M&A-REVIEW-MuMAC-2019

Editorial
Christian von Sydow, Dr. Nikolaus von Jacobs
MuMAC 2019: 10 Years of Growth – What Comes Next?
International Perspective
Jacob A. Kuipers, McDermott Will & Emery LLP
Trump Trade Wars Threaten Cross-Border M&A
International Perspective
Steve Hufford, David Clark, Raymond James & Sarah Antor, Raymond James Corporate Finance
Game Changers – Staying Nimble as Emerging Tech Crosses Borders and Sectors
International Perspective
Dr. Nikolaus von Jacobs & Ding Han, McDermott Will & Emery Rechtsanwälte Steuerberater LLP
Chinese Outbound Investments – The Regulatory Landscape
European Perspective
Markus Schiller, Merrill Germany GmbH
M&A Due Diligence Compliance: Be Prepared
European Perspective
Lionel Lesur, Stephan de Groer & David Henry, McDermott Will & Emery
Mitigating Antitrust Risk in M&A Transactions – Key Takeaways from the EU Commission’s Veto of the Alstom/Siemens Railway Merger
Germany
Christian von Sydow & Robert Feind, McDermott Will & Emery Rechtsanwälte Steuer berater LLP
Challenges and Pitfalls of Compliance Representations
Germany
Dr. Michael Drill, Lincoln International AG
Continued Strong Momentum for the German M&A Market in 2020 Despite a Challenging Economic Environment
Germany
Dr. Florian von Alten & Christopher Rahn, Oaklins Angermann AG
How to Successfully Buy & Build?
Authors

Overview of Author Profiles
Conference Agenda
September 24, 2019, 9:00 am – 4:25 pm CEST, Hotel Bayerischer Hof, Munich
2019 Cross-Border M&A and Private Equity Investment Conference

www.ma-review.de Publikationsorgan Vol. 30, 2019 M&A REVIEW 9/2019 Special International Perspective Trump Trade Wars Threaten Cross- Border M&A International Perspective Game Changers – Staying Nimble as Emerging Tech Crosses Borders and Sectors International Perspective Chinese Outbound Investments – The Regulatory Landscape European Perspective M&A Due Diligence Compliance: Be Prepared European Perspective Mitigating Antitrust Risk in M&A Transactions – Key Takeaways from the EU Commission’s Veto of the Alstom/Siemens Railway Merger Germany Challenges and Pitfalls of Compliance Representations Germany Continued Strong Momentum for the German M&A Market in 2020 Despite a Challenging Economic Environment Germany How to Successfully Buy & Build? Conference Agenda 2019 Cross-Border M&A and Private Equity Investment Conference September 24, 2019 MuMAC Special 2019 10 Years of Growth – What Comes Next?

Lincoln International ist ein global aufgestelltes M&A-Beratungshaus für mittelgroße Transaktionen. Im Geschäftsjahr 2018 haben wir weltweit mit über 400 Investmentbankern bei ca. 170 erfolgreich abgeschlossenen Transaktionen beraten. In Deutschland ist Lincoln International seit Jahren der führende Berater für Unternehmensverkäufe. Von Mergermarket wurden wir jüngst als „German M&A Financial Advisor of the Year 2018“ ausgezeichnet. MERGERS & ACQUISITIONS | DEBT ADVISORY | GROWTH EQUITY | SPECIAL SITUATIONS | JOINT VENTURES & PARTNERSHIPS | VALUATIONS & OPINIONS Ausgewählte M&A Transaktionen 2018 has sold its equity interest in pursuant to Section 363 of the Bankruptcy Code to 363 Sale REAL CONNECTION. TRUE PERSPECTIVE. connect with us at www.lincolninternational.com

MuMAC 2019: 10 Years of Growth – What Comes Next? EDITORIAL Dear M&A REVIEW reader On September 24, 2019, McDermott Will & Emery will present the 9th annual Cross-Border M&A and Private Equity Investment Conference (MuMAC) at the famed Bayerische Hof hotel in Munich. We expect some 300 conference participants, including representatives of strategic and private equity investors and the corporate ﬁnance world. This special issue of M&A REVIEW focuses on the conference and some of the key topics to be discussed. In light of recently growing concerns regarding inter- national trade tensions and an economical stagnation caused by it, this year’s conference – entitled “10 Years of Growth – What Comes Next” – focuses on the resulting impact of countervailing trends on cross-border regional investment across major industry sectors spanning from the United States to Europe and Asia. General positive market conditions in the US continue to offer a seller-friendly environment, with interest rates continuing to be at low levels. The ﬁrst semester of 2019 in the US showed an increase of the overall deal value by 14.6 %. In Europe the continued political instabilities such as the forthcoming BREXIT and growing inter- national trade conﬂicts have had a negative impact on cross border M&A activity. The ﬁrst semester 2019 in Europe shows a 38.8 % decrease of the overall deal value. Given this Janus-faced, partly robust and partly declining market, MuMAC 2019 will focus on cross-border regional investment trends across major industry sectors from the United States to Europe and both inbound and outbound to Asia. MuMAC 2019 will discuss the latest developments in crisis and pre-crisis management, IPOs as roads of exit, recent developments in artiﬁcial intelligence, health, ﬁntech industry, compliance, debt ﬁnancing as well as evergreen investment opportunities. Publikationsorgan Publisher MuMAC 2019 will cover the transformation in the automotive industry as well as a case study on the Karstadt Kaufhof merger. MuMAC 2019 remains the premier conference for inter national M&A trends and this year’s event features opening remarks by Richard Grenell, US Ambassador to Germany, keynote speakers Dr. Daniela Schwarzer, Director of the Deutsche Gesellschaft für Auswärtige Politik, and in Harvard and Augsburg teaching, Prof. Dr. Thorsten Feix. This special M&A REVIEW issue will provide a wide range of M & A related articles and topics to prepare our esteemed MuMAC 2019 conference attendees. The recent legal and political developments seem to have ﬁnally taken their toll on cross-border M&A activities. We are happy to elaborate with this special issue on the current market trends as well as on legal developments in cross-border M & A around the globe. With our very best regards Christian von Sydow Dr. Nikolaus von Jacobs Vol. 30 • M&A REVIEW 2019 • MuMAC 2019 3

CONTENT Editorial MuMAC 2019: 10 Years of Growth – What Comes Next? Christian von Sydow, Dr. Nikolaus von Jacobs REPORTS International Perspective Trump Trade Wars Threaten Cross-Border M&A Jacob A. Kuipers, McDermott Will & Emery LLP, Boston International Perspective Game Changers – Staying Nimble as Emerging Tech Crosses Borders and Sectors Steve Hufford, Raymond James, St. Petersburg, David Clark, Raymond James, Boston & Sarah Antor, Raymond James Corporate Finance GmbH, Munich 3 6 8 International Perspective Chinese Outbound Investments – The Regulatory Landscape Dr. Nikolaus von Jacobs & Ding Han, McDermott Will & Emery Rechtsanwälte Steuerberater LLP, Munich 12 IMPRINT Special MuMAC 2019 Supplement to M&A REVIEW 9/2019 (Vol. 30) www.ma-review.de Editorial staff: GoingPublic Media AG Laura Uhde (project lead) Hofmannstr. 7a, 81379 Munich (Germany) Phone: +49 89-2000 339-0, fax: -39 redaktion@ma-review.de Publikationsorgan: Bundesverband M&A e.V., c/o GoingPublic Media AG Hofmannstr. 7a, 81379 Munich (Germany) Phone: +49 89-2000 339-40, fax: -39 info@bm-a.de, www.bm-a.de Chairman of the Board: Prof. Dr.-Ing. Kai Lucks Publisher: GoingPublic Media AG Hofmannstr. 7a, 81379 Munich (Germany) Phone: +49 89-2000 339-0 , fax: -39 info@goingpublic.de, www.goingpublic.ag CEO: Markus Rieger Editor: Prof. Dr. Christoph Schalast, Frankfurt School of Finance & Management Layout & realization: Holger Aderhold Editing: Magdalena Aderhold Cover: Photo: © McDermott Will & Emery Rechtsanwälte Steuerberater LLP Printing: Joh. Walch GmbH & Co. KG, Im Gries 6, 86179 Augsburg (Germany) 4 M&A REVIEW 2019 • Vol. 30 • MuMAC 2019

European Perspective M&A Due Diligence Compliance: Be Prepared Markus Schiller, Merrill Germany GmbH, Frankfurt European Perspective Mitigating Antitrust Risk in M&A Transactions – Key Takeaways from the EU Commission’s Veto of the Alstom/Siemens Railway Merger Lionel Lesur, Stephan de Groer, McDermott Will & Emery AARPI, Paris & David Henry, McDermott Will & Emery, Brussels Germany Challenges and Pitfalls of Compliance Representations Christian von Sydow & Robert Feind, McDermott Will & Emery Rechtsanwälte Steuer berater LLP, Munich Germany Continued Strong Momentum for the German M&A Market in 2020 Despite a Challenging Economic Environment Dr. Michael Drill, Lincoln International AG, Frankfurt Germany How to Successfully Buy & Build? Dr. Florian von Alten, Oaklins Angermann AG, Hamburg & Christopher Rahn, Oaklins Angermann AG, Frankfurt Authors Overview of Author Proﬁles Conference Agenda 2019 Cross-Border M&A and Private Equity Investment Conference September 24, 2019, 9:00 am – 4:25 pm CEST, Hotel Bayerischer Hof, Munich Vol. 30 • M&A REVIEW 2019 • MuMAC 2019 20 24 28 32 35 38 40 5

REPORT • INTERNATIONAL PERSPECTIVE REPORT • INTERNATIONAL PERSPECTIVE Trump Trade Wars Threaten Cross-Border M&A Jacob A. Kuipers, McDermott Will & Emery LLP, Boston 1. Introduction Years of ever-increasing tariffs, trade deal pullouts and renegotiations, and nationalistic, political pos- turing from the Trump administration has rocked the well-established, international trade regime. Markets have shuddered; growth forecasts were slashed; and companies were left scrambling to try to offset rising costs. Now, Trump’s trade wars are spilling over into cross- border M&A through greater macroeconomic uncertainty, threats to historically, low-risk supply chains, and downward pressure on valuations. This has led to deal hesitancy and market adjustment, which has fueled new opportunities in previously overlooked markets. 2. The Trump Trade War Since his presidency began in 2017, President Trump has targeted several international commerce lines, from well-established trade allies like the EU, Mexico, and Canada to more tenuous partners like India and, most predominately, China. Utilizing nationalist rhetoric, President Trump scrapped the Trans-Paciﬁc Partnership (TPP) with Southeast Asian nations, halted the Transatlantic Trade and Investment Partnership (TTIP) with the European Union, and renegotiated the North American Free Trade Agreement (NAFTA) with Canada and Mexico. aluminum, bourbon whiskey, motor boats, motorcy- cles, blue jeans, corn, and peanut butter. Canada imposed duties on steel, aluminum, agricultural and food products, and other consumer goods. Turkey lev- ied tariffs on cars, alcohol, and tobacco. Simultaneously, multiple countries ﬁled suit with the World Trade Organization, claiming the United States violated numer- ous WTO treaty rules and standards. Although signiﬁcant, these trade disputes pale in com- parison to Trump’s trade war with China. Since the spring of 2018, President Trump has targeted Chinese imports, imposing or threatening to impose a cascade of duties on virtually every product entering the United States from China or more than $550 billion worth of goods. Tariffs mean rising costs for importers, and U.S. ﬁrms have responded accordingly, shifting supply chains out of China and halting Chinese capex expendi- tures. Not surprisingly, imports from China into the United States have declined by more than 12 percent. In retali- ation, China levied tariffs on agricultural and food products, mineral fuels, some consumption goods, and medical equipment. It also directed all Chinese state-owned enterprises to halt buying U.S. agriculture products, instantly drying up a $20 billion market. U.S. exports to China have now sunk by more than 20 per- cent, and for the ﬁrst time since 2005, China has fallen behind Canada and Mexico on the list of top U.S. trad- ing partners. The Trump Administration also used more blunt tools, like tariffs, to disrupt the free ﬂow of goods and ser- vices. These tariffs were imposed on speciﬁc markets like solar panels, washing machines, steel, and alumi- num, sparking feuds and retaliatory measures from South Korea, India, Turkey, the EU, and Canada. Impacted countries, meanwhile, did not stand by idly. The EU activated tariffs on U.S. products, like steel, 3. Greater Uncertainty for Cross-Border Transactions These trade disputes breathe uncertainty into macro- economic conditions, open markets, and international supply chains, creating new hurdles and risks for cross-border transactions. With less U.S. buyers of foreign goods due to the increased price of imports, 6 M&A REVIEW 2019 • Vol. 30 • MuMAC 2019

INTERNATIONAL PERSPECTIVE • REPORT INTERNATIONAL PERSPECTIVE • REPORT the ﬂow of U.S. dollars into impacted countries has declined. Countries, particularly China, have started to restrict outbound capital ﬂows to keep U.S. dollars in- the country as a way to shore up currency weaknesses and stabilize ﬁnancial markets. These capital restrictions translate into a substantive decline in outbound M&A activity. In addition, trade disputes can put cross-border invest- ments in the crosshairs of regulatory agencies. Countries with an outsized trade imbalance with the United States cannot equally retaliate against U.S. tariffs through greater or broader duties on U.S. imports. In fact, to keep prices down and domestic markets that rely on U.S. imports happy, some countries might avoid direct retaliation through tariffs. Such actions, how- ever, come at the expense of cross-border transactions. For example, China, which exports far more than it imports with the United States, has used regulatory approval of foreign transactions as a retaliation tool against U.S. tariffs. Market analysts widely believe China intentionally delayed its antitrust approval of Qualcomm’s $44 billion acquisition of NXP Semi- conductors in retaliation of the Trump administration’s ﬁrst round of tariffs against China. Such regulatory uncertainty forced Qualcomm to walk away. The U.S. also hasn’t been shy in using regulatory agencies in its trade disputes. President Trump directly inserted risk into cross-border M&A through enhanced regulatory oversight by expanding and strengthening the Committee on Foreign Investment in the United States (CFIUS), which reviews inbound foreign invest- ment and transactions in the United States. Under the guise of national security, CFIUS now commands authority over a wider scope of transactions with enhanced oversight and bureaucratic bite. The Trump administration now uses CFIUS as a lever to prevent foreign entities from investing in the United States. These trade disputes have also forced acquirers to re- think valuations of cross-border targets. Trade risk in deal metrics has historically been low thanks to a well- established open market consensus. But the trade wars have thrown this calculus to the wind. Sellers particu- larly prone to trade risk face lower valuations. As their costs rise directly due to tariffs or indirectly as a result of ﬁnding substitute suppliers, impact to the bottom line is difﬁcult to avoid, even with passing along costs to customers. In addition, private equity ﬁrms with portfolio companies with exposure to trade risk now experience higher costs and fewer exit opportunities, which potentially leads to lower returns for general partners and a greater hesitancy to reinvest. On the buy side, acquirers are met with added complexities and increased risk when assessing deal opportunities with cross-border targets. 4. Cross-Border M&A Flops Some ﬁrms attempt to circumvent trade disputes by moving investments into non-impacted countries. For example, in response to tariffs on U.S. products, Harley Davidson, a U.S. motorcycle manufacturer, announced plans to invest in production facilities outside the United States, which would sell directly to foreign countries. These attempts, however, pale in comparison to the general decline in cross-border transaction activity, which have dropped to about 31 percent of transac- tions globally, down from a peak of nearly 40 percent in 2016. Nowhere has such declines been felt more substantially than in Asia, particularly in China, Japan, and India. In fact, in the ﬁrst half of 2019, deals with Asian targets have nosedived by more than 43 percent year-on-year. China, the focus of Trump’s trade wars, faced even greater deterioration in inbound deal activ- ity, tumbling nearly 45 percent. Not all metrics are negative. Average deal size is actu- ally up, fueled in large part by megadeals, particularly those out of the U.S. Outside of these large transactions, capital is ﬂowing to domestic transactions. In the U.S., where activity is most active, deal count is still robust despite a modest softening from the past two record- setting years. In particular, the biopharmaceutical and ﬁnancial services sector remain vigorous. 5. Alternative Investments Protectionist measures do not always translate into depressed international deal making. In fact, the World Bank found that capital sinks into international investment when trade protectionism is robust. Firms tend to pivot from product acquisitions to joint ventures and partnerships as way to offset trade restrictions. Current trade wars, however, might be too systemic in the overall macroeconomic environment to encourage alternative cross-border deals. Instead, deal makers are wetting their appetites in alternative markets, which include small to mid-size countries, which have been ﬂying under the radar in the trade wars, as well as certain sectors like real estate and speciﬁc manufacturing outside of security and intellectual property concerns. In addition, alternative supplier markets, like Bangladesh and Vietnam, have seen outsized attention as U.S. importers seek out cheaper suppliers. Vol. 30 • M&A REVIEW 2019 • MuMAC 2019 7

