PA S S I O N FOR THE MID-MARKET AMSTERDAM | BEIJING | CHICAGO | DALLAS | FRANKFURT | LONDON | LOS ANGELES | MADRID | MILAN | MOSCOW | MUMBAI | MÜNCHEN | NEW YORK | PARIS | SAN FRANCISCO | SÃO PAULO | TOKYO | VIENNA | ZURICH Lincoln International is global M&A investment bank with a strong focus on midcap transactions. With twenty offices and approx. 500 employees in the Americas, Asia and Europe, Lincoln International has strong local knowledge and contacts in key global economies. In 2017 Lincoln International advised on approx. 160 closed transactions. SUCCESSFUL YEAR 2017 (selected German M&A deals) Robert Breuning Stiftung has sold to has been sold to CORPORATES has sold its phosphorus additives business to A Single Family Office has sold to has sold MOS Harbor Construction Business to has sold to has sold the Plastic Tube & Laminates business of to has sold its electrical appliance assemblies business to has sold to has divested its heavy-duty truck business to a portfolio company of PRIVATE EQUITY has sold to a subsidiary of has sold to has sold to has sold to a portfolio company of Stella Verwaltungs GmbH has sold to has sold to a portfolio company of a portfolio company of a portfolio company of a portfolio company of has sold has sold VI TRABLOK to ASC Investment and Management have agreed to sell to to has sold to Lincoln International AG | Ulmenstraße 37–39 | 60325 Frankfurt am Main | Germany | Phone: +49 (69) 97105 400 | Fax: +49 (69) 97105 500 | www.lincolninternational.com

CONTENT Editorial Global Trends in Foreign Investment Control Christian von Sydow, Dr. Nikolaus von Jacobs REPORTS International Perspective Cross-Border Foreign Investment Control in the United States, Germany, France, the United Kingdom and China Jacob A. Kuipers (McDermott Will & Emery LLP, Boston), Dr. Uwe Goetker, Dr. Alexa Ningelgen Christian von Sydow, Dr. Nadine Hartung, Nils Vitalis (McDermott Will & Emery Rechtsanwälte Steuerberater LLP, Duesseldorf and Munich), Nicolas Lafont (McDermott Will & Emery AARPI, Paris), Nicholas Azis (McDermott Will & Emery UK LLP, London) & David Dai (MWE China Law Offices, Shanghai) 3 6 Germany Update on M&A in Germany: Market Overview and 2018 Trends Christian von Sydow & Dr. Germar Enders (McDermott Will & Emery Rechtsanwälte Steuer berater LLP, Munich) 13 IMPRINT Special for Vol. 29 No 10/2018 Editor: Prof. Dr. Christoph Schalast, Frankfurt School of Finance & Management www.ma-review.de Editorial staff: GoingPublic Media AG Stefan Schneider (project lead), Laura Uhde Hofmannstr. 7a, 81379 Munich (Germany) Phone: +49 89-2000 339-0, fax: -39 redaktion@ma-review.de Publication organ: 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.de CEO: Markus Rieger Cover: Photo: © McDermott Will & Emery Rechtsanwälte Steuerberater LLP Layout & realization: Holger Aderhold Editing: Magdalena Aderhold, visavis media, Bayreuth (Germany) Printing: Joh. Walch GmbH & Co. KG, Im Gries 6, 86179 Augsburg (Germany) 4 M&A REVIEW 2018 • Vol. 29 • Special for MuMAC 2018

REPORT • INTERNATIONAL PERSPECTIVE Cross-Border Foreign Investment Control in the United States, Germany, France, the United Kingdom and China Jacob A. Kuipers (McDermott Will & Emery LLP, Boston), Dr. Uwe Goetker, Dr. Alexa Ningelgen, Christian von Sydow, Dr. Nadine Hartung, Nils Vitalis (McDermott Will & Emery Rechtsanwälte Steuerberater LLP, Duesseldorf and Munich), Nicolas Lafont (McDermott Will & Emery AARPI, Paris), Nicholas Azis (McDermott Will & Emery UK LLP) & David Dai (MWE China Law Offices, Shanghai) 1. Introduction Control on foreign investment is subject to various legislation and reforms are regularly taking place. These reforms aim to respond to the evolution of cross-border dealmaking, as the global number of M&A transactions is increasing. In fact, 1,127 deals took place by May 2018, for an overall value of USD 384.4 billion. Europe led this great momentum, with 48.8 percent market share, as North America declined to USD 96.5 billion. These numbers remain beneficial, and the United States continues to take an active part in cross-border M&A transactions. In this respect, China was also active and remains the best dealmaker in Asia with 136 deals in the month of May 2018. We are focused on these three regions in order to com- pare the legislation and legal evolution of the control on foreign investment in the United States, Europe (Germany, France, United Kingdom) and China. 