a basis for depreciation, sellers the share deal because it makes a clean break and is frequently more favourable for tax.

What is in the purchase agreement (SPA)?

The purchase agreement, known internationally as the share purchase agreement or asset purchase agreement, is the central document of the transaction. It translates the results of due diligence into binding rules. Its structure is comparable across most deals:

Subject matter and purchase price. The agreement identifies precisely which shares or assets transfer and how the price is determined. A locked box fixes the price by reference to an historic date, while closing accounts adjust it against the actual figures at completion.

Warranties and indemnities. As statutory warranty law provides limited protection for the state of the business, the seller gives independent warranties on matters such as title, accounts, material contracts, litigation and tax. Specific risks identified in diligence are allocated through targeted indemnities or other bespoke mechanisms.

Completion and liability. Conditions precedent determine when the transaction may complete. The SPA sets out remedies, caps, de minimis and basket thresholds and limitation periods for warranty and indemnity claims. Covenants and ancillary agreements complete the regime for the periods before and after closing.

How these clauses are drafted in detail is where the real craft of the negotiation lies. The architecture of warranties and indemnities, the price clauses and special instruments such as W&I insurance, the earn-out and the MAC clause are the subject of separate, more detailed articles. Only one thing matters here: the purchase agreement fixes the allocation of risk between buyer and seller conclusively, and every line of it draws on the review that came before.

What is the difference between signing and closing?

At signing, the purchase agreement is concluded. At closing, the shares or assets transfer, the purchase price is paid and the remaining completion actions occur. They may take place together if no conditions precedent are needed.

Common conditions include:

Regulatory approvals, particularly merger control and investment screening, often form the critical path. Consent from lenders, landlords or material counterparties and corporate approvals may also be required.

Other conditions concern acquisition financing, carve-out steps or internal reorganisations. Management agreements, transitional services agreements and licences may likewise need to be executed before or at closing. The agreement should allocate responsibility, deadlines, evidence requirements and the consequences of final failure for each condition.

The agreement allocates responsibility for obtaining clearances, the efforts standard, acceptable remedies and the long-stop date.

Between signing and closing, the seller generally continues to run the business. The buyer may receive contractual consent rights over exceptional actions, but must not exercise premature control before competition clearance. Information rights and interim covenants need to protect value without creating gun-jumping risk.

Closing is managed through a checklist and funds flow. Satisfaction, waiver or survival of each condition should be documented, and post-closing actions handed over clearly.

What does M&A counsel do?

Legal transaction counsel combines specialist review, drafting and project management. The role commonly includes:

At the outset, transaction counsel compares share and asset structures and any pre-closing reorganisation. Counsel drafts and negotiates the NDA, LOI and exclusivity and defines the scope, priorities and reporting format for legal due diligence.

The findings are then translated into price, warranties, indemnities, covenants and ancillary agreements. This includes drafting and negotiating the SPA and coordinating merger control, investment screening and other approvals.

In a cross-border transaction, lead counsel manages local firms and consolidates their work into one risk assessment. Before signing and closing, notarial and corporate steps, conditions precedent and completion documents are coordinated; afterwards, the remaining obligations are handed over to the responsible post-closing teams.

Counsel should generally be involved before the LOI, where structure, price logic, exclusivity and regulatory assumptions are first set. Fees can be managed through phased budgets, caps, a defined diligence scope and rolling forecasts. The objective is not minimal review, but concentration on the issues that matter to value and liability.