REPORT • INTERNATIONAL PERSPECTIVE Game Changers – Staying Nimble as Emerging Tech Crosses Borders and Sectors Steve Hufford, Raymond James, St. Petersburg, David Clark, Raymond James, Boston & Sarah Antor, Raymond James Corporate Finance GmbH, Munich 1. Introduction 3. Healthcare The desire to create, innovate and advance is deeply woven into the fabric of human DNA. Since the beginning of time, we humans have been on a mission to invent technology to solve problems, enhance convenience and just generally make our lives better, cheaper and faster. In recent years, “big tech” has led the spacing – companies like Google, Amazon, Facebook, Apple, Microsoft, Oracle, Salesforce, Intel and dozens of others – and their effect on the economy and on capital markets has been pervasive. At this point, it is almost axiomatic to suggest that tech advancement drives the markets and the economy, and few investors, public or private, don’t have a position in a healthy basket of key technology investments. As the leading mid-market, tech-focused and growth- oriented investment bank, Raymond James has played a big part in this trend – since 2012, Raymond James has advised on more than 280 M&A transactions and executed more than 160 equity offerings, representing nearly $100 billion in deal value in the tech sector alone. But a lesser appreciated aspect of the tech revolution of the past 10 years is that advanced technology is now meaningfully impacting every industry, not just tech, and our bankers are “in the trenches” of technology innovation in every sector we cover, including some (like Industrial and Consumer) that others might consider “old school.” Tech is here to stay, but not just in the tech sector alone. 2. Transforming the Landscape Technologies such as mobile, social media, big data, predictive analytics, cloud computing, artiﬁcial intelli- gence, cybersecurity, robotics, nanomaterials, biotech, biometrics, quantum computing and the Internet of Things (IoT) are transforming the world. Here’s a look, from Raymond James’ perspective, at how tech is trans- forming some of the sectors that may not normally be considered as “techy” as the tech sector itself. Healthcare has a long history of innovation in clinical technologies and information services, such as new pharmaceuticals, devices and surgical techniques, as well as advanced patient analytics – improving outcomes, making treatments more effective and extending patients’ lives and their quality of life. With today’s aging demographics, healthcare advancements now focus on the challenges associated with higher utilization as people live longer and chronic diseases rise. The goal now in many instances is to achieve great patient outcomes while increasing efﬁciency and dramatically reducing the cost to deliver high-quality care. 4. Case in Point Raymond James has developed a special capability in the area of emerging data and systems interoperability, which gives providers and insurers the ability to efﬁciently and safely share patient data across disparate systems, enabling better clinical decisions across a continuum of care. Machine learning and AI have exciting implications for this sector as well. For example, Raymond James’ recent client Jvion is competing against the likes of IBM Watson with its exclusive searchable database of patient care paths. Jvion’s analytics are capable of comparing and contrasting success rates of protocols and patient behavior with the goal of improving patient outcomes and lowering costs. This small but nimble analytics company relied on Raymond James to manage its sale process, ultimately pursuing a majority recapitalization with a well- respected private equity ﬁrm with a proven track record in tech and healthcare investing. Over the past decade, Raymond James has served a number of companies in the interoperability sector both in Europe and the U.S., including such ﬁrms as Axolotl, Medicity, Carefx, Medseek, Surescripts, Voalte, PatientKeeper, Navi/ Curaspan, Rhapsody, Cambio Health Systems and Corepoint Health. 8 M&A REVIEW 2019 • Vol. 30 • MuMAC 2019

INTERNATIONAL PERSPECTIVE • REPORT Factors to consider: Healthcare trends often involve short decision and usage cycles and quickly evolving political, regulatory and market risks. Policy shifts can quickly draw attention to or away from certain technologies or objectives. Investment banking judgment is required for investors to prudently value companies in the healthcare space as well as appropriately assess risk and reward in companies that are subject to regulatory risk or dependent upon speciﬁc legislative agendas. 5. Consumer and Retail Technology, especially the internet and smart devices, has triggered a tremendous shift in the consumer and retail space, resulting in increasingly complex interactions between consumers and providers across an array of channels. Moreover, the supply chain to consumers has evolved exponentially as Amazon has completely changed consumer expectations of timeliness and reliability. Retailers must now optimize their supply chains to offer a comparable shopping experience as the majority of consumers now expect free shipping and next-day delivery. Retailers that can’t keep pace are unlikely to survive. Consumers want information and convenience at the tap of a ﬁnger, and companies must adapt accordingly. Game changers include integration with the IoT, big data and cloud technology, as well as integration with ever-advancing payment capabilities. From Alexa to wearable devices to everything cloud- based, “things” are now connected in real time and increasingly personalized to the desires of the consumer. Advanced data capabilities allow companies to analyze shifts in buying behavior and improve algorithms to better meet (and exceed) their customers’ wishes. Raymond James has been very active in this sector, recently advis- ing a company that has disrupted consumer behavior in the pet food sector by providing advanced analytics on brand-based consumer buying patterns. ANZEIGE Thank you!* *) M&A REVIEW’s MuMAC Special 2019 has been supported by

REPORT • INTERNATIONAL PERSPECTIVE Factors to consider: Consumer and retail is ripe for tech innovation, and private equity investors are keen to get a jump on the market as groundbreaking trends create new investment opportunities. As startups mature, they become more attractive within this high-growth and high-proﬁtability segment. While traditional, stable consumer companies see relatively conservative multiples, smartly positioning a tech angle has allowed our clients to achieve higher multiples than would otherwise have been the case. automated manner, the company structures large masses of ﬂight data from a variety of sources such as direct airline APIs, GDS, direct sourcing etc. to create unique ﬂight itinerary combinations. From a technology per- spective, the key advance is to store all itineraries in real time, creating a skymap and in a dynamically searcha- ble manner to provide the best result, utilizing any com- bination of airlines, not just those within the same alli- ance. Customers can now ﬂy anywhere, anytime, on any leg combination, for up to 90% less than before. While there are exciting developments globally, it’s difﬁcult to tell which innovations will dominate a speciﬁc subsector. The biggest hurdle is not investing in companies that will be notably changed by technology, but in identifying the “winning technologies” and predicting how the market and consumers will react. Early identification is difficult and thorough due diligence is essential. Factors to consider: Up next, we believe these players will need to build on their meta-trafﬁc and convert it to direct/organic trafﬁc to upsell dynamic packages and diversify their revenues and expand margins. Companies with strong dynamic packaging technology will be trying to penetrate the more traditional consumer and retail segments, which in turn will allow those retailer brands to capitalize on their large customer bases. 6. Travel and Leisure 8. Other Advances Travel & Leisure (T&L) is a subsector within consumer and retail that has experienced extraordinary disruption over the past decade. In the pre-internet era, T&L (at least from a bookings perspective) was a local business – a local agent served customers in a face-to-face setting from a brick and mortar location. The internet, of course, blew that up, and the advent of online travel agencies (OTAs) like Expedia, Travelocity, Hotels.com and Kayak completely transformed the industry, altering the competitive landscape from being exclusively service- oriented to one with a cutthroat focus on both price and user experience (not either/or). This has created a keen focus on consumer-facing technologies that can seamlessly handle consumer demands without live agent intervention. For example, etraveli is a pioneer in hands-free booking, and now books over 95% of its transactions without the participation of a live agent. OTAs can follow two strategies, “brand” or “meta”. The brand strategy is more focused on less price sensitive customers with higher personalization demands; while the meta strategy focuses on winning price sensitive customers on channels such as Skyscanner or Kayak through price (About 80% of clicks go to the top three positions/listings). The key in the meta strategy becomes the aspect of up-selling items like airline seats, luggage, check-in, and insurance, which ﬂow directly through the P&L to the bottom line. 7. Case in Point Raymond James is actively serving a travel tech company based in Central and Eastern Europe, which is trans- forming the T&L industry by leveraging the power of its proprietary virtual interlining technology. In a 100% As noted at the outset, advanced technologies are creating disruption across a number of different sectors. Machine learning and artiﬁcial intelligence have shown incredible promise within ﬁelds like process automation, fraud detection and software development and testing. We’re also closely tracking cloud storage, which has changed data storage, processing and management across sectors, but particularly within the IT services and hosting industries. Digitalization of ﬁnancial services and non-cash/mobile payments continue to impact the banking and payments industry, and autonomous driving and electric vehicles are making headway (pun intended) through the automotive industry, disrupting the current value chain and placing software development and data analytics on par in terms of their importance, with more traditional values such as “German engi- neering.” In short, technology is now woven into the fabric of virtually every investment sector. Savvy investors are taking this fact into account, as well as looking at the operating leverage potentially available through the deployment of new technologies across their entire investment portfolio. Given Raymond James’ heritage as a leading provider of investment banking services to tech-oriented, growth companies, understanding the impact of technology across sectors is fundamental to our continued success. We look forward to working with innovative companies and their entrepreneurs to continue to help them ﬁnd capital, make acquisitions and achieve exits that allow their technologies to not just survive, but also thrive, as the economies of the Western world continue to develop and advance. 10 M&A REVIEW 2019 • Vol. 30 • MuMAC 2019

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REPORT • INTERNATIONAL PERSPECTIVE Chinese Outbound Investments The Regulatory Landscape Dr. Nikolaus von Jacobs & Ding Han, McDermott Will & Emery Rechtsanwälte Steuerberater LLP, Munich 1. Chinese regulations 1.1 The Chinese Regulations Applicable to Chinese Outbound Investments Generally, any outbound investment by a Chinese enterprise must be approved by the competent authorities and their local-level bodies before it can be closed. Each competent authority has its own approval requirements for outbound investments, which differ according to the type of investor, the amount of investment in question and other relevant factors. The competent authorities are as follows: 1.1.1 The National Development and Reform Commission (NDRC) The current NDRC regulatory framework for outbound investments is mainly a “record ﬁling system” which means that a simpliﬁed consent is necessary.1”Approval” (granted after an in-depth review)2 is only required in exceptional cases. The approval procedure is triggered only by the investments involved in sensitive countries and regions (jurisdictions with no diplomatic relation- ship with China or subject to UN sanctions) or sensitive industries, such as those relating to weapons, cross- border water resources or news media. The NDRC reviews outbound investments to assess whether the investment target helps to foster the Chinese economy as laid down in the “Chinese 2025 plan” and the “belt road initiatives,” for example. The “record ﬁling” and the “approval” are addressed under the newly issued Measures for the Administration of Overseas Investment of Enterprises. The regulatory framework applicable to Chinese out- bound investments was substantially amended by the so-called Measures for the Administration of Overseas 1 Pursuant to the record ﬁling system, a transaction cannot be closed without obtaining a record ﬁling notice issued by NDRC or local Development and Reform Commissions (DRCs). The issuance of such notice is conditioned on the review of the completeness and authenticity of application documents. Typically, the subject/target in the application form is not scrutinized substantially. 2 The granting of any approval is conditioned on an in-depth review of the subject/ target itself. 12 Investment of Enterprises (the Measures), which took effect on March 1, 2018. The most relevant changes introduced by the Measures, which overall aim to encour- age outbound investments, are summarized as follows. (a) Cancelling the Requirement of Project Informa- tion Report before Submitting Any Binding Offer Prior to the Measures, in M&A or bidding projects where the investment volume by the Chinese investor amounted to USD 300 million or more, the Chinese investor was required to submit an additional project information report to NDRC before starting any substantive work, such as signing a binding agreement or the proposal of a binding offer. Since the Measures came into effect, such requirement has become obsolete. Under the old regime, after receiving the project information report, NDRC would issue a conﬁrmation letter within seven days if it deemed the project to be in line with outbound investment policies. In cases where there were several Chinese investors bidding for a project valued at USD 300 million or more, only one of the investors could ultimately get the conﬁrmation letter to submit a binding offer (so as to avoid a situation where several Chinese investors compete with each other, driving up the purchase price for the potential investment). Nowadays, in auction processes with a transaction value of more than USD 300 million, Chinese investors no longer must submit a project infor- mation report to the NDRC and await pre-approval in the form of a conﬁrmation letter to submit their binding offers. Changes in Auction Process The change in auction processes puts Chinese investors on equal footing with other international and European bidders in terms of pace to submit their binding offers; sellers no longer must consider extending deadlines for the submission of binding offers just because Chinese investors are in the process. M&A REVIEW 2019 • Vol. 30 • MuMAC 2019