2. Oversight of Cross-Border Dealmaking during the Trump Administration 2.1 Explaining CFIUS approval. If such parties do not voluntarily submit an application at the time of the transaction, CFIUS could still review the transaction on their own at any time, even years after the transaction has closed. After the parties to a transaction have submitted an ap- plication to CFIUS, CFIUS will conduct a 75 day review of the transaction for risks to national security. If CFIUS does not approve the transaction during this review pe- riod, 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, 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 secu- rity concerns. In fact, since CFIUS was created in 1988 to review foreign, inbound transactions and before President Trump took office, the sitting US president has only blocked four deals that failed to receive CFIUS ap- proval. Part of this is due to 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. 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 depart- ments of Treasury, Defense, Homeland Security, Justice, Energy, Labor and State as well as other related agen- cies. 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. Parties to such transac- tions may voluntarily submit an application for CFIUS 2.2 Strengthening CFIUS under the Trump Administration Under the Trump administration, a policy window has opened that might create a stronger, well-funded CFIUS charged with reviewing a wider array of transactions. First, foreign investment through acquisition, particular- ly from China, continues to stream into the United States. In 2018, CFIUS will review more than 200 trans- actions, more than a 25 percent increase from the pre- vious record year. At the same time, funding for CFIUS 6 M&A REVIEW 2018 • Vol. 29 • Special for MuMAC 2018

REPORT • INTERNATIONAL PERSPECTIVE The latest amendment introduces examples of German companies whose acquisition may threaten public order or security: • Operators of critical infrastructure (particularly in the sectors of energy, transport, water, information technology and telecommunications, finance, insu- rance and health) • Developers of software serving the operation of critical infrastructure • Certain companies in the area of telecommunica- tions and surveillance technology • Certain companies in the area of cloud computing • Certain companies in the area of telematics The BMWi must be notified in writing about acquisi- tions within the scope of the aforementioned example industries, according to the new rules. The BMWi may conduct an in-depth review only if it notifies the acquirer and the target within three months from the day it becomes aware of an acquisition, or, at the latest, five years from the conclusion of the acquisition agree- ment. The legal uncertainty deriving from the BMWi’s five-year deadline to initiate an in-depth review (and potentially prohibit the acquisition) can only be avoided by combining the required notification with a request for a certificate of non-objection. The amended GFTPO extends the procedural deadlines. A certificate of non-objection is now deemed to be granted if the BMWi does not launch an in-depth re- view within two months from the request (compared to one month previously). The acquisition may be restrict- ed or prohibited within four months (compared to two months previously) after a full set of documents re- quested by the BMWi for the purpose of the in-depth review has been submitted. Moreover, this review peri- od shall be suspended as long as the BMWi enters into negotiations with the parties concerned. • War weapons • Specially-designed engines and gearboxes for military- tracked armored vehicles • Products with IT security features that are used for processing classified government information • Certain products which fall within the scope of special foreign trade regulations The last category is new and focuses on military tech- nology. The procedural deadlines for review have also been extended. If the BMWi does not initiate an in-depth review procedure within three months (compared to one month previously) from the receipt of the investor’s obligatory written notification, the acquisition shall be deemed to have been approved. In the event that a review procedure is opened, the acquisition may be restricted or prohibited within three months (compared to one month previously) after the full set of requested documents has been submitted. Again, this review period shall be suspended as long as the BMWi enters into negotiations with the parties concerned. 3.3 Additional International Aspects The amended GFTPO does not result in a material re- striction on foreign investments in German companies. However, the extended application area, new notifica- tion requirements, and, in particular, extended review periods, require that foreign investors deal with these restrictions proactively and early in the process. Potential development of similar initiatives at the EU level also must be taken into account. At the request of several governments and members of the EU parlia- ment, the European Commission currently reviews EU politics regarding the protection of key technologies and reciprocity of market access. 