Insights into a successful cross-border company takeover

Mr. Schneck, what were the strategic considerations behind the CENIT Group's acquisition of a majority stake in Analysis Prime LLC?

CENIT has been present in the USA for many years and supports major international customers and large national corporations there. The project volume has grown considerably in recent years, and American corporations increasingly expect a national presence. With only 12 employees in Detroit, we were unable to adequately fulfil these requirements. We therefore made a conscious decision in favour of this transaction in order to send a clear signal of our commitment to the North American market. In addition, the American market has developed very positively, opening up further projects for us in the market and thus ensuring further growth.

Mr. Schneck, the acquisition of a company is a complex project - even more so when shares in a foreign company are to be acquired. It is necessary to reconcile the business, legal, and tax concepts of the buyer and seller from two different jurisdictions. What prompted you to consult RSM Ebner Stolz?

Three central criteria were particularly decisive for us when selecting our partner: integrated business and legal advice from a single source, a strong international partner network and local proximity for an intensive and personal exchange.

Dr. Kagan, can you give us an insight into how such a complex transaction is organised by the advisors? What role does RSM Ebner Stolz's international (best friend) network play in this?

Firstly, it is important to note that, as German lawyers, we are only authorised to advise on German law. For cross-border projects, it is therefore necessary to work together with local colleagues for each legal system involved. More parties involved always harbours the risk of interface losses. This must be avoided. In addition to the usual work that would also be involved in a purely national transaction, we therefore take on the coordination between the parties involved, communicate to our local colleagues what is important for our clients such as CENIT AG and, on the other hand, organise how our clients should react to the wishes of their local colleagues. This is only possible with close coordination and a "short line" to local colleagues whom we know well and who pursue a comparable approach to consulting. With RSM International and our best friends lawyer network, we can offer this.

Mr. Lazar, data plays a particularly important role in a company acquisition. This can be used to derive opportunities and risks and ultimately determine the value of the company. But how do you ensure that all the necessary information is available and gets to the right place during a transaction? In addition to coordinating the various workstreams (legal, tax and finance due diligence), cross-border coordination also had to be ensured.

The task is to establish a structured process that interlinks all relevant stakeholders - even across national borders. We work with specifically tailored information request lists in order to systematically request all relevant data from the target company. This data is collected in a central virtual data room and organised by subject area. All workstreams involved have access to this data room. In this way, we ensure that all analyses are based on a complete and standardised data basis. As the central point of contact for our clients such as CENIT AG, we not only manage the various workstreams, but also consolidate the results of the individual international teams in regular coordination meetings to ensure that we can present a comprehensive overall picture in a compact and targeted manner. Projects like this show that we not only create a solid foundation for successful company acquisitions on the basis of detailed technical analyses, but also through efficient coordination and close collaboration with our clients.

Mr. Lazar, the financial due diligence, i.e. the analysis of the financial situation of the target company, is an essential basis for determining the purchase price. Do you see any particularities or specific challenges that have arisen in this US cross-border due diligence?

The scope of the financial due diligence does not differ significantly from that of a European target company. However, one focus and at the same time a challenge lies in reconciling the different accounting standards - US-GAAP on the side of the target company and IFRS on the side of the buyer. While US-GAAP follows a rules-based approach, IFRS is principles-based, which can lead to differing analysis and valuation criteria. Additionally, the structure and presentation of the financial position and performance under US-GAAP differ. This can result in a different structure of financial metrics. As part of the financial due diligence, an in-depth analysis is therefore required to ensure transparency and traceability, if necessary, through a reconciliation calculation.

What key insights did you gain from the due diligence reports in the areas of legal, tax and finance, Mr. Schneck? And did they result in concrete steps for action?

In the course of our due diligence, we gained a well-founded and differentiated assessment of the risks associated with the transaction. We systematically incorporated these findings into our purchase price calculation and took them into account accordingly. In addition, by concluding an earn-out agreement, we created a risk-adjusted structure that secures potential uncertainties while simultaneously providing incentives for positive business development. On this basis, we were ultimately able to realise a very attractive and balanced purchase price for both parties.

Once the due diligence has been completed, the purchase agreement negotiations follow. Dr. Kagan, what legal peculiarities arise when drafting a purchase agreement for a US target company?

It is common for the purchase agreement of a US target company to be governed by US law and thus also by US standards. These differ significantly from what we are used to here. However, the essential concepts that shape a company purchase agreement are the same. In the end, the substantive peculiarities are not that significant after all. This applies more to the tax aspects of acquiring a company in the USA. Here too, however, we were excellently positioned thanks to the collaboration between the German and US RSM tax colleagues.

Mr. Schneck, looking back on the entire transaction process, what were the biggest challenges for the CENIT Group? And how were these overcome?

In a transaction with a North American company, the challenge is to find a balance between the rather conservative valuation perspective of a German buyer and the often very optimistic assessment of American sellers. At the same time, it is important to organise the sales process in such a way that you do not lose out to a North American competitor. We mastered this through transparency in the valuation of the company, so that the sellers were able to understand our view at all times. By bridging the earn-out agreement, the seller was able to retain his options.

Mr. Schneck, after the successful transaction, the work usually only just begins, because the target company has to be integrated into the structures of the CENIT Group. What went well - and what were the biggest challenges?

Instead of integration, we have carried out what is known as onboarding. At CENIT, this means that the acquired company retains its name and the existing management. Instead of rigid guidelines, we are focussing on a partnership of equals in which decisions are made jointly and pragmatically. Our common goal is to sustainably advance both companies. The biggest challenge we face is in the area of forecasting accuracy in planning and target achievement. Here, it is important to strike a balance between North American optimism and realistic goal achievement.

Mr. Schneck, looking back almost a year after acquiring the shares - have your expectations for the deal paid off - also with regard to the current government?

Our expectations were largely fulfilled. Of course, we would have wished for the North American optimism to prevail and for us to reach the finish line ahead of schedule. The current government only plays a minor role for us, as we currently only provide services in the USA and are therefore not affected by tariffs. If there is a recession, this will of course have an impact on our business. Nevertheless, we remain optimistic about the future.

Mr. Schneck, can you conclude by highlighting some of the best practices or success criteria that you believe have significantly influenced the process of this international transaction and may also be relevant for future takeovers?

We are convinced of our onboarding approach. With pure integration, there is a risk that the employees of the acquired company will be given rigid guidelines, which can quickly create the impression that their previous success is being called into question. In the worst case, the feeling arises: "Now a German company is coming in and telling us how to do things better." Such integration processes can not only damage the corporate culture, but also significantly impair team spirit and therefore performance.

Trust in the people involved in the acquired company is also of central importance, especially the retention of the existing management team. They are the ones who take the team with them, provide orientation and thus contribute significantly to the success of the takeover. At CENIT, we have a fluctuation rate of less than one per cent in takeovers.

Ultimately, cultural differences must be worked out, understood and taken into account. Careless statements or behaviour can be misunderstood in another culture and be interpreted in a way that makes it difficult for the companies to grow together.

Many thanks to all participants for the interesting interview. For further details on the acquisition of the majority stake in Analysis Prime LLC by the CENIT Group, we refer to our deal announcement.