In addition, more than one Chinese investor can submit a binding offer, giving the seller the opportunity to choose its preferred bidder amongst several (Chinese) investors – a fact that sellers will appreciate from a price competition perspective. (b) Postponing the Requirement to Get Approval or a Filing Notice from Pre-Signing to Pre-Closing Prior to the Measures, obtaining a record ﬁling notice letter was a signing condition for out- bound investments. A Chinese investor could not sign the sales and purchase agreement (SPA) on the outbound investment prior to ﬁling the transaction and receiving the relevant record ﬁling notice letter. Under the Measures, Chinese investors no longer must obtain the record ﬁling notice letter before signing, but only before closing. This change from a signing condition to a closing condition should speed up the process toward signing when dealing with Chinese investors. The requirement of obtaining the record ﬁling notice from the Chinese authorities hence aligns with the stan- dard European or German closing requirements of obtaining merger clearance and clearance for foreign investment control. While parties may now reach signing somewhat quicker, transaction security may have decreased. Against this background, it is advisable for the seller to consult early in the process with a Chinese outbound advisor experienced in the Chinese regulatory framework to assess potential closing obstacles due to Chinese regulations. In addition, agreeing on a breakup fee that will become due for the Chinese investor in case the required record ﬁling letter is not obtained, may be a good indication of the buyer’s conﬁdence to obtain the record ﬁling notice letter. However, the amount and the process of securing a breakup fee is also subject to regulation. (c) Simpliﬁcation of Application Process through Option to Bypass Intermediary Review by Local DRCs In the former regime, any application by local enterprises to NDRC was required to be submitted to local DRCs, which would then forward the application to NDRC after a preliminary review. Depending on the efﬁciency of the relevant local DRCs, the preliminary review process could be rather time-consuming. The Measures stipulate that local enterprises may now choose to apply directly to the NDRC with- out the need to submit any application to local DRCs ﬁrst. INTERNATIONAL PERSPECTIVE • REPORT Application to NDRC The regional factor thus has become less relevant and the application process can, if so desired, be streamlined. (d) Comprehensive Online Platform to Finish All Required Applications and Filings without Having to Visit the NDRC in-Person All outbound investment-related regulatory processes can now be handled online. Chinese investors can use the established online platform to handle matters such as information exchange, approval, ﬁling, supervision and penalty issue. The new online-based procedures should shorten approval and ﬁling periods. 1.1.2 The Ministry of Commerce of the People’s Republic of China (MOFCOM) The MOFCOM regulatory framework for outbound investments is also mainly a “record ﬁling” system. Speciﬁc “approval” is only required in exceptional cases, such as the establishment of overseas companies in sensitive countries/regions or sensitive industries. The purpose of any review undertaken by MOFCOM is mainly to assess if the establishment of overseas entities is carried out in compliance with applicable procedures for outbound investments. The application documents required for the record ﬁling for NDRC and MOFCOM are basically the same. After both the NDRC and MOFCOM record ﬁlings have been accomplished, the investor must contact State Administration of Foreign Exchange (SAFE) qualiﬁed banks for foreign exchange registration and fund remittance. 1.1.3 The State Administration of Foreign Exchange (SAFE) and SAFE-Qualiﬁed Banks The regulatory framework for outbound investments provides that SAFE-qualiﬁed banks in China deal directly with the foreign exchange registration of outbound investment transactions and process subsequent matters, such as opening capital accounts and remitting outbound funds, while SAFE indirectly supervises the foreign exchange registration of outbound investments. However, since November 2016, when the Chinese rules for capital control became stricter for transactions with overseas fund transfers in excess of USD 5 million, any foreign exchange registration and remittance requires permission from SAFE before it can be dealt with by qualiﬁed banks. In addition, the local SAFE authority now interviews the relevant Chinese investors to assess the authenticity and compliance of the outbound invest ment target. In summary, SAFE has moved to centre stage from its previous indirect supervision function since the capital control measures were intensiﬁed. Vol. 30 • M&A REVIEW 2019 • MuMAC 2019 13

REPORT • INTERNATIONAL PERSPECTIVE 1.2 Supplement: State-Owned Enterprises (SOEs) and Listed Companies Besides the aforementioned generally applicable regulatory framework, there are speciﬁc regulatory aspects that apply to SOEs and listed companies respectively, both of which are the main players in the outbound investment market. 1.2.1 The State-Owned Assets Supervision and Admini- stration Commission of the State Council (SASAC) Under the SASAC Rules, a central SOE3 or its subsidiary that intends to purchase or merge with an overseas listed company or to otherwise make any major overseas investments, must report the intended transaction to the SASAC for ﬁling or approval, as the case may be, which process must be completed before starting the record ﬁling or approval process with the NDRC. At the beginning of 2017, the SASAC released a list of industry categories in which SOEs are not allowed to invest. In addition, SOEs must not invest in businesses outside their sector of business activity. 1.2.2 The China Securities Regulatory Commission (CSRC) and Stock Exchanges CSRC approval is only required for an overseas investment by a Chinese-listed company if the outbound investment constitutes a so-called“material asset restructuring”4 of the listed company. Chinese outbound investments in Germany usually do not meet these criteria. Cash transactions that do not constitute a material asset restructuring of listed companies account for the majority of outbound investment for Chinese-listed companies. However, pursuant to the relevant rules of the Shanghai and Shenzhen Stock Exchanges, if a listed company purchases assets that fulﬁll certain criteria requiring a disclosure of the transaction, either a board meeting or a shareholders’ meeting (subject to the company’s articles of association) must be held to review and approve the intended transaction. Further to approval, an announcement must be released in a timely manner that must brieﬂy describe the basic conditions of the transaction with information on the deal structure, the counterparty, the target, the main terms of the transaction agree- ment, the purpose of the acquisition and the impact on the company. Listed companies generally do not need to suspend trading or accept exchange inquiries. 3 Central SOEs are SOEs that are owned by the Chinese central government, while local SOEs are separately owned by different local governments. The local rules applicable in each province or municipal city are based on the SASAC Rules. 4 A transaction constitutes a material asset restructuring if the listed company or any of ist subsidiaries purchases an asset which is out of the scope of its daily operating business and additionally one of the following criteria are met: (i) the total value of assets purchased in the latest ﬁscal year accounts for more than 50 percent of that of the listed company (on a consolidated basis) for the same period; (ii) the operating income generated by the purchased assets in the latest ﬁscal year accounts for more than 50 percent of that of the listed company for the same period; (iii) purchased net asset value in the latest ﬁscal year accounts for more than 50 percent of that value of the listed company at the end of the same period and also exceeds RMB 50 million. 1.2.3 Transparency of State-Controlled Funds If state-controlled funds are invested outbound, this mostly occurs directly through an SOE, its subsidiaries or through a PE Fund whose limited partner (LP) is owned directly or indirectly by an SOE. It is rather unlikely that a SOE would “disguise” itself as a private company or investor. Some Chinese government-backed PE Funds are registered in the Cayman Islands or in Luxembourg and act similarly to a Western-style PE fund, whereas an LP or the GP is still directly or indirectly owned by a Chinese SOE in order to implement the “One Belt One Road Initiative” of the Chinese government.5 2. Western Regulation: Investment Review Processes in Germany and the United States Not only does a Chinese bidder face regulation in China. It is also subject to investment reviews in Germany, which again can be inﬂuenced by US regulations to the extent there is a US business angle. 2.1 Germany In order to protect German public security and order, the Federal Ministry for Economic Affairs and Energy (BMWi) may review acquisitions of German targets by foreign – including Chinese – investors. A relevant acquisition under the German Foreign Trade and Payments Act (Außenwirtschaftsgesetz, or AWG) is any direct or indirect acquisition of at least 25 percent of the voting rights in a German company by a foreign investor. Voting rights of any third parties are attributed to the investor if it holds 25 percent of the voting rights in the third party or if it has a voting agreement in place with the third party. Thus, even indirect acquisitions (through [intermediate] holding companies) may be subject to review. Currently, there are two Investment Review Regimes in place: (i) a sector-speciﬁc investment review for invest- ments by any non-German investor investing in targets active in security sensitive areas (in particular the defence sector and crypto technology) and (ii) a cross-sectoral investment review for investments in all other sectors by any foreign investor located outside the territory of the European Union or the European Free Trade Association region. 5 Source: Belt and Road Portal. https://eng.yidaiyilu.gov.cn/ghsl/cjwd/2757.htm The Silk Road Economic Belt and the 21st-century Maritime Silk Road, also known as The Belt and Road (abbreviated B&R), is a development strategy and framework, proposed by Chinese President Xi Jinping that focuses on connectivity and cooperation among countries primarily between China and the rest of Eurasia, which consists of two main components, the land-based “Silk Road Economic Belt” and oceangoing “Maritime Silk Road”. 14 M&A REVIEW 2019 • Vol. 30 • MuMAC 2019

INTERNATIONAL PERSPECTIVE • REPORT The following overview focuses on the cross-sectoral investment review, since it accounts for the majority of investment cases. The key criterion for the cross-sectoral investment review is whether any foreign investments could endanger public security and order in Germany. In July 2017, an amendment to the German Foreign Trade and Payments Ordinance (Außenwirt schafts- verordnung, or AWV) came into effect (the New Rules), which inter alia introduced examples of targets that, if acquired, could pose an enhanced risk of threatening public order or security. The list of examples includes operators of critical infrastructure (e.g., in industries such as energy, IT and telecommunications, transportation and trafﬁc, health care, water, ﬁnance, insurance and nutrition) as well as developers of software for critical infrastructure and certain other industries (such as cloud computing and telematics). As Chinese investors have traditionally shown a speciﬁc enthusiasm for acquiring German tech companies, and many of the listed industries are contained in the Chinese 2025 plan and the Belt Road initiative, they have certainly taken careful note of the New Rules. The New Rules follow a certain trend toward closer scrutiny of foreign (including Chinese) investments into Germany, as illustrated by cases such as KUKA, Osram, Aixtron and (most recently) 50Hertz. Pursuant to the New Rules, any transaction in any area that qualiﬁes as critical must be notiﬁed in writing to the BMWi. Prior to the New Rules, such notiﬁcation requirement existed only for the sector-speciﬁc investment review, not for the cross-sectoral review. In areas in which there is no notiﬁcation requirement, the investor may freely choose not to notify the transaction to the BMWi. In these cases, the BMWi can open investigations within three months after it becomes aware of the acquisition and, at the latest, ﬁve years after the conclusion of the acquisition agreement. The legal uncertainty resulting from the ﬁve-year longstop date introduced by the New Rules can be avoided by notifying the transaction to the BMWi and requesting a certiﬁcate of non-objection. In fact, it may be advisable in many cases to voluntarily approach the BMWi. In terms of timing, most investors notify the transaction and apply for a certiﬁcate of non-objection between signing and closing the envisaged transaction. However, pursuant to a contested yet prevailing view amongst legal experts, ﬁling of the application would even be admissible before signing. In such an instance, however, the transaction documentation should be in ﬁnal or close to ﬁnal form to avoid further review at a later stage based on authorities’ assumption that the conditions of the transaction (or, as in the case of Aixtron, the circumstances) might have changed as compared to the point in time when the pre-signing application for non-objection was made. If the BMWi does not launch an in-depth review within two months after receipt of the notiﬁcation (and the application for a certiﬁcate of non-objection, as the case may be) or grant the requested certiﬁcate, a certiﬁcate of non-objection is deemed to have been granted after expiry of the two-month period. If the BMWi decides to launch an in-depth review within the two-month capture period, it has four months (following receipt of all documents required and requested for the in-depth review) to assess and potentially restrict or prohibit the transaction. Recommendation Overall, under the New Rules, a (voluntary) notiﬁcation combined with an application for a non-objection certiﬁcate to the BMWi is typically recommended for the sake of transaction security, at least if the target – after a preliminary assessment – could be deemed active in any of the critical areas. A clearance or deemed clearance under the applicable AWG/AWV should be considered a closing condition. 2.2 CFIUS 2.2.1 Explaining CFIUS The Committee on Foreign Investment in the United States (CFIUS) is an interagency committee made up of government ofﬁcials led by the US Department of Treasury and includes representatives from the departments of Treasury, Defense, Homeland Security, Justice, Energy, Labor and State as well as other related agencies. All transactions that potentially involve a foreign entity acquiring control of a US entity may be reviewed by CFIUS to determine if such transaction would affect US national security interests. Depending on the type of transaction, the parties to the transaction may be required to submit an application for CFIUS approval. After the parties to a transaction have submitted an application to CFIUS, CFIUS will conduct a 45-day review of the transaction for risks to national security to assess whether a full investigation is necessary. If CFIUS does not approve the transaction during the review or investigation period, the parties to the transaction can withdraw from CFIUS review, modify the deal to address any potential concerns, or continue to push the transaction forward. Once CFIUS has conducted its review and/or investigation, it can submit a recommendation and report on the transaction to the president, at which point the president can approve, block or restrict the transaction. Historically, a deal is rarely blocked over national security concerns. In fact, before President Trump took ofﬁce, the sitting US president has only blocked four deals that failed to receive CFIUS approval. Part of this is due to Vol. 30 • M&A REVIEW 2019 • MuMAC 2019 15

REPORT • INTERNATIONAL PERSPECTIVE the fact that most parties withdraw their application and voluntary walk away from the deal or restructure the deal if CFIUS does not approve the transaction within their review period. 2.2.2 Strengthening CFIUS under the TRUMP Administration Under the Trump administration, a policy window opened to create a stronger, well-funded CFIUS charged with reviewing a wider array of transactions. First, foreign investment through acquisition, particularly from China, in 2018 continued to stream into the United States. In fact, CFIUS reviewed more than 200 transactions in 2018, more than a 25 percent increase from the previous record year. At the same time, funding for CFIUS had not kept pace, leaving the organization too overburdened to handle its caseload. Second, the Trump administration, with its “America First” agenda, took aim at immigration ﬂows, trade agreements and the free flow of capital. The administration sees CFIUS as a lever it can use to prevent foreign entities from taking over US industries or acquiring key intellectual property developed in the United States. Since President Trump took ofﬁce, nine deals have fallen apart due to failure to obtain CFIUS approval. 2.2.3 Implementing FIRRMA With such a policy window open, lawmakers quickly mobilized legislation – the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) – enhance CFIUS’s capabilities, and on August 13, 2018, President Trump signed FIRRMA into law. The new law made substantial changes to the current CFIUS regime. First, FIRRMA gave CFIUS authority to review a greater scope of transactions, including those involving infrastructure, critical technologies and sensitive personal data. Second, FIRRMA requires parties of certain transactions to ﬁle a CFIUS review (prior to FIRRMA, all CFIUS ﬁlings were voluntary). These transactions include those in which one of the parties is related to a foreign government, and in which the transaction involves critical infrastructure, technology or sensitive personal data. Third, FIRMMA gives CFIUS 90 days to review transaction: (1) a 45-day application review and (2) a 45-day investigation. In addition, FIRRMA provides for short-form declarations, in which parties to a transaction can ﬁle a 5-page application that CFIUS will review within 30 days. Lastly, FIRMMA imposes a mandatory ﬁling fee: 1 percent of the value of the transaction or USD 300,000, whichever is less. These fees will inject much-needed funding into CFIUS so that it will have the necessary staff to conduct timely reviews and investigations. US sellers to foreign entities and international investors should carefully review and consider contingencies to ensure that their transactions are not unnecessarily hindered by a stronger, more emboldened CFIUS. 2.2.4 Fallout of Reform Such legislation has a clear goal: limiting China’s ability to take control of key industries in the United States. Enacting such legislation to accomplish this goal, however, could have signiﬁcant collateral damage. The legislation could potentially transform CFIUS into a bureaucratic monster, stalling much-needed foreign investment. In such a situation, foreign capital might ﬁnd alternative jurisdictions in which to invest, putting US industries at a signiﬁcant disadvantage. Not only could this increase the price of ﬁnancing for US companies, but it could also impact current US investors, particularly hedge funds, that tend to invest alongside foreign investors and governments. Through early 2020, CFIUS is conducting several pilot programs to best implement FIRRMA’s mandates and, hopefully, avoid or any severe consequences from the legislation. 3. Understanding the Motivation/ Strategic Rationale of Chinese Investors If a Seller wants to comprehend the rationale of a Chinese investor for a particular investment and build conﬁdence and trust based on a mutual understanding, it is important for the Seller to understand the deal logic of the Chinese investor and his perspective. The following aspects can be relevant: • Chinese stock market logic (valuation arbitrage from stock market, deal logic for listed companies) • Chinese 2025 Plan/One Belt One Road Initiative political logic (infrastructure and energy sector to comply with political endeavors, deal logic for SOEs or relevant government-backed PE funds) • Industrial logic (enhancing and updating the existing product portfolio, acquiring a wel-established distribution channel or expanding the potential market development in China, deal logic for any kind of Chinese companies) • Future key industry logic (AI, chips, robotics, automation, clean energy, fully supported by government for any kind of Chinese company) The Chinese 2025 Plan, coupled with the One Belt One Road Initiative is the main (political) framework for current Chinese outbound investments. The outbound investments meeting the criteria of the One Belt One Road Initiative are well reﬂected in the following “Guidance” issued in August 2017, aiming to encourage the industry to engage in this respect, with the Chinese government providing supporting services regarding approval, tax, foreign exchange, insurance, customs and other services. 16 M&A REVIEW 2019 • Vol. 30 • MuMAC 2019