3.2 Sector-Specific Reviews In order to protect German security interests, special rules apply when target companies operate in sensitive security areas (in particular the defense sector) and are acquired by foreign investors (including EU-resident investors) or German companies which were set up in order to circumvent the rules on foreign investments. Finally, the acquisition of German companies fre- quently results in the indirect acquisition of business activities in other countries, such as the United States, which have their own foreign investment control. The Committee on Foreign Investment in the United States, for example, played a decisive role regarding the failed acquisitions of AIXTRON SE and the LED division of the Dutch Philips group by Chinese investors. These special restrictions apply to the acquisition of the direct or indirect participation of 25 percent or more of the voting rights in manufacturers and developers of the following: 4. Review of Certain Foreign Investments by the French Authorities While foreign investments in France are generally un- regulated, Article L. 151-3 of the French Monetary and 8 M&A REVIEW 2018 • Vol. 29 • Special for MuMAC 2018

REPORT • INTERNATIONAL PERSPECTIVE First, the investment realized without the proper prior approval of the Treasury Department can be considered null and void. negotiating the commitment letter, as it is normal practice, keeping in mind that certain commitments are likely to be non-negotiable. Secondly, the parties may be forced to abandon the investment, modify the structure of the invest- ment, or return to the status quo ante at their own expense. Finally, criminal sanctions may be imposed on the inves- tor, including imprisonment for up to five years (very unlikely in practice) or a fine of up to twice the amount of the investment. The French government is currently considering modi- fications to these sanctions, including flexible fines that can be adapted to the relevant circumstances and the possibility to suspend the foreign investor’s voting rights in the French company. 4.4 Practical Recommendations In order to ensure that the foreign investment regula- tion does not excessively delay the closing of a transac- tion, foreign investors can follow a few practical recom- mendations. The applicability of the foreign investment regulation must be assessed as early as possible and, at the latest, during the due diligence process. It is important to en- gage the seller in this discussion. If the activity falls with- in one of the sensitive sectors, the seller may have had to obtain the prior approval of the French authorities when it acquired the French company. While it is possible in most cases to determine with enough certainty whether the relevant investment falls within the scope of the foreign investment regulation, some transactions are in the grey area. In such cases, foreign investors should consider seeking a ruling. Foreign investors seeking prior approval from the French authorities should be as open and forthcoming as pos- sible in terms of providing information on their business and corporate structure. The information requested by the French authorities is usually not overly intrusive. Providing all the requested information from the outset will speed up the process and build goodwill and con- fidence. Finally, it is recommended that foreign investors engage with the Treasury Department by meeting in person to explain their strategy, with the objective of comforting the French authorities. They should not be shy when 5. Reform of the Approach of the United Kingdom to Foreign Investment on Grounds of National security In October 2017, the UK government published a con- sultation document outlining reforms designed to strengthen its powers to investigate acquisitions and certain types of investment in UK assets on national se- curity grounds. The consultation followed a UK govern- ment review of its policies, which concluded that they did not meet the standards applied in comparative G7 nations and were insufficient to protect national secu- rity effectively. Under the current regime, except where a business falls within the special public interest regime (which applies to defense contractors or companies holding confiden- tial defense material under licence), powers under the UK Enterprise Act 2002 (Enterprise Act) do not permit UK governmental intervention at all on national securi- ty grounds where the turnover of a UK business is less than GBP 70 million, or where the merger results in a combined share of supply of particular goods or servic- es above 25 percent of the market. These thresholds therefore exclude from UK government scrutiny trans- actions involving small but highly-specialized business- es, and investments where the investor has no pre-ex- isting presence in the market. In addition, the current regime under the Enterprise Act does not address in- vestments in critical infrastructure projects (such as newly built nuclear plants) or the transfer of individual assets such as high-tech machinery and intellectual property. In effect, up until now, the UK government has had little power to investigate (let alone prevent) small- scale foreign investment in national security sensi- tive assets or large-scale foreign investment in critical infrastructure. To illustrate, there have only been seven instances of the UK government invok- ing an intervention on national security grounds since 2002. 