4. Guidance on the Outbound Investments from China’s State Council 4.1 Encouraged Industries: (convenient practice) 1. Construction under the Belt and Road Initiative and other related infrastructure construction 2. Outbound investment in relation to the exports of advantageous capacity, equipment and technology 3. Outbound investment that could enhance the cooperation with foreign hi-tech or advanced manufacturing entities. It is also encouraged to set up foreign R&D centers 4. On a prudential basis, the exploration and de- velopment of foreign energy sources including oil, gas and minerals 5. Cooperation in relation to the agricultural, ﬁshery, forestry and animal husbandry industries; and 6. On an orderly basis, cooperation in relation to trade, culture, logistics and other services. Qualiﬁed ﬁnancial institutions are also allowed to set up foreign branches or networks outside China. In general, investments in infrastructure, energy, high- tech manufacturing, automation, key software and hardware, logistic targets comply with the Chinese 2025 Plan and One Belt One Road Initiative. Sometimes, the deal logic Chinese investors are driven by is different from what the Seller would expect. For example, the Seller might think that the existing European distribution channel of a target and the INTERNATIONAL PERSPECTIVE • REPORT potential expansion in the Chinese market of the target’s product (i.e., the long-term development factors) are the main considerations for the Chinese buyers. In reality, however, the main motivation of the Chinese buyer might well be the valuation arbitrage (valuation difference between the Chinese and German Market). Therefore, under the valuation arbitrage logic, the Chinese investor will seek a majority purchase in order to consolidate and beneﬁt from the higher valuation multiple in China (calculated on a net proﬁt per share basis). It is advisable to initiate certain background checks including reviewing the historic past transaction record of a Chinese bidder, its reputation in the market and its shareholding structure. 4.1.1 Origin of Financing Besides the funds at hand of a Chinese investor, the remainder of the purchase price and transaction costs will be funded by debt or additional equity. The sourcing will depend on the nature of the investor. (a) SOEs SOEs have better access to debt ﬁnance in China and in Hong Kong than other companies. Moreover, for SOEs it is relatively easier for privately-owned companies to be granted a loan from Chinese Banks, which in most cases are also state-owned. Some SOEs further have a strong position to be granted offshore loans in Hong Kong. (b) Listed Companies Listed companies have access to equity ﬁnance in the Chinese stock market, combined with the access to debt finance from Chinese or international banks. That availability, however, will ﬂuctuate with the stock market valuation. Since most listed companies are already highly leveraged, great portions of financing for Chinese listed companies ﬁnally result from a private placement on the stock market. There are certain regulatory requirements from the CSRC to be observed for private placements. Since the approval process for a private placement is too slow to meet the requirements of a normal bidding process in Europe, a listed company has to make use of transitional ﬁnancing arrangements to purchase the target (for example through an interim M&A fund) before the ﬁnancing from the private placement can be used. It often occurs that the listed company as the strategic investor founds an M&A fund with ﬁnancial investors (investment funds in China), acting as LPs to provide much of the funds to purchase the target Vol. 30 • M&A REVIEW 2019 • MuMAC 2019 17

REPORT • INTERNATIONAL PERSPECTIVE on such interim basis. After the approval of a private placement is granted by CSRC, the target is acquired by the listed company against cash or share consideration. In addition, the extra debt ﬁnance to purchase the target could be secured through the support of a controlling shareholder, which provides the Chinese banks with more collateral by pledging their shares in the listed companies. (c) Private Unlisted Companies Regarding ﬁnancing, private unlisted companies are in a disadvantageous position compared to SOEs, as they have access neither to capital markets nor to banks. Basically they have to ﬁnance acquisitions with equity. Consequently, transaction volumes of unlisted companies tend to be smaller. (d) Generally: Offshore Funds SOEs, some Chinese companies listed in Hong Kong as well as offshore PE Funds have offshore funds, potentially also through previous overseas business operations, IPO or bond issues in Hong Kong, which are not subject to the regulatory framework in mainland China. The availability of such offshore funds will certainly accelerate the process and can ensure a swift closing. 4.1.2 Decision Making and Negotiation Processes (a) Understanding of Decision Making Generally, senior management of the Chinese Buyer, such as the Chairman, the CEO, or the share- holders themselves, is the driving and ﬁnal decision maker, leaving the mid-level management (such as the managing director of an overseas invest- ment department or of a strategic department) in charge of driving the transaction deal on an execution level. The senior management or shareholders will (i) decide whether to engage on the transaction in the ﬁrst place after digesting the report from such executive level, (ii) determine the ﬁnal offer price and (iii) whether to accept terms that initially were categorized unnegotiable. Combined with the fact that senior management and shareholders are not regularly familiar with European M&A practices, this decision-making mechanism is one of the main causes for the relatively slow response from a Chinese bidder. First, it takes time for the middle level management to digest the information and prepare a good quality report for senior management team to make informed decisions and secondly, it takes further time for senior management or sharehol- ders to make the ﬁnal decision, since technically they are not equipped with sufﬁcient expertise. The decision makers hardly show up for negotiations, if at all, only in very important occasions. The mid-level managers will be responsible for the implementation, such as the involvement in the bidding process, the coordination of the advisors and negotiations in Germany. From a Seller’s perspective, a good communica- tion line should be developed with mid-level management. However, direct access – ideally in face-to-face meetings – to the ﬁnal decision makers should be established at the beginning of the process in order to convey a sense of seriousness of the buyer. The ability to reach out to the decision makers will also improve the efﬁciency of communication if mid-level management lacks the understanding of a European M&A process. Decision making in China might be associated with personal liability for a wrong decision in particular for the senior management members from SOEs. Some decision makers need to be provided with adequate information before any decision can reliably be made. In addition, due to the lack of proper information and understanding, decision makers are generally reluctant to make a decision at an early stage and keep things open until a ﬁnal stage in order to make a more informed decision (so-called “walk and look approach”). Behavior may differ from bidder type to bidder type and might be summarized as follows. (i) State-owned Enterprises • Normally the Chairman has the ﬁnal say. It is advisable, in case of a large cap transaction, to reach out to a representative on the highest possible level in the hierarchy in order to assure deal certainty. Sometimes, the Chairman of an SOE needs to consult with his superiors from the relevant local or central SASAC for large transactions, depending on whether the SOE is locally or centrally owned. • Slow in decision making • Cautious in every step of investment • Arduous paperwork needed • Need extra approval from SASAC • SOEs generally do not compete with each other (ii) Listed Companies • Unlike the situation in a German listed company, the largest shareholder with the other concerted shareholders or the majority shareholder in a Chinese listed company will make the ﬁnal decisions by inﬂuencing the board of directors. The board members assigned to the board by the controlling shareholder represent – to a 18 M&A REVIEW 2019 • Vol. 30 • MuMAC 2019

very large extent – the interests of the controlling shareholder • Slow in decision making • Need to go through shareholders’ meeting • Require controlling stake to consolidate target’s ﬁnancials • Listed companies may not look for targets in the same sector • Many of them already have outbound investment experience and are familiar with auction processes (iii) Private Unlisted Companies • The owner has the ﬁnal say; owners normally take care of any money-related topics themselves or assign the task to their most trusted managers • Quick in decision making • Very local culture • Non-standard practices and need more education to get familiar with European market standard • Lack of competent M&A and in-house deal team (iv) International Players (e.g., HNA, Fosun, CIC, Baidu, Tencent) • Well equipped with in-house M&A team, composed of the former staffs from various prestigious international investment banking ﬁrms • Many well-known large-cap transaction records in the world • International standard practices (b) Chinese Negotiation Processes Generally, Chinese investors absorb the relevant information in a rather slow manner due to various factors, such as the lack of cross-border transaction experience, the language barrier or the unavailability of direct communication with the decision makers. In addition, signiﬁcant differences in negotiation style and culture exist between China and Europe. Negotiation in China is seen as an ongoing, dynamic process that takes into account practical matters and additional information acquired from the negotiation process itself. With the further development of further ﬁndings during the negotiation process, a Chinese party might want to adjust their previous opinions. If the seller wants to include a Chinese buyer in the bidding process in order to achieve a higher offer, the seller should take into account the possible extra efforts caused by a less structured approach from Chinese bidders. Generally speaking, the goal of outbound investments is relatively clear for Chinese investors, since the demand for outbound investment to address INTERNATIONAL PERSPECTIVE • REPORT their bottleneck in China is real and concrete after knowing what they need from overseas, such as technology, market access, diversiﬁcation to an existing product portfolio or ﬁnancial contribution from the target. The western tradition of abiding by oral agreements does not necessarily apply to China. For cultural reasons, Chinese communication often includes – in order to make the current conversation more impressive – making statements without necessarily taking into consideration feasibility. There is still a learning curve ahead of both Chinese investors and German sellers about how to better manage expectations of the counterparty, in order to eliminate any discrepancies in understanding. The time the ﬁnal decision maker may take to arrive at a decision is generally hard to predict. More open, less strict timelines can help alleviate the uncertainty. In addition, the Chinese team engaged with the outbound investment might also simultaneously be highly engaged with domestic cases, as multitasking is quite popular in China. It is more important to have close contact with decision makers. While notably accomplished in political life or domestic business, many decision makers in China have little knowledge or experience in outbound investment. Thus, when it comes to cross-border transactions, they often rely mainly on their mid-level overseas managers for the implementation of the transaction. Such managers are generally ﬂuent in English and have certain experience in outbound investment, but often lack systematic training or previous working experience in the international market. Consequently, if the mid-level managers misunderstand any information or process steps, this can reverberate into broader misunderstanding at the level of the decision makers and may result in the failure of the deal. Further, trust is an important basis for a Chinese investor, especially considering investments in a foreign country of which it has little knowledge. Trust with a Chinese investor can be built most effectively through personal relationships in addition to meetings – in particular lunches and dinners – rather than normal business meetings that remain on a factual level. The best way to address the risk of misunder- standings is to rely on advisors well acquainted with both sides and able to contribute to a better and more accurate education of the Chinese side as well as to give the German side a transparent picture of what the considerations and concerns are from a Chinese perspective. Vol. 30 • M&A REVIEW 2019 • MuMAC 2019 19

REPORT • EUROPEAN PERSPECTIVE M&A Due Diligence Compliance: Be Prepared Markus Schiller, Merrill Germany GmbH, Frankfurt 1. Introduction Due diligence compliance has always been an issue in M&A, but it seems to be increasingly cited as an area of concern for companies, especially now that GDPR has become law and is being enforced. What can prac- titioners do to help ensure deals don’t get left behind by these issues? The Boy Scout motto comes to mind, for one. 2. Be Aware One year on from GDPR and it’s clear that the law is being taken seriously: over 50 million Euro in ﬁnes have been issued (May 2019) and the number of data breaches reported is expected to increase to 100% this year. Moreover, in early July, the UK ICO (responsible for enforcing GDPR in the UK) notiﬁed Marriott Inter- national that it intends to ﬁne it 110 million euros. The ﬁne relates to a cybersecurity incident with Starwood (which Marriott ultimately bought) where personal data from approximately 339 million Starwood hotel guest records was exposed. The ICO’s ﬁne cited failure by Marriott to undertake sufﬁcient due diligence in the acqui sition of Starwood and that it should have done more to secure its systems, speciﬁcally stating that: “ The GDPR makes it clear that organisations must be accountable for the personal data they hold. This can include carrying out proper due diligence when making a corporate acquisition and putting in place proper accountability measures to assess not only what personal data has been acquired, but also how it is protected. will not hesitate to take strong action when necessa- ry to protect the rights of the public.” This isn’t the ﬁrst time data breaches have affected M&A deals: it happened with TripAdvisor and Viator, and Verizon and Yahoo, resulting in TripAdvisor losing a reported 517 million Euro in market cap, Yahoo be- ing devalued by 312 million Euro and Marriott’s stock price slumping. Should practitioners have anticipated these challenges? Perhaps, especially if you look at what M&A practition- ers have said in recent studies 1: • over 60% expect GDPR will increase acquirers’ scru- tiny on the data protection policies and processes of companies; • over 50% have worked on M&A transactions that have not progressed because of concerns around a target company’s compliance with GDPR; • 78% expect data risks to be a challenge in the next year; • 73% felt cybersecurity would also present challeng- es; • 62% felt that their company faces signiﬁcant cyber- security risk acquiring new companies; and • cyber risk is the biggest concern post-acquisition. 3. Be Prepared The good news is that M&A practitioners believe that technology can solve some of their biggest challenges in due diligence, if they’re prepared to embrace it. They “ Personal data has a real value, so organisations have a legal duty to ensure its security, just like they would do with any other asset. If that doesn’t happen, we 1 Due Diligence 2022 (Merrill Corporation, November 2018); M&A Due Diligence: Clients vs Advisers (Merrill Corporation, June 2019); Taking Center Stage: The Rise and Rise of M&A Compliance Due Diligence (Mergermarket/BakerMcKenzie, 2019); The Role of Cybersecurity in Mergers and Acquisitions Diligence (Forescout, 2019). 20 M&A REVIEW 2019 • Vol. 30 • MuMAC 2019

EUROPEAN PERSPECTIVE • REPORT Graphic 1 • Q11. In the next ﬁve years what impact do you expect the EU’s General Data Protection Regulation (GDPR) to have on M&A due diligence? Source: Due Diligence 2022, Merrill Corporation Overall 66% Europe Middle East 63% 66% Nordics 71% Africa 70% 22% 10% 25% 25% 12% 6% 18% 11% 15% 8% It will increase acquirers’ scrutiny of the data protection policies and processes of target companies There will be no material impact It will decrease acquirers’ scrutiny of the data protection polices and processes of target companies Graphic 2 • Q12. Have you worked on M&A transactions that have not progressed because of concerns around a target company’s data/privacy protections and compliance with GDPR? Source: M&A Due Diligence: Clients vs Advisers, Merrill Corporation Yes No Don’t know 0% 10% 20% 30% 40% 50% 60% Client Adviser Graphic 3 • Q17. Which of the following technologies do you see as potentially having the most trans- formative impact on M&A due diligence over the long term? Source: M&A Due Diligence: Clients vs Advisers, Merrill Corporation AI and machine learning technologies Data analytics (i.e. predictive) technologies Blockchain technology Virtual deal or data room 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Client Adviser Vol. 30 • M&A REVIEW 2019 • MuMAC 2019 21

REPORT • EUROPEAN PERSPECTIVE M&A and GDPR: 5 Issues to Consider Early in the Deal Lifecycle • Purpose, viability and value: Analyzing the original collection purpose of a target’s data is important because it can only be used for that purpose and therefore this could affect the value and viability of the transaction if it were collected incorrectly. Moreover, a buyer needs to verify that all data consents have been obtained in compliance with GDPR since a consent on ﬁle is not automatically GDPR-compliant. Thus, data-related risks and costs should be assessed early on. • Terms and agreements: Data protection clauses are increasingly being used in NDAs since GDPR came into effect; moreover, data transfer agreements are becoming more common where transactions are cross- border. Warranties requested by purchasers are lengthier and more speciﬁc, as risks are now being assessed with regard to data and compliance. And as the ‘controller’ of the data changes upon sale and must be identiﬁed to impacted individuals, deal terms are increasingly including this timing and information. • Due diligence/Virtual data rooms: More thought is being given to what data is being shared in data rooms, as well as how secure and GDPR-compliant those due diligence applications or virtual data rooms are. This also includes the establishment of proper processes for possible data breaches. Thus, redaction, watermarking and permissioning controls are taking on an ever more important role in the due diligence process, as well as evidence of GDPR compliance by the due diligence application or virtual data room provider. • Integrated Redaction: Personal identiﬁable information is inevitable in any due diligence process. Ensuring that critical data is redacted before disclosing it to third parties is an important GDPR compliance step and a risk factor that needs to be properly managed and mitigated. Redaction can be extremely time-consuming, cumbersome and ripe for error. If redaction is integrated within a GDPR-compliant due diligence application, rather than by using an outside, third-party tool, then data breaches are minimized. • Buyer/Seller Q&A: Q&A between sellers and potential buyers during the due diligence process can be ripe for security breaches, as well as mistakes, if done by email and spreadsheet. Moreover, GDPR now requires a written record of processing, data protection impact assessments, record-keeping regarding breaches, and, under certain conditions, the appointment of a data protection ofﬁcer (DPO). Therefore, AI-powered tools and analytics can be extremely helpful in ensuring compliance during this stage of the due diligence process. increasingly believe new technology will enable great- er security, and AI and analytics, if used correctly, could make the process better and more efﬁcient. judgements on risk,” says Jannan Crozier, Partner at Baker McKenzie. “We want to ensure that lawyer time can be used more effectively and efﬁciently for our clients.” This all sounds like a positive step forward, but are M&A practitioners actually preparing for these changes and embracing technology for good in due diligence? It seems that they are indeed ‘walking the walk’. Baker McKenzie says they are on a technological journey in terms of due diligence, using virtual data rooms to be more efﬁcient and AI software for contract review, with the plan to more heavily rely on AI and other technologies for the more commoditised aspects of due diligence. “Where there is the technology to review documents with a degree of accuracy we should absolutely be embracing that, with lawyers providing the more strategic input and supporting clients to make And Janis Dzenis of Luminor, the third-largest bank and ﬁnancial services provides in the Baltic region, agrees new technologies such as AI and data analytics can further enhance the due diligence process, potentially automating speciﬁc areas. “I see no reason why we couldn’t do partial automation of due diligence devel- opment via data analytics and visualisation. AI has the potential to provide scenario analysis such that profes- sionals would ‘just’ have to make the ﬁnal decision.” So, if you stay aware and are prepared, including keep- ing abreast and using the latest technology, deals might just stay on course and not get knocked off track. 22 M&A REVIEW 2019 • Vol. 30 • MuMAC 2019

Look at what we’ve accomplished lately. See what we can do for you. Has been acquired by Has been acquired by Has been acquired by With more than 25 years of international expertise, the Raymond James European Investment Banking team has successfully advised mid-market companies and January 2019 Germany, the client-focused, award-winning team is committed to advising clients throughout all phases of a transaction. Together, we provide the exclusive insight you want and the powerful resources you Has been acquired by Has been acquired by Has acquired July 2018 June 2018 Has been acquired by Has been acquired by RAINER HEPBERGER // +49.89.232377.73 DIRK-OLIVER LOEFFLER // +49.69.219337.10 HARALD MAEHRLE // +49.89.232377.20 MONIKA NICKL // +49.89.232377.66 PHILIP STEIN // +49.89.232377.50 Has acquired SEBASTIAN WINTGENS // +49.89.232377.45 JAPHET WUENSCH // +49.89.232377.38 JULIAN KNIRIM // +49.69.219337.12 ARNOLD ORTH // +49.89.232377.28 TOMAS ARTNER // +49.89.232377.72 June 2018 June 2018 January 2018 EMANUEL BISCHOFBERGER // +49.89.232377.47 Has acquired Has acquired a majority stake in Has completed a public takeover of £224,000,000 JENS GERLACH // +49.69.219337.13 FLORIAN HELMREICH // +49.89.232377.39 HENRY IZBICKI // +49.89.232377.52 SEBASTIAN KNACKFUSS // +49.89.232377.65 VALERIE RINECKER // +49.89.232377.49 SANDRO UNGRICHT // +49.89.232377.51 JOACHIM BEICKLER // +49.69.219337.20

REPORT • EUROPEAN PERSPECTIVE Mitigating Antitrust Risk in M&A Transactions – Key Takeaways from the EU Commission’s Veto of the Alstom/Siemens Railway Merger Lionel Lesur, Stephan de Groër, McDermott Will & Emery AARPI, Paris & David Henry, McDermott Will & Emery, Brussels 1. Introduction In September 2017, Alstom and Siemens intended to create a “European Champion” through a merger of their respective rail activities. The European Commission (“Commission”) blocked the proposed merger on February 6, 2019, despite the French and German governments being strongly in favor of the transaction. The Commission found that the deal gave rise to com- petition concerns in the markets for the manufacturing of railway signaling systems and for high speed/ very high-speed trains. The Commission found that consumers would have been harmed as a result of reduced choice of supplier and products. Potential competition from China Railway Rolling Stock Corp (“CRRC”) was still too uncertain and could therefore not be taken into account as an attenuating factor. The Commission’s veto of the Alstom/ Siemens merger is a good illustration of how antitrust risk can jeopard- ize M&A transactions. The aim of this article is to pro- vide a brief overview of the main contractual provisions parties can use to mitigate antitrust risk in their trans- actions. 2. Preliminary Antitrust Assessment In transactions likely to face close antitrust scrutiny, both parties should critically assess any antitrust issues at an early stage of the deal process, the goal being to identify potential overlaps and the likelihood of there being a need for remedies. Once antitrust risk has been assessed and the parties agree to move forward with the deal negotiation, they are strongly advised to ensure that the draft transaction agreement(s) provide for the consequences that each party may face if the deal is subject to remedies or even prohibited. The types of provision agreed upon by the parties mainly depends on their interests and relative bargaining positions. If the transaction does not raise substantive antitrust concerns, there is clearly no need to include detailed provisions regarding divestitures and remedies. However, in practice, even when antitrust risk is low, buyers tend to accept detailed clauses when sellers insist on them, as such clauses are in any event unlikely to apply. On the other hand, when antitrust risk is signiﬁcant, the parties have a clear interest in having a detailed clause to accurately manage and allocate deal risk. The initial preliminary antitrust assessment should be carried out with the greatest care and attention and the parties should not be over-optimistic, including in the deﬁnition of the relevant product and geographical markets. In particular, when negotiating the antitrust clauses and when structuring the share purchase agreement, only concrete, and not hypothetical scenarios should be taken into account. In the Siemens/ Alstom merger for example, one of the main arguments advanced by the parties in support of the merger was the competitive pressure exerted by China’s state-backed CRRC. The Commission stated, however, that it “assessed the likelihood of Chinese rail equipment suppliers entering the market, not in the abstract, but concretely” and that “no Chinese supplier has ever participated in a signaling tender in Europe or delivered a single very high-speed train outside China. And there is no prospect of Chinese entry in the European market in the foreseeable future”. 24 M&A REVIEW 2019 • Vol. 30 • MuMAC 2019

EUROPEAN PERSPECTIVE • REPORT 3. Divestitures Provisions regarding divestitures deal with the extent to which a party is required to divest, sell or license assets in order to obtain regulatory approval. A seller-friendly divestiture clause would oblige the purchaser to make any and all divestitures necessary to obtain antitrust clearance, no matter the scope of such divestitures. Purchasers should try to avoid agreeing to such clauses. The reason for this is that if one of the competent antitrust authorities sees in the deal agreement(s) attached to the notiﬁcation that the purchaser is required to do anything necessary to obtain approval, this is likely to reduce the purchaser’s bargaining power vis-à-vis this antitrust authority. Another solution could be to cap the divestiture obligation to a certain level of, for example, sales or EBITDA, or to provide that the parties will not make “material” divestitures (the meaning of “material” should be deﬁned in the contract). Alternatively, the clause could list speciﬁc assets of the target and or/ purchaser to be divested (or not to be divested). When including such clauses, the antitrust condition precedent should set forth the ceiling/level of assets beyond which the purchaser will no longer be required to propose or accept divestitures, and hence to close the transaction. level of divestures both parties or either party is willing to accept, the parties provide the antitrust authority with a roadmap regarding which divestitures they are willing to agree to or avoid in order to obtain approval. A more buyer-friendly approach would be to provide for a best efforts clause setting forth the level of effort required from the parties to ensure successful clearance of the various shareholder and regulatory hurdles to complete the transaction, including obtaining antitrust clearance. The parties’ commitment can be calibrated higher by requiring them to use “best efforts” or “reasonable best efforts”, or less by requiring only “commercially reasonable efforts”. The purchaser may for example be required to use “all commercially reasonable efforts to resolve any objections by the European Commission”. One of the key lessons drawn from the Siemens/Alstom merger is that parties should avoid offering complex remedies late on in the antitrust review process. Indeed, Siemens waited until day 110 of the 125-day review process to make a substantial modiﬁed offer. Ms. Vestager, the current EU Competition Commissioner, said this offer was received “way, way over the usual deadline” and, in any event, did not adequately address the Commission’s competition concerns. Even if such divestiture clauses can potentially expedite negotiations with the antitrust authority, they also have several disadvantages. Indeed, by agreeing to speciﬁc assets to be or not to be divested, or at least which 4. Obligation to Cooperate The draft transaction agreement must provide for an obligation on the parties to fully cooperate with each other in good faith with respect to the antitrust ﬁling. ANZEIGE Magazin – Online – Events – Netzwerk Investment Plattform China/Deutschland CCCCCCChhhhhhiiiiinnnnnaaa/////DDDDDDeeeeeeeuuuuuttttttsssccc Bestellen Sie jetzt die Investment Plattform China/Deutschland in deutscher und chinesischer Sprache im Jahres-Abonnement. 4 Ausgaben zum Preis von 60,00 EUR inkl. MwSt und Versand. Erscheh ini ungsterminine 2 Erscheinungstermine 2019: 13. Febr. (Nr. 1/19) • 8. Mai (Nr. 2/19) • 7. Aug. (Nr. 3/19) • 30. Okt. (Nr. 4/19) China Investment Media GmbH • Christina Wolpert • abo@investmentplattformchina.de • Tel.: +49 (0) 89/2000 339-81 • www.investmentplattformchina.de

REPORT • EUROPEAN PERSPECTIVE The aim of such provision is to ensure that the buyer has sufﬁcient information at its disposal to prepare the relevant documentation requested by the antitrust authorities. Furthermore, such clause should also ensure that the seller is informed in due time of any discussions/correspondence that the buyer has with the competent antitrust authorities. Ideally, the seller should also have the opportunity to make prior comments on any submissions the buyer makes to the authorities. The obligation to cooperate becomes even more relevant in the EU as the Commission (as well as several national competition authorities, including the French one) has increasingly requested more documen- tation from the parties over recent years - witness in this respect the 90,000 internal emails alone reviewed by the Commission in Olympic/Aegean Airlines (2011). With respect to the Alstom/Siemens merger in particular, it is understood that the parties were completely overwhelmed by the extent of the document requests made, and that had to be responded to, within a very short timeframe. It is therefore recommended not to wait too long to start gathering relevant information for the purposes of the antitrust review. 5. Termination The termination clause in the transaction agreement provides for the time period during which the parties are bound by their obligations under the contract. Such obligations will last at least until the so-called drop dead/ long stop date. This is the date by which either party may unilaterally terminate the agreement without cause. A termination clause may also provide for the possibility for a party to terminate the agreement in the event of the occurrence of certain events, including in the event that any antitrust authority launches an in-depth/ Phase II investigation. If the level of antitrust risk is signiﬁcant, the parties may provide for an early drop dead/long stop in order to allow them to avoid long negotiations with any antitrust authority as the case may be. In contrast, a late drop-dead could oblige the parties to negotiate with the authori- ty(ies) with no certainty of obtaining the necessary approval(s) and close the deal. 6. Reverse Breakup Fees and Ticking Fees The transaction agreement can also provide that a reverse break-up fee must be paid by the purchaser to the seller in the event that the transaction does not close because of a failure to obtain all necessary antitrust clearances. The rationale for such clause is to mitigate the risk of a transaction not clearing antitrust review and to indemnify the seller for a part of the direct and indirect costs he had to bear during the acquisition process. In practice, the amount of re- verse break-up fees usually ranges between 4% to 7% of the purchase price. In deals where the likelihood of antitrust risk is high, the seller should negotiate a high breakup fee so as to be protected from the risks associated with a lengthy review process, and which may ultimately result in a prohibition or abortion of the transaction (loss of customers and employees, decrease in valuation if deal fails, etc.). Some agreements provide for “ticking fees” which are payable by the purchaser to the seller for delays in closing beyond a certain date. Unlike a reverse break-up fee, the seller is not required to wait until the transaction is terminated to be compensated. Indeed, the purchaser is required to start paying once the date on which the antitrust clearance should have been obtained is reached. Ticking fees are an incentive for the purchaser to make concessions to settle the antitrust issue and to get through the antitrust clearance review quickly. In bidding processes relating to deals that are likely to or may raise competition concerns, sellers often compare the antitrust clauses in the offers and share purchase agreements provided by each potential purchaser, and even ask each bidder to attach to its offer a memorandum drafted by its legal advisors providing for an antitrust analysis of the transaction. Such practice tends to favor private equity funds over industrial actors who, if they are competitors of the target and want to be awarded the deal, may have to offer a higher price (including through a reverse break-up fee) in order to compensate inter alia the fact that any closing will occur at a later date and that therefore the seller(s) will receive its money later. 7. Payment of Antitrust Related Expenses and Fees Parties should keep in mind that antitrust investigations can be extremely expensive due to the length of the procedure(s) and the number of advisors and profes- sionals (lawyers, economists, translators, etc.) involved. Hence, in deals where antitrust issues are highly likely, smaller sellers should negotiate that part of the costs related to antitrust are borne by the purchaser. Purchasers should in turn negotiate a cost ceiling that they will not surpass in the context of the antitrust review of the transaction. 26 M&A REVIEW 2019 • Vol. 30 • MuMAC 2019