5.1 Setting up Regulation On March 15, 2018, the UK government announced its response to its consultation and on May 14, 2018, new regulations came into effect in relation to small- scale investment in specific industries. The existing GBP 70 million turnover and 25 percent combined 10 M&A REVIEW 2018 • Vol. 29 • Special for MuMAC 2018

REPORT • INTERNATIONAL PERSPECTIVE consisting of representatives of the National Develop- ment and Reform Commission, MOFCOM and other relevant government authorities for substantive and final review. 6.3 Three Ways to Initiate the Review (iii) Review by the Ministerial Panel (a) General review process (30 working days): by way of soliciting written opinions from related departments or organizations. If there is no problem, a favorable decision will be issued; if one department raises concerns on this transaction, it will initiate the Special Review Process. (i) Voluntary Filing: The foreign investor involved in an M&A transaction that may be subject to security review can voluntarily file an application for preliminary review with MOFCOM; (ii) Referred Reporting: The local MOFCOM will report the transaction to MOFCOM and require the foreign in- vestor to file an application for preliminary review with MOFCOM if it finds that an M&A transaction is subject to security review. (iii) Request by Third Parties: Concerned government authorities, national industrial associations, competitors and upstream and downstream enterprises can submit a request to MOFCOM to conduct a security review if they believe that an M&A transaction falls within the scope of security review. 6.4 Review Process and Timeline (i) Pre-filing Consultation (non-binding) Before filing a formal application for security review with MOFCOM, foreign investors may request a pre- filing consultation regarding the procedural issues relating to the proposed M&A transaction. However, this is not a mandatory procedure, and the result of the consultation does not have any binding effect and cannot be relied on as the basis for making a formal application. (ii) Preliminary review by MOFCOM (15 working days) After the official filing of an application for security review, MOFCOM shall provide written notification to the applicant within 15 working days as to whether the proposed M&A transaction will be submitted for review by the Ministerial Panel. During this time, the M&A transaction shall be put on hold, and the local MOFCOM shall not approve the M&A transaction. If the applicant has not received any response from the MOFCOM after the 15-day period, the applicant can proceed to imple- ment the M&A transaction without considering na- tional security issues. (b) Special review process (60 working days): a substan- tive review process, including evaluation process and collective decision processes. If no consensus can be reached at this stage, this matter will be submitted to State Council for final decision (no time limitation for this final decision). (c) Decisions: if the Ministerial Panel concludes that an M&A transaction has exerted, or is likely to exert, a major impact on national security, then it is required to order MOFCOM (and other relevant departments) to either terminate or modify the transaction appropri- ately. Unlike merger control decisions, there is no ob- ligation for the Ministerial Panel to publish conditional approvals or prohibitions. Decisions resulting from a national security review may not be administratively reconsidered or litigated. (d) Non-compliance: if the Chinese government has na- tional security concerns about a transaction that is not submitted for approval, parties could be subject to sanc- tions or mitigation measures, including a requirement to divest the acquired Chinese assets. 6.5 Recommendations With the implementation of the security review system in China, foreign investors intending to engage in acquir- ing Chinese businesses in sectors that fall within the above scope will now need to consider whether the contem- plated transaction will be subject to national security review. It is advisable for foreign investors to take a pro- active approach here, given the fact that there are two other involuntary ways to initiate the review, i.e., the third- party whistle report and the referral reporting by the local MOFCOM. Even before the formal filing, it is ad- visable to make pre-filing consultations with MOFCOM to assess the risk exposure here at an early stage. 7. Summary If MOFCOM notifies the applicant that review is neces- sary, MOFCOM will forward the application to the Ministerial Panel within five working days for final determination of whether the transaction falls within the scope of security review. The international cross-border dealmaking enterprise should keep in mind the current foreign investment control regulation in the home country of its target or even the jurisdictions of the subsidiaries of its target, in order to not be surprised during the process of the transaction. This is even truer in times of increasing protectionism. 12 M&A REVIEW 2018 • Vol. 29 • Special for MuMAC 2018