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REPORT • GERMANY Challenges and Pitfalls of Compliance Representations Christian von Sydow & Robert Feind, McDermott Will & Emery Rechtsanwälte Steuer berater LLP, Munich 1. Introduction A crucial point in almost every M & A transaction is the negotiation of clauses regarding representations and warranties.1 An often-used clause is the compli- ance representation. Compliance representations or compliance with laws representations are typical sell-side representations. In such a clause, the seller represents that the target company has conducted its business in accordance with all applicable laws. The situation in Europe is different. As can be seen in Graphic 2, compliance representation clauses are used regularly in more than three-quarters of all purchase agreements .3 In our practical experience, in Germany, the sell-side usually does not object to include such provisions in purchase agreements. Only in cases where compliance issues could be a key concern, they will be contested and negotiated. The results of the studies conﬁrm our own experience. This article intends to provide an overview of the purpose and use of compliance with laws representa- tions, followed by aspects regarding negotiations of such representations and ﬁnally highlighting possible challenges and pitfalls of compliance representations. In European purchase agreements are usually subject the scope of compliance representations are subject to negotiation. Classical areas of negotiation are knowledge qualiﬁers, time limitations and notice requirements. 2. Purpose and Use of Compliance Representations The purpose of compliance representations is to allocate responsibilities and liability between the parties. Understandably, the new owner of a company does not wish to be responsible for legal breaches com- mitted by its predecessor. Furthermore, compliance representations can create incentives to improve the disclosure process in the course of a transaction. For more than a decade all standard US M & A purchase agreements concerning private targets contain compliance representations. According to the 2017 Private Target M&A Deal Points Study of the American Bar Association (ABA), such clauses were included in almost every of the reviewed transactions.2 As can be seen in Graphic 1, only 1 percent up to 2 percent (in 2008 even 0 percent) of the purchase agreements re- viewed by the ABA did not contain compliance with laws representations. In the US, compliance representations are, according to the 2017 ABA study, rarely qualiﬁed by knowledge. In Europe, almost every second purchase agreement containing compliance representations, then includes a knowledge qualiﬁer. However, limitations regarding the time of compliance are more common in the US than in Europe. In Europe, every third of four compliance representation clauses cover present and past compliance. As regards notice requirements, no signiﬁcant differences exist between the US and Europe. If any notice is covered in compliance representation than it is usually a notice of violation. Notices of investigations are rarely included. 3. Negotiation of Compliance Representations Negotiations of compliance with laws representations depend on the perspective. The common sell-side preference is to limit representations. A possible way to achieve this is to give a compliance representation as regards current compliance only. Having the ABA studies in mind it might be hard to achieve such a limitation in 1 Whether share purchase agreement, asset purchase agreement or merger agreement. 2 American Bar Association, Business Law Section, Mergers & Acquisitions Committee, M&A Market Trends Subcommittee, Private Target Mergers & Acquisitions Deal Point Study, 2017, page 41. 3 American Bar Association, Business Law Section, Mergers & Acquisitions Committee, M&A Market Trends Subcommittee, European Private Target Mergers & Acquisitions Deal Point Study, 2017, page 42. 28 M&A REVIEW 2019 • Vol. 30 • MuMAC 2019

GERMANY • REPORT Graphic 1 • Usage of Compliance Representations in Purchase Agreements in the US Source: American Bar Association, Business Law Section, Mergers & Acquisitions Committee, M&A Market Trends Subcommittee, Private Target Mergers & Acquisitions Deal Point Study, 2017, page 41. 100% 1 0 1 1 2 1 99 100 99 99 98 99 50% Deals in 2006 Deals in 2008 Deals in 2010 Deals in 2012 Deals in 2014 Deals in 2016-2017 Compliance representations included Compliance representations not included Graphic 2 • Usage of Compliance Representations in Purchase Agreements in Europe Source: American Bar Association, Business Law Section, Mergers & Acquisitions Committee, M&A Market Trends Subcommittee, European Private Target Mergers & Acquisitions Deal Point Study, 2017, page 42. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 21 79 26 74 17 83 Study 2013 Study 2015 Study 2017 Compliance representations included Compliance representations not included Graphic 3 • Scope of Compliance Representations in the US and Europe Source as regards the US: American Bar Association, Business Law Section, Mergers & Acquisitions Committee, M&A Market Trends Subcommittee, Private Target Mergers & Acquisitions Deal Point Study, 2017, page 40. 80 70 60 50 40 30 20 10 0 76 47 43 24 Knowledge Qualified US Europe 8 7 14 16 Covers Present and Past Compliance Includes Notice of Investigation Includes Notice of Violation Vol. 30 • M&A REVIEW 2019 • MuMAC 2019 29

REPORT • GERMANY Europe. Nevertheless, it seems to be reasonable to negotiate time limitations regarding past compliance, e.g. the previous three years, if a representation concerning past compliance cannot be excluded. Besides time limitations, a seller can limit the representa- tion by using different qualiﬁers, i.e. knowledge qualiﬁ- ers or certain materiality qualiﬁers. Possible materiality qualiﬁers are provisions which provide that the breach of the compliance representation shall have a material adverse effect (MAE) on the business or that the violated law is material to the target company’s business. A typical knowledge qualiﬁer in a compliance representation is a “to the best knowledge of the seller” wording. In addition, the exclusion of certain areas of law is a possible way to limit the scope of compliance representations. Usually, it is not in the interest of the buy-side to have provisions that limit the seller’s representation regard- ing compliance with laws. Buyers do not want to be liable for someone else’s misconduct. Therefore, broad compliance representations without limitations are in their interest. 4. Possible Challenges and Pitfalls A possible challenge concerning compliance representations is to synchronize general compliance representations with the more topic-oriented ones, which include compliance aspects in certain areas of law, such as environment or data protection. In particular, the topic-oriented representations are something the sell-side should be aware of, especially in the context of the EU General Data Protection Regulation (GDPR) since mid-2018 or in the case of highly regulated businesses. Intensively negotiated limitations of topic- related representations containing compliance with environmental or data protection laws should not be made ineffective by a broad and unlimited general compliance representation. A lack of synchronization of general compliance representation and topic-related compliance representation may result in a signiﬁcant liability risk for the sell-side. Therefore, a clarifying statement in the context of an accurate synchronization of these clauses will be helpful. A further challenge of compliance representations is the question who determines whether a breach occurred. Many compliance with laws representation clauses do not cover this aspect. This causes a risk of post-trans- action disputes whether there was a breach or not. To mitigate this risk, the purchase agreement should provide appropriate provisions. The parties may provide that a ﬁnal decision of a court or an authority is deci- sive for the determination of a breach. Furthermore, it is recommendable to deﬁne potential decisions. If there is no court or authority proceeding, it is possible to agree on an expert proceeding. In such a case, an independent expert, e.g. nominated by both parties or even by a third party, should decide if a breach of a compliance representation occurred. Notices of investigations by governmental entities or similar authorities or notices of violations may help as well. The target company faces various risks in the event of compliance breaches. Not only ﬁnes imposed by authorities, claims ﬁled by privates (e.g. antitrust law), but also severe damages to the reputation of the target company are possible. In Germany the compensation of damages in an M & A transaction is usually not governed by the statutory law but by a negotiated special contractual liability regime. In our observation, most purchase agreements do not provide for a special regime for the damages caused by a breach of compliance representations. The general contractual li- ability regime of a purchase agreement may be sufﬁcient to cover direct damages, e.g. ﬁnes, but is often insufﬁcient with regard to indirect damages. Negotiating compliance with laws representations, the parties and legal advisors should have in mind not only the scope of the representation but also the compensation of direct as well as indirect damages. 5. Summary and Recommendations Finally, the sell-side party should be aware that in times of high enterprise valuations, buyers tend to use a broad compliance guarantee to reduce the purchase price by conducting special compliance reviews. For the seller the best way is to reject a compliance representation. If this is not possible, the focus of negotiations should be on the scope of such a representation. There are various possibilities to limit this scope. Time limitations, knowledge qualiﬁers, materiality qualiﬁers, notices and law limitations are possible ways to achieve this. Purchase agreements should provide for precise provisions regarding the determination of breaches as well as their consequences. In particular, the compensation of indirect damages caused by infringements of com- pliance representations is challenging. The lack of case law in Germany causes uncertainty. That is why careful drafting of compliance representations is all the more important. 30 M&A REVIEW 2019 • Vol. 30 • MuMAC 2019

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REPORT • GERMANY Continued Strong Momentum for the German M&A Market in 2020 Despite a Challenging Economic Environment Dr. Michael Drill, Lincoln International AG 1. Introduction Amid growing levels of political and economic un- certainty across Europe, the number of M&A deals with German involvement decreased by more than 10% in the ﬁrst half of 2019 compared to the same period in the previous year. Managers and investors are starting to become more cautious when contemplating acquisi- tions and are aware of the risks associated with the high valuations that sellers are still expecting for their businesses. Despite gloomy prospects for the German economy, disruptive trade disputes, Brexit and rising regulatory scrutiny for foreign investments as well as for merger control, the German M&A market will still remain active. Based on our current project back-log and our ongoing discussions with larger corporates, private equity players and various business owners, we expect continued, ro- bust M&A activity in Germany over the next 15 months. Increasing globalisation, digitalisation, unsolved succes- sion issues in Mittelstand companies, low interest rates and enormous liquidity in the markets will continue to be the main drivers for mergers and acquisitions. In pre- vious years, the M&A activity was largely driven by a strong economy as well as the conﬁdence of senior management teams of potential buyers to acquire cor- porates. Going forward, the majority of transactions will be driven by the urge of companies to team up with other partners or new owners in order to protect or improve current competitiveness in a fast-changing global and digital world. Main drivers for the German M&A market 2020 1. Globalization and force to gain critical size 2. Digitalization and Industry 4.0 as competitive advantage 3. Trade disputes between US and China will shift focus to Germany 4. E-Mobility will challenge German automotive companies 5. Low interest rates and excess liquidity For 2020, we expect continuous deal ﬂow across all in- dustry sectors with relatively higher activity in non-cy- clical businesses like technology, consumer goods, me- dia, healthcare and med-tech. Strong consolidation will also take place in struggling sectors like automotive, re- tail, e-commerce and ﬁnancial institutions. For many years, German corporates have been an im- portant deal source for management buy-outs. For the next few years, we expect an increase in portfolio re- views and divestment activity of non-core businesses of larger quoted companies. The German market will continue to be characterized by private M&A. However, the last years have seen an increased number of larger public M&A deals. This trend is expected to continue in 2020. Finally, the grow- ing inﬂuence of shareholder activism will trigger addi- tional deals in the future. The targeting of ThyssenKrupp by hedge funds like Cervian and Elliott, is the ﬁrst time activist investors have successfully led to a break-up of a DAX 30 company. 2. German Corporates Continue to Eye American Targets German companies, especially larger quoted corporates, remain very keen to grow their business by acquisitions in familiar markets. Just relying on organic growth will not be sufﬁcient to secure critical size on a longer term and justify current high valuations on the stock market. Overall, we see signiﬁcant interest from larger German groups to strengthen their presence not only in Western Europe but also in the US, China and other selected Asian geographies. After certain reluctance in former years to invest in highly valued American companies, German manage- ment teams have become more and more courageous to pursue larger acquisition opportunities in the USA. 32 M&A REVIEW 2019 • Vol. 30 • MuMAC 2019

GERMANY • REPORT Graphic 1 • Number of M&A deals with German involvement Source: 2013-2018 actual ﬁgures from imaa institute (2019); 2019-2020 forecast ﬁgures from Lincoln International (2019). Figures include all publicly announced deals with either a German target company or a German acquiring company 2.028 2.032 2.175 2.102 2.181 1.975 1.950 1.778 s l a e d A & M f o r e b m u N 2.500 2.000 1.500 1.000 500 0 2013A 2014A 2015A 2016A 2017A 2018A 2019F 2020F The takeover bid by German Inﬁnion Technologies for its American competitor Cypress Semiconductor, valuing the chip maker at US$ 10 billion, is a good example that illustrates this trend. At the time of the acquisition, Cypress Semiconductor was valued at 18.2 times EBITDA. Another visible deal is the envisaged acquisition of robotics ﬁrm Corindus by Siemens Healthineers in a US$ 1.1 bn deal. The offer price for this young and fast growing American med-tech company includes a 77% premium on the last closing price before announce- ment. With this strategic acquisition, Siemens Healthineers is opening up a new ﬁeld for its image-guided thera- pies business. Admittedly, the US administration prohibits certain takeovers by Chinese buyers, but for German buyers, the situation changed rather positively under the pres- idency of Donald Trump. The new tax reform makes it even more attractive for European corporates to ac- quire in the USA. 3. Ongoing Interest from Chinese Buyers In the last few years, many German midsized compa- nies were acquired by Chinese corporates. Recently Chinese investors were less active in the German mar- ket. However, we strongly believe that the long-term outlook for takeovers with Chinese participation re- mains positive. In the sell-side processes that Lincoln International is running in Germany, Chinese buyers are regularly approached and are very active in reviewing oppor- tunities. From a sell-side perspective, the general view on Chinese buyers has changed in recent years for shareholders and incumbent management teams. Sellers initially had the expectation of a high selling price, paired however, with a signiﬁcant amount of deal uncertainty when it came to Chinese buyers. This is a thing of the past. Chinese buyers have increasingly changed their image from ﬁckle buyers to sophisticated and educated when it comes to valuation, the structure of the sales process and communication with involved parties. In addition to China’s traditional industrial and automo- tive investments, future M&A activity will increasingly focus on fashion/retail, food and pharmaceuticals. Chinese investors including state-owned companies, listed companies and private companies will also pur- sue even bigger deals as the United States’ protection- ist policies deter foreign buyers. Vol. 30 • M&A REVIEW 2019 • MuMAC 2019 33