REPORT • GERMANY Graphic 1 • Chart Country Breakdown 2012–2017 Source: Mergermarket Trend Report DACH, FY 2017, p.4 ) n b R U E ( e u a V l l a e D 175 150 125 100 75 50 25 0 5.2 48.0 2012 1.0 7.7 59.2 87.8 9.1 40.3 87.1 3.4 13.8 58.4 12.1 37.7 115.7 7.2 65.2 81.2 2012 German Value 2013 2014 Switzerland Value 2015 2016 2017 Austrian Value Germany Deal Count Switzerland Deal Count Austria Deal Count 1.000 800 600 400 200 0 D e a l C o u n t come to an end in 2018. With interest rates continuing to be historically low, and investors sitting on piles of cash, sellers appear to be successfully converting de- mand into high prices. Sources report that on a global basis, an average multiple of 13.6 times EBITDA was achieved in 2017, compared to a permanent average multiple of 12 times EBITDA.9 Germany does not appear to be an exception with regard to the trend of increased multiples. Warranty and indemnity (W&I) insurance, which was a rather exotic instrument a few years ago, has become more commonly accepted.11 In auction processes, the availability of W&I insurance can sweeten the bid and from the seller’s perspective, reduce caps. Including stapled insurance options in auction draft SPAs is becoming more common. Of course, the use of any W&I insurance should always be factored in from a procedural and timing perspective. In line with what could be described as a seller’s market, there seems to be an increased tendency to use structured auctions to enhance competition amongst bidders, with vendor reports for the due diligence phase becoming more common, and timelines for due dili- gence procedures tightening evermore. The increased popularity of W&I insurance may also have contributed to buyers’ elevated readiness to accept a risk shift in liability regimes, as e.g. illus- trated by a tendency to accept lower liability caps and a certain decrease in deals containing de minimis provisions (even though they may still be regarded as standard).12 Locked-box purchase price concepts continue to be popular in the German market. This holds true not only for transactions involving private equity investors and for larger transactions;10 there also appears to be increased enthusiasm amongst sellers of German Mittelstand targets for the transaction security that comes with a fixed purchase price. In regard to financing transactions, the trend to covenant light and covenant loose documentation continues. Also, the number of debt funds providing al- ternative financing continues to rise, offering an alter- native to traditional bank financing, which may be attractive in certain situations. 9 Handelsblatt, 3 January 2018, Jakob Blume „Kompromisslose Käufer auf dem Vormarsch“ citing Leiz Zierz, KPMG. 10 Pursuant to the 10th CMS European M&A Study 2018, there was an increase of locked box deals from 38 percent to 49 percent in German-speaking countries from 2016 to 2017; in European deals exceeding a transaction volume of EUR 100 million, locked box regimes were used in 88 percent of all cases (a rise from 58 percent in 2016). 11 For an overview on a global basis for 2017 (including a breakdown on sectors) and trends for 2018, please refer to Deloitte, 2018 insurance M&A outlook https://www2.deloitte. com/content/dam/Deloitte/us/Documents/financial-services/us-fsi-ma-insurance-outlook- 2018.pdf. Pursuant to the 10th CMS European M&A Study 2018, 14 percent of transac- tions in Europe in 2017 were concluded using W&I insurance, whereas insurance was used in 35 percent of all transactions with a volume of EUR 100 million and higher. 12 For a detailed analysis, including for the German-speaking countries, please refer to the 10th CMS European M&A Study 2018. 14 M&A REVIEW 2018 • Vol. 29 • Special for MuMAC 2018