REPORT • GERMANY 4. Private Equity under Huge Investment Pressure In addition to strategically motivated buyers, private equity investors and family ofﬁces continue to show huge appetite for so-called Mittelstand companies. These purely ﬁnancially driven buyer groups are under enormous investment pressure and compete heavily against strategic buyers for the relatively few and available attractive target companies. Due to the fact that the number of profitable German buy-out targets in primary situations is rather limited, ﬁnan- cial sponsors need to pay relatively high prices and thus justify their valuation with compelling business plans. For the execution of ambitious growth pro- jections, private equity ﬁrms continue to profession- alize their structures, noticeably by building up sec- tor know-how and global networks. Going forward, private equity may take advantage of controlled auc- tion processes; this buyer group is much faster and more pragmatic and innovative in due diligence exercises and SPA negotiations than larger foreign cor- porates (especially from Asia) with complex decision processes. 5. Valuation Multiples already at their Peak After a strong 2018, most of German corporates expe- rienced a slow-down in growth and have faced some challenges to meet their 2019 budgets. Proﬁt warnings and revised business plans are not helpful to drive valuations. However, high levels of dry powder com- bined with low interest rates and scarcity of solid assets are likely to keep valuation multiples on a relatively high level. According to a survey from German Finance magazine, the average EBITDA multiple in private M&A deals achieved a new record level of 9.8m times. Even if 2018 was the peak in purchase prices, we still expect outlier valuations for attractive businesses. For proﬁtable and growing companies with a clear technological edge and critical size, double digit EBITDA multiples will con- tinue to be the rule and not the exception. 6. Remaining Window of Opportunity for Exits More and more business owners have realized that the M&A boom in Germany peaked already over the last 12 months and that there might be a remaining win- dow of opportunity over the next 18 months to sell companies at attractive terms and conditions. They also understand that with a possible economic downturn, it will be difﬁcult to ﬁnd buyers able and willing to match today’s ambitious valuation expectations two years from now. Based on this consideration, we expect that a lot of com- panies will continue to come to the market. As sellers, we see an increasing share of family owned business and non-core activities from larger corporates. For German business owners, the time is still excellent to consider a company sale. For plenty of international groups, the acquisition of a German competitor is on the top of the priority list. American and Asian strategists considering take-overs in Europe usually intend to focus on targets based in Germany, Europe’s largest economy. German companies are known for innovative technologies, au- tomation know-how, professional structures and well- trained employees. The label „Made in Germany“ still has an enormous attraction for foreign investors. 10 theses for the German M&A market 2020 1. Strategically motivated transactions, as in 2019, shape the landscape more than defensive deals 2. Quality of target companies in terms of proﬁtability and competitiveness deteriorates 3. Valuation multiples come down slightly but still remain on a relatively high level 4. Most of the deals happen in the mid-cap space, while large-cap deals are the exception 5. Percentage of cross-border transactions increases slightly 6. More take-overs of German companies abroad than acquisitions of domestic targets by foreigners 7. Private equity investors and debt providers are becoming more and more selective 8. Share of private equity deals, currently 25% in the mid-cap segment, increases further 9. Deals with foreign buyers take longer due to increasing due diligence and coordination requirements 10. Overall M&A activity by number of deals remains stable 34 M&A REVIEW 2019 • Vol. 30 • MuMAC 2019

GERMANY • REPORT How to Successfully Buy & Build? Dr. Florian von Alten, Oaklins Angermann AG, Hamburg & Christopher Rahn, Oaklins Angermann AG, Frankfurt 1. Introduction Buy & build strategies are becoming increasingly popular in the M&A market. “Buy & build” describes an investment strategy primarily used by ﬁnancial in- vestors, which has the aim to consolidate highly frag- mented markets through the targeted acquisition of various complementary or internationally supplemen- tary companies and thus generating a premium valua- tion when exiting. In 2018, the total value of buy & build deals in Europe rose to a record level of EUR 10.7 billion. A study by Silverﬂeet Capital shows that Euro- pean PE-ﬁnanced companies made 702 add-on acqui- sitions in the past year - an increase of 8% compared to 2017. 2. Different Approaches for the Implementation of a Buy & Build Strategy When implementing a buy & build strategy, two fun- damental approaches are used in practice: the oppor- tunistic approach and the strategic approach. The opportunistic approach is more common in prac- tice. When deploying the opportunistic approach, the ﬁrst step is the acquisition of an anchor company serv- ing as a “platform”. The second step is to acquire fur- ther add-ons. The anchor investment thus serves as the starting point. The more rarely pursued strategic approach is preced- ed by a detailed industry sector analysis. Based on the results revealed by the analysis the strengths and weak- nesses of a market are evaluated and the potential for implementing a buy & build strategy is estimated. Based on this analysis, the acquisition process starts. 3. Prerequisites Market characteristics: The ideal market for buy & build strategies is highly fragmented and fast growing. It should also be of a certain size, both in terms of market volume (at least EUR 500 million) and in terms of market participants (at least 50 companies). A signi- ﬁcant number of companies in a market is particularly important, since only a certain percentage of the share- holders is willing to sell their company. In addition to that, investors have to assert themselves against other bidders in today’s competitive buyer environment. Target characteristics: For buy & build strategies, it is advisable to acquire primarily successful and healthy companies to prevent margin dilution while focussing on revenue growth. Business models that are depend- ing heavily on individuals (e.g. advertising agencies, consultancies) are also less suitable for buy & build concepts. Experience shows that relative size ratios among the individual investments play a subordinate role. The strategic and the cultural ﬁt are much more decisive. 4. Crucial for Success The success of a buy & build strategy depends entirely on a few critical factors. Constant adherence to basic principles and the avoidance of elementary sources of error must be ensured throughout the entire process. Management and ﬁt: As so often, people are the most important factor. It is crucial for the manager of the anchor company to have deep industry and trans- action experience. Additionally, the cultural ﬁt between the parties (PE and operative companies) is of high im- portance. Many investors underestimate the diverging inﬂuence of a single company in an established group of companies. Moreover, the implementation of a successful buy & build concept requires constant support and guidance by the right management team. This greatly facilitates coordination and cooperation among the portfolio companies and the private equity ﬁrm. Market dynamics: The success of buy & build strate- gies always depends on speciﬁc market conditions. The Vol. 30 • M&A REVIEW 2019 • MuMAC 2019 35

REPORT • GERMANY optimal market for buy & build strategies is character- ized by a fragmented structure with low concentration and many smaller market participants. Dr. Ingo Krocke, Managing Partner and founder of Auctus Capital Partners AG, also conﬁrmed this during an interview with Oaklins. Examples of such sectors include logistics and e-learn- ing services, facility management, as well as handicraft businesses, such as scaffolding, and retailers. Handwerksgruppe Philip Mecklenburg, for instance, has acquired and integrated a group of 123 craft busi- nesses throughout Germany and will achieve a group turnover of approximately EUR 450 million in 2019. Mr. Krocke furthermore highlighted market growth as another important key factor, “because strong growth forgives almost all mistakes”. Direction of diversiﬁcation: Buy & build strategies aim at achieving market consolidation. Therefore, it is obvious that target companies should be active in the same market in order to complement the core business of the existing portfolio. Mainly horizontal, and occa- sionally vertical integrations are carried out in the course of the buy & build strategies. Lateral diversiﬁca- tions, i.e. extensions that are not related to the platform company, should be avoided. 5. Causes of Failure Buy & build as the wrong strategy: It is particularly harmful if an investor feels compelled to carry out a buy & build strategy without having proper experience on how to execute this strategy. A too quickly implemen- ted, forced buy & build process can be dangerous, because at the end of the day this usually turns out to be just a blunt stringing together of different companies that cannot be integrated. As an investor, one must always bear in mind that the “build” factor is at least as important as the “buy” factor in the buy & build strategy. Before getting lost in a forced buy & build process, an investor should change his investment strategy. Second Mover: The chances of successfully implement- ing a buy & build strategy when entering a potential buy & build market too late is very small. This is particularly relevant due to the fact that only a small number of shareholders of conceivable targets is willing to sell. It is therefore essential to enter a market as a “ﬁrst mover”. Further failure components can be derived from the success factors already described. Investors must there- fore always have an eye on experienced management teams and cultural ﬁt. They also need to avoid markets not suitable for buy & build strategies and diversiﬁca- tion directions. 6. How to Create Value via Buy & Build The reason for the signiﬁcant increase in buy & build deals is obvious: they outperform single PE deals by generating an average internal rate of return of 31.6% from entry to exit compared to an IRR of only 23.1% for stand-alone deals. Various market participants as- sume a multiple arbitrage of two to four points. The main driver for this is sales growth. Dr. Ingo Krocke of Auctus Capital Partners AG conﬁrms during an inter- view with Oaklins that the old investment rule of thumb “size matters” applies. Increased margins also have a positive effect on the valuation. In practice, however, these can rarely be realized to the extent initially assumed until the exit and should therefore have a lower inﬂuence on the purchase price when acquiring the individual target companies. The same applies to synergy effects and cross-selling potentials - they are considered “nice to haves”, but should not have a signiﬁcant impact on the valuation. Due to the reasons outlined above, only few ﬁnancial investors are willing to add a buy & build premium to their valuation. Especially the platform investment is usually valued on a stand-alone basis. However, some investors pay buy & build premiums for the add-on ac- quisitions - albeit very conservatively. The reason is ob- vious: If it turns out after an acquisition that a buy & build strategy cannot be realized, the target company has been acquired at an excessive price. If one also takes into account the effect of ﬁnancing the purchase price with a signiﬁcant proportion of debt capital, very attractive money multiples can result. An example for this is the multiple of 16x recently realized by the Aurelius Group in the Solidus deal in four and a half years. 7. The Importance of Post-Merger-Integrations Integration speed: It is not particularly surprising that companies which implement rapid integration can get into day-to-day business more quickly. The faster the acquired company is fully integrated, the higher the proﬁt from the positive effects of the generated syner- gies. A time-consuming integration process can have a negative impact on employee satisfaction, which is the main reason why the majority of the integration pro- cess should be completed within the ﬁrst year. Florian Korp, partner at Liberta Partners, also emphasizes this 36 M&A REVIEW 2019 • Vol. 30 • MuMAC 2019

GERMANY • REPORT in an interview with Oaklins: “If you still have two different companies after twelve months of post-merger- integration, then you’ve actually only made 2 out of 1 + 1 and not 3 or 4”. Culture and change management: Culture and change management is an extremely important factor for successful post-merger-integrations. However, it causes problems for many investors because it is dif- ficult to measure and verify. Experience shows that cultural differences between the buyer and the target company are one of the main reasons why integrations fail. Florian Korp of Liberta Partners also sees a sticking point here: “Hard facts, such as IT systems, are always easier to integrate than soft facts”. It is therefore of great importance to carefully examine whether the cul- tural match between the buyer and the target enables a successful acquisition at all. “The human component is the most difﬁcult to integrate. The most important drivers here are mutual appreciation as well as the coordination and implementation of a coherent strategy,” adds Dr. Henning von Klitzing of Possehl Holding. 8. Three Recommendations Do not lose patience. In many cases, the acquisition of an add-on is not immediately successful in the ﬁrst year. However, investors should always focus on quali- ty rather than on quantity. No hasty process should take place, but in case of doubt, investors should not wait too long, either. A professional M&A consultant with industry experience can open doors here and support the private equity team. Nevertheless, it may turn out that the platform investment can achieve a better de- velopment through organic growth than through ac- quisitions. It is important to make the right decision at the right time. Establish cooperation at eye level. The strategy must be communicated openly and rigorously among the portfolio companies. The feeling of being a second- class participant demotivates almost every employee and has negative effects on the working atmosphere and success. Use market threats to your own advantage. Parti- cularly well-suited markets for buy & build strategies are those in which market participants are exposed to concrete threats. This can be of a regulatory, technical or international nature. Facing the pressure of a par- ticular threat, shareholders are usually more willing to sell and investors can take advantage of this. 9. Summary Due to the aspects described above, the implemen- tation of a buy & build strategy is often attractive for ﬁnancial investors. A well-managed corporate platform can become a pioneer in an industry and thus deliver the desired success for ﬁnancial investors. However, the shareholders of the target company also beneﬁt, as they can expect further economic development of their company and, in some cases, valuation premiums. This results in a win-win situation, as both the buyer and the seller proﬁt from the correct execution of a buy & build strategy. ANZEIGE ZEITSCHRIFT FÜR FAMILIENUNTERNEHMEN UND STRATEGIE Forschung und Praxis Hand in Hand. Alle zwei Monate im Abo. Jetzt Bestellen! www.fus-magazin.de/abonnement

AUTHORS Overview of Author Proﬁles Sarah Antor, Chief Operating Ofﬁcer of European Investment Banking, Raymond James, Munich Robert Feind, McDermott Will & Emery Rechtsanwälte Steuerberater LLP, Munich Sarah Antor is Chief Operating Ofﬁcer of Raymond James European Investment Banking and Managing Director of the German subsidiary, Raymond James Corporate Finance GmbH. Ms. Antor is a US-licensed attorney with over 20 years in the banking industry, beginning her career in high yield debt trading for First Union Securities, Inc. (now Wells Fargo Bank). Prior to joining Raymond James, Ms. Antor served as General Counsel of Payworks GmbH, a Munich ﬁntech. Robert Feind focuses his practice on mergers and acquisitions (M&A), private equity and general cor- porate law. Prior to joining McDermott Will & Emery, Robert worked as a research associate at the Viadrina European University. As part of his legal clerkship, he worked at the Federal Ministry of Finance and another international law ﬁrm in Berlin. Robert is a state-certi- ﬁed, publicly-appointed and sworn translator for the Polish language. David Clark, Managing Director, Head of Financial Sponsors, Raymond James, Boston Ding Han, Foreign Counsel, McDermott Will & Emery Rechtsanwälte Steuerberater LLP, Munich David Clark is Head of the Raymond James Financial Sponsors Group. Previously, he served as Managing Director at Lane, Berry & Co. International, where he led its industrial and environmental services group. Before that, he was a director at UBS Warburg in the Global Industrial Group. In both roles, he completed numerous M&A, advisory, debt, equity and restructuring transactions. Prior to UBS Warburg, he worked for Dillon, Read & Co. and Bank of Boston Corporation. Ding Han focuses his legal practice on corporate transactions and corporate ﬁnance. He handles major cross-border transactions between Chinese and European clients, and has signiﬁcant experience in cross-border mergers acquisitions as well as foreign direct investment in China. He also has a strong background in cross-border litigation, and in-depth ﬁrsthand experience within the manufacturing industry. Ding Han is admitted in Germany as a registered foreign Lawyer (Chinese Lawyer) and is also qualiﬁed as a solicitor of England and Wales. Stephan de Groër, Associate McDermott Will & Emery AARPI, Paris David Henry, Counsel McDermott Will & Emery, Brussels David Henry is a practising UK barrister, whose practice focuses on European competition law, including merger control, cartels and abuse of dominance, and the interaction between antitrust and intellectual property. He represents companies and trade associations in the aluminium, air transport, car parts, chemicals, electronics, medical devices, pharmaceuticals, power generation, food retailing and ﬁnancial services and payment systems sectors. David has spoken and written extensively on competi- tion law. In recognition of his writing on competition matters, LexisNexis has included David in its Lexis®PSL Competition Expert Lawyers Group. The European courts have also cited his written work. David will be co-editor with Jacques Buhart of the 5th edition of Leniency Regimes. David is a lecturer on the course entitled Advanced European Competition Law at the University of Liège, Belgium. Stephan de Groër focuses his practice on market leading corporate transactions, with particular strength in mergers & acquisitions. He has advised both international and domestic companies on key acquisition projects, change of management, set up of joint ventures and cooperation projects. Stephan has a wealth of experience in trade relations with Germany and Russia, and spent two years in the Moscow ofﬁce of a French leading international law ﬁrm before joining McDermott. Dr. Michael Drill, CEO, Lincoln International AG, Frankfurt Dr Michael Drill is CEO of Lincoln International in Germany. In this role he provides overall strategic and operational leadership for the company’s activities in German-speaking countries. His main activities com- prise the acquisition and management of key clients, the execution of important client assignments as well as the r ecruitment of qualiﬁed personnel. Michael Drill has 28 years of experience in advising on corporate ﬁnance transactions in German-speaking countries. Since 1991 he has advised on various sell-sides, acquisitions, public takeovers and fairness opinions. 38 M&A REVIEW 2019 • Vol. 30 • MuMAC 2019