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CONFERENCE AGENDA 10:45 – 11:30 am Parallel Sessions A Grand Ballroom Cross-Border M&A from the United States and within Europe Gallery Cross-Border M&A from and into Asia How Technology is Driving Cross-Border M&A • Key Trends in Transaction Terms & Conditions • M&A Outlook for 2019 in the United States and Europe • Impact of the European Union on Cross-Border M&A Hot Sectors • Regulatory Landscape and Impact on Deal Flow, Terms and Success • Special Considerations for Asian Buyers • Key Success Factors Janet Barbookles, President, Nova Ventures Group William F. Detwiler, Managing Director, Fenbrook Management Norman Rafael, Chief Corporate Development & Investor Relations Officer, Armacell International Rainer Röhrig, Chief Financial Officer, KPM Analytics Christian T. Staby, Head of Corporate Development/M&A, Knorr-Bremse Tian Cai, Senior Investment Director, Fosun Group Inna Gehrt, Partner, Head of DACH, Mandarin Capital Partners Andreas Holtschneider, Partner, Cathay Capital Sung Yoon Woo, Chief Executive Officer, Co-founder, Credian Partners Hui Zhang, Managing Director Europe, NIO Moderator: Melville D. Mummert, Moderator: Paul Kim, Managing Director; Head of European Investment Banking, Raymond James Financial Partner, McDermott Will & Emery 11:35 am – 12:20 pm Parallel Sessions Grand Ballroom Life Sciences, Health and Private Equity Gallery Evergreen and M&A Digital Transformation in Health and Life Sciences • Internatio - nalization of Health Care at Times of Growing Trade Barriers • Latest Trends: What Do PE and VCs Focus on? Unique Selling Positions (USPs) and Competition Advantages to Get the Transaction • Challenges in Today’s Market Environment, Inclu- ding Digitization • Impacts of Global Turbulences and Trade Limi ta- tions • Review and Outlook on Market Segment Evergreen Dr. Hubert Birner, Managing Partner, TVM Dr. Michelle Dipp, Managing Director, General Atlantic Felix Werdin, Managing Director, Bregal Unternehmerkapital Daniel Nieper, Global Head Strategy and Mergers & Acquisitions, S.V.P., Siegfried Dr. Michael Ruoff, General Counsel, PharmaLex GmbH; Partner, Think.Health Ventures Dominik Schwarz, Director, EMH Partners Kristian A. Werling, Partner, McDermott Will & Emery Marco Brockhaus, Chairman of the Board, Brockhaus Capital Management AG Philipp Haindl, Managing Director, Serafin Group Richard G. Ramsauer, Managing Partner, VTC Industriebeteiligungen Alexander Schemann, Managing Director, Armira Partners Dr. Tobias Sitte, Chief Executive Officer, Alphaville Capital Dr. Hans Wehrmann, Chairman of the Board, Certina Gruppe Moderator: Dr. Stephan Rau, Partner, McDermott Will & Emery Moderator: Dr. Carsten Böhm, Partner, McDermott Will & Emery 12:20 – 1:15 pm Buffet Lunch Break 18 M&A REVIEW 2018 • Vol. 29 • Special for MuMAC 2018

CONFERENCE AGENDA 2:50 – 3:00 pm Coffee Break 3:00 – 3:30 pm Digitization in Europe –The Challenge in between the US and China Grand Ballroom Stefan Winners, Member of the Board, Hubert Burda Media Holding 3:30 – 3:40 pm Case Study: Take Over of FRIWO AG Grand Ballroom Unorthodox Acquisition Structure • Subsequent Change Management • Thrilling Growth Market: Charging Units for E-Mobility Richard G. Ramsauer, Managing Partner, VTC Industriebeteiligungen Rolf Schwirz, Chief Executive Officer, Friwo 3:40 – 4:25 pm Parallel Sessions Grand Ballroom Carve-Out and Cross-Border M&A Gallery Finance How to get the most out of a Deal – Role of Carve-Outs in the Deal Cycle • A Smart Plan for a Better Pricing – Carve-Out Readiness Assessment in the Context of Due Diligence • Getting a Business Fit for Divestment – Success Factors & Complexity Drivers in Carve-Out Planning and Execution Felix Frohn-Bernau, Chief Executive Officer, Palero Capital Heather Morawski, Director, Senior Legal Counsel – Mergers & Acquisitions, Corporate Governance, Robert Bosch Brendan O’Connor, Assistant General Counsel – Mergers & Acquisitions, Assistant Secretary, Honeywell International Mario Sabljo, Principal, PARAGON PARTNERS Eberhard von Strenge, Member of the Executive Board, NORD Holding Overview of the German LBO Market • Trends in LBO Financings • Private Debt Funds and Banks: Competitor(s) or Partner(s) in Providing Financial Sources? • Outlook Adrian Cremer, Director Leveraged Finance Group, Société Generale Paul H. F. Kim, Managing Partner – Financial Sponsor Debt Advisory, Herter & Co. Dr. Nicolaus Loos, Co-founder, Chief Executive Officer & Chief Information Officer, Deutsche Credit Capital Partners (DCCP) Jurij Puth, Managing Director, GSO Capital Partners Moderator: Friederich von Hurter, Moderator: Dr. Oliver Hahnelt, Partner Delivering Deal Value, PwC Partner, McDermott Will & Emery 4:25 pm Reception 20 M&A REVIEW 2018 • Vol. 29 • Special for MuMAC 2018

REPORT • GERMANY Graphic 1 • Number of M&A deals with German involvement Source: Statista (2018); includes all publicly announced deals with either a German target company or a German acquiring company; forecast for 2018-2020 based on a broad expert survey Source: Statista (2018); includes all publicly announced deals with either a German target com- pany or a German acquiring company; forecast for 2018-2020 based on a broad expert survey 745 726 586 569 485 504 498 498 759 629 736 693 680 625 800 700 600 500 400 300 200 100 0 s l a e d A & M f o r e b m u N 2014A 2015A Domestic M&A transactions 2016A 2017A 2018F 2019F 2020F Cross-border M&A transactions to Chinese Truking Group. We strongly believe that the long-term outlook for takeovers by Chinese investors remains strong. In addition to China’s traditional indus- trial 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. Latest rumours sur- rounding the acquisitions of closing firm C&A or Deutsche Bank confirm this trend. 5. Private equity under huge investment pressure In addition to strategically motivated buyers, private eq- uity investors and family offices also show huge appe- tite for mid-sized companies. These buyer groups are under enormous pressure to invest and compete against other bidders for the relatively few available companies. Due to the fact that the number of attractive buy-out targets is rather limited in Germany, financial sponsors are becoming increasingly creative and are noticeably professionalizing their structures. By doing this, they continue to build up their sector know-how. This trend forces strategic buyers to pay increasingly higher prices to win the bid for their preferred acquisition targets. 6. High valuations Most of the German corporates are enjoying strong current trading in 2018. Solid balance sheets, double digit profitability margins and strong order backlogs facilitate M&A transactions and drive valuations. High levels of dry powder, combined with low interest rates and a scarcity of solid assets, are likely to lead to a fur- ther increase of transaction multiples. Purchase prices are at record levels. For profitable and growing compa- nies with a clear technological edge, double digit EBITDA multiples are increasingly becoming the norm and not the exception. As more and more business owners believe that the M&A boom may peak next year, we expect that a lot of companies will come to the market. 10 Theses for the German M&A Market 2019 1. Strategically motivated transactions, as in 2018, will shape the landscape more than defensive deals 2. Quality of target companies in terms of profitability and competitiveness will further improve 3. Valuation multiples will remain on a high level as a result of low interest environment 4. Most transactions will be mid-cap deals up to a value of Euro 500 million, while large-cap deals above EUR 1 billion will be the exception 5. Technology and health care will continue to be the hottest industry sectors and will see above-average activity 6. Percentage of cross-border transactions will further increase 7. More take-overs of German companies abroad than acquisitions of domestic targets by foreigners 8. Share of private equity deals, currently 30% in the mid-cap segment, will further increase 9. Deals are getting more complex and will take longer due to increasing due diligence requirements 10. Overall M&A activity by number of deals will further increase 22 M&A REVIEW 2018 • Vol. 29 • Special for MuMAC 2018

REPORT • UNITED STATES Graphic 1 • Worldwide Cross Border Axquisitions (Aggregate Deal Value) Source: Bloomberg Law, as of July 6, 2018 ) B D S U ( e u a V l l a t o T d e c n u o n A 1.500 1.250 1.000 750 860 131.1 500 404.7 250 0 264.8 59.4 2010 small 1,380 1,404 413.8 454.3 1,190 225.9 563.8 545.1 533.3 898 890 196.8 194.4 377.0 354.7 269.4 54.4 2012 289.6 51.5 2013 334.9 65.4 2014 346.0 340.8 75.5 2015 76.0 2016 1,275 274.8 549.8 370.6 80.0 2017 806 315.0 284.2 172.5 34.4 2018 860 68.3 408.7 319.8 63.4 2011 mid large mega Data represents all cross-border public and private M&A deals announced between Jan. 1, 2010 and Jun. 30, 2018. Rumored deals and deals in which the parties have not yet entered a definitive agreement are not included. Current year numbers represent the forst half of 2018 (Jan.–Jun.) Graphic 2 • Big deals drive inrease in deal value Quelle: Thomson Reuters data with PwC analysis 100 80 60 40 20 0 1,200 1,000 800 600 400 200 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2016 2017 2018 2016 2017 2018 Deals of USD 1 billion or more in value Deals of less than USD 1 billion Note: Includes only deals with disclosed values fewer total buyers than in previous years. Capital from non-US entities has instead flowed to countries with less uncertainty. For example, Canada and Japan have each experienced an increase in inbound transactions in 2018. High valuations, coupled with greater uncertainty, has led dealmakers to find value in alternative structures. Look for an increase in joint ventures, alliances, and other strategic partnerships as ways to sidestep regula- tory uncertainties and expensive acquisitions. 24 M&A REVIEW 2018 • Vol. 29 • Special for MuMAC 2018

REPORT • CHINA filing for NDRC and MOFCOM are basically the same. After both, NDRC and MOFCOM record filings have been accomplished, the investor must contact State Admini- stration of Foreign Exchange (SAFE) qualified banks for foreign exchange registration and fund remittance. investment constitutes a