AUTHORS Steve Hufford, Senior Managing Director, Chief Operating Ofﬁcer of Global Investment Banking & Head of European Investment Banking, Raymond James, St. Petersburg, Florida Steve Hufford is a trusted senior investment banking professional with more than 30 years of experience. He serves as Chief Operating Ofﬁcer of Raymond James Investment Banking and Head of European Investment Banking. Previously, he co-led the ﬁrm’s ﬁntech and payments practice, leveraging his deep understanding of the industry, his robust trade con- tacts and his hands-on approach to deal-making to generate premium outcomes for clients. Markus Schiller, Merrill Germany GmbH, Frankfurt Markus is the Head of DACH & CEE for Merrill Corpo- ration. He previously worked as a Sales Manager for Trading Technologies and as a Client Executive for Thomson Reuters. He holds an MBA from Purdue University. To learn how DatasiteOne can help you minimize due diligence compliance and security risks, and help you secure deal success faster, please con- tact us: Germany: +49 69 244 321 450 EMEA: +44 20 3031 6300 info@merrillcorp.com • #DatasiteOne merrillcorp.com • https://www.linkedin.com/in/markus-schiller-mba-52a9b331 Jacob A. Kuipers, Associate, McDermott Will & Emery LLP, Boston Jacob (Jake) A. Kuipers advises public and private companies on complex cross-border corporate trans- actions, including mergers and acquisitions, private equity transactions, international reorganizations, and venture ﬁnancings. Among other issues, Jake’s research covers global investment and ﬁnancial law, strategic mechanisms in bilateral investment treaties, and the rule of law in developing countries. Drawing on his research and international experience, he has written numerous articles for a variety of publications. While in graduate school, Jake served as executive articles editor of the Boston College International and Comparative Law Review and Legal Editor of The Fletcher Forum of World Affairs. He also served as an executive board member and project leader on the Harvard Law and International Development Society and was a lead judge in the Model International Criminal Court in Krzyzowa, Poland. Lionel Lesur, Partner, McDermott Will & Emery AARPI, Paris Lionel Lesur focuses his legal practice primarily on the areas of corporate law, mergers and acquisitions and competition/distribution law. Lionel advises do- mestic and international companies from a broad range of industries, as well as investment funds and top managers. He has experience in the negotiation of private mergers and acquisitions, leveraged buyouts (including management packages and long-term in- centive plans), complex commercial contracts and in advising foreign companies seeking to establish themselves in France. He has in-depth experience with European and French competition law, including international merger con- trol, antitrust proceedings and abuse of dominant position. Lionel also regularly advises clients in relation to distribution strategies and compliance programs. Christopher Rahn, Oaklins Angermann AG, Frankfurt Christopher Rahn is senior associate with Oaklins Angermann AG in Frankfurt. With seven years of M&A experience he is a seasoned M&A advisor whose experience spans both domestic and cross-border M&A transactions across the US, Europe and Asia. Having advised management teams, boards and shareholders on M&A transactions, he has gained particular expertise in TMT, healthcare and industrials. His clients include public and family-owned companies as well as private equity ﬁrms. Dr. Florian von Alten, Oaklins Angermann AG, Hamburg Dr. Florian von Alten is managing partner of Oaklins Angermann AG and chairman of Oaklins Inter na tio- nal, Inc. He also co-heads the sector focus group „Industrial Machinery and Components“. With 25 years of M&A experience, Florian von Alten has closed more than 100 deals, most of them cross-border. Among his clients are hidden German Mittelstand champions, industrial conglomerates as well as leading mid-market private equity companies. His motto is: „Real selling only starts after the ﬁrst denial!“ Dr. Nikolaus von Jacobs, Partner, McDermott Will & Emery Rechtsanwälte Steuerberater LLP, Munich Dr. Nikolaus von Jacobs advises private equity funds and German industrial players on private equity, ven- ture capital, and private and public mergers and ac- quisitions. Nikolaus leads the Firm’s German private equity activities. Before joining McDermott, Nikolaus was a partner of another international law ﬁrm and headed its German private equity practice. He has also worked in investment banking and European capital markets for Merrill Lynch, London. Christian von Sydow, Partner, McDermott Will & Emery Rechtsanwälte Steuerberater LLP, Munich Christian von Sydow advises clients on corporate law, mergers and acquisitions (M&A), private equity, restructuring, corporate conﬂict resolution and estate planning. Christian has represented a large number of international and German clients, strategic and ﬁnancial investors in acquisitions and sales of busi- nesses in Germany and internationally in cross-border matters. He represents clients in a wide variety of in- dustries, including automotive supply, consumer elec- tronics defense, energy, internet, optics, publishing, retail, software, technology and testing technology, and travel and tourism. Christian has advised numerous companies during negotiations for and the establishment of international joint ventures. In addition, Christian has advised clients on restructuring and acquisitions during crisis situations and when emerging from insolvency. He represents clients in cases involving corpo- rate conﬂict resolution and regularly acts as an arbitrator in cases of impaired M&A transactions. Vol. 30 • M&A REVIEW 2019 • MuMAC 2019 39

CONFERENCE AGENDA 2019 Cross-Border M&A and Private Equity Investment Conference September 24, 2019, 9:00 am – 4:10 pm CEST, Hotel Bayerischer Hof, Munich 8:00 – 9:00 am Registration and Continental Breakfast 9:00 – 9:03 am Welcome Grand Ballroom Dr. Norbert Schulte, McDermott Will & Emery 9:03 – 9:15 am Grand Ballroom Opening Statement Putting the Transatlantic Economy on a Free and Fair Footing Ambassador of the United States of America to Germany His Excellency Richard Grenell M&A and Private Equity Market 2019 9:15 – 9:55 am Grand Ballroom Market Snapshot • Pricing and Appetite • Search for Value • Auction Trends Dr. Florian von Alten, Oaklins Germany Carsten Hagenbucher, Charterhouse Capital Partners Dr. Sven Oleownik, GIMV Germany Norman Rafael, Armacell International Dominik Schwarz, EMH Partners Moderator: Dr. Nikolaus von Jacobs, McDermott Will & Emery 9:55 – 10:15 am Keynote Grand Ballroom The World in Disorder—End of the Growth Cycle? Dr. Daniela Schwarzer, German Council on Foreign Relations 10:15 – 10:45 am Coffee Break 10:50 – 11:35 am Parallel Sessions Grand Ballroom Cross-Border M&A from and to the United States and within Europe Gallery Cross-Border M&A from and into Asia • How Have US/European Cross-Border Investments Developed? • Closing the Shop: Tightening AWG and • Current Trend for European Firms to Open in the US? • Impact of Global Competition • What Sectors Continue to Drive Cross-Border Activity? • PE Inves tors and Disruptive Technology Advancement • Exogenous Political Events With Signiﬁcant Effects in 2019–20: Upcoming EU Level Regulation • Clash of Cultures: Post-Merger Integration • Behind the Scenes: Internal Decision Making within Chinese Enterprises • Go West: Chinese Outbound Investment Do we Have a False Sense of Security? in Germany William F. Detwiler, Fernbrook Capital Management Dr. Michael Drill, Lincoln International Tom Sauermilch, McDermott Will & Emery Heather M. Schroder, Robert Bosch Ms. Jin Chen, SINO-CEEF EUROPE Mr. Ning Wang, Yinlun Europe Holding Mr. Mei Wu, Joyson Europe Mr. Hui Zhang, Nio Moderator: Sarah Antor, Raymond James Moderator: Ding Han, McDermott Will & Emery 40 M&A REVIEW 2019 • Vol. 30 • MuMAC 2019

CONFERENCE AGENDA 11:40 am – 12:25 pm Parallel Sessions Grand Ballroom Crisis and Pre-Crisis Management Gallery Private Equity and Public Markets: How do they go together? • Macro View: Is a Big Restructuring Wave Right Ahead of Us? • Plan A: Role of Divestments as Part of a Whole Company Turnaround • Plan B: Insolvency as a Valid Turnaround Option • Industry Spotlight: Retail Apocalypse, Now? • Exit Strategies: IPO vs. Trade Sale • Exit via IPO: Lessons Learned, Potential Pitfalls, Structuring and Timing Considerations • Public-Private Equity: Investor Sentiment Towards this Asset Class Dr. Uwe Goetker, McDermott Will & Emery Jan Groß, UniCredit Bank Andreas Jaufer, Robus Capital Management Daniel Jürgenschellert, Helbling Business Advisors Alexander Reus, anchor Rechtsanwälte Partnerschaftsgesell schaft Christoph Großekämper, Mutares Dr. Martin Kniehase, Joh. Berenberg, Gossler & Co. Christian Kolodinski, Rothschild Advisors Nadja Picard, PwC Germany Moderator: Dr. Rainer Bizenberger, AlixPartners Moderator: Simon Weiss, McDermott Will & Emery 12:25 – 1:30 pm Buffet Luncheon Break 1:30 – 1:50 pm Parallel Sessions Grand Ballroom Keynote End-to-End M&A Process Design for the 21st Century: The Challenges and Levers of Digitalization and Business Model Innovation Gallery Interview on Pitfalls and Challenges of Tax Guarantees in M&A Transactions Prof. Dr. Wilhelm Haarmann, McDermott Will & Emery Prof. Dr. Thorsten Feix, Augsburg/Munich/Harvard/Geneva Interviewer: Dr. Nils Wighardt, McDermott Will & Emery 1:55 – 2:35 pm Parallel Sessions Grand Ballroom M&A in the Fintech Industry Gallery Life Sciences, Health and Private Equity Fürstensaal Transaction Financing • Impact of Digitalization on the Industry • What Makes a FinTech Successful • Why is the FinTech Industry so Attractive for Inves tors • State of Fundraising and M&A Activity • Status of the Industry and Opportunities for PE on Both Sides of the Atlantic • Snapshot LBO German Mid-Market • Cor po rate (Sponsorless) Financing and • PE Invest ments in Health Care: Reser- Private Debt vations by the Public vs. Beneﬁts to the Public – Simply a Communication Issue? • Which Sectors Will PE Focus on in 2025? • Economic Downturn – Financial Restruc turing on Its Way? • Outlook for 2020 Tim van Delden, HPE Growth Thomas Hürlimann, Hiscox Roman Rittweger, ottonova Holding Dr. Gerrit Seidel, yabeo Nikolaus von Taysen, Payworks & Circula, PAY.ON Kilian Thalhammer, Wirecard Moderator: Julian Ostertag, Drake Star Partners Marco Brockhaus, Brockhaus Capital Management Tiemo Grimm, Nordic Capital André Seidel, Nord Holding Dr. Ulrich Wandschneider, Trilantic Europe Moderator: Kristian A. Werling, McDermott Will & Emery Ralph Betz, EQT Partners Benjamin Blumenschein, Crescent Capital Paul H. F. Kim, Herter & Co. Michael-Franz Müller, NIBC Bank Deutschland Oliver Wolter, SMBC Frankfurt Branch Moderator: Dr. Oliver Hahnelt, McDermott Will & Emery Vol. 30 • M&A REVIEW 2019 • MuMAC 2019 41

CONFERENCE AGENDA 2:40 – 3:10 pm Parallel Sessions Grand Ballroom Digitization and Artiﬁcal Intelligence as Driver of M&A Gallery W&I Insurance an Compliance in M&A Transactions Fürstensaal Evergreen/Industry Holding Investment • The Digitization and Artiﬁcial Intelligence • Signiﬁcance of Compliance • GP/LP Evergreen Structures vs. Private Opportunity • Build it or Buy it: How to Beneﬁt from Digitization and Artiﬁcial Intelligence • Impact of Digitization and Artiﬁcial Issues in Current M&A Transactions • Risk Assessment and Appetite • Necessary Due Diligence Industrial Holdings: Trends and Diffe- rentiating Factors • PE vs. Strategic Buyers vs. Evergreens/ Industrial Holdings: Do Sellers Care? Intelligence on the M&A Process of Compliance Risks of the Target • Team Incentive Structures for Long-Term • Challenges and the Limits of Digitization • Addressing Compliance Issues Vehicles and Artiﬁcial Intelligence Todd Albright, Merrill Corporation Michelle Dipp, General Atlantic Dr. Tobias Koppmann, McDermott Will & Emery Philipp Sebbesse, DC Advisory Fabian Wasmus, Vitruvian Moderator: Frank Steinherr, McDermott Will & Emery Michael Gaul, Acquinex Jacob Kuipers, McDermott Will & Emery Felix Rettenmaier, Rettenmaier & Adick Dr. Barbara Roth, UniCredit Bank Simon Tesselment, Aon Moderator: Dr. Nadine Hartung, McDermott Will & Emery • Performance Measures: Are Long-Term Structures More Successful? Philipp Haindl, Seraﬁn Group Torsten Krumm, HQ Equita Raed Fakhri, Bahrain Mumtalakat Holding Company Richard G. Ramsauer, VTC Industrie beteiligungen Moderator: Dr. Carsten Böhm, McDermott Will & Emery 3:10 – 3:25 pm Coffee Break 3:25 – 3:45 pm Parallel Sessions 3:25 – 4:10 pm Grand Ballroom Keynote Gallery Post-Transaction Value Creation Challenges for the Automotive Industry – Status and Outlook Jens Haas, AlixPartners 3:50 – 4:10 pm Grand Ballroom Case Study Karstadt Kaufhof Merger • Are Traditional 100-Day Plans Sufﬁcient for Value Creation? • When Should the Value Creation Plan Be Available? • Role of Human Factor for Value Creation in a Digitized Era • Should Tax be Part of Value Creation Planning and Execution? Sascha Günther, Oakley Capital Philipp Marquard, AlixPartners Arne Otto, Siemens Dr. Karl Popp, SAP Dr. Jens Ortmanns, McDermott Will & Emery Moderator: Jens Weber, PwC 42 M&A REVIEW 2019 • Vol. 30 • MuMAC 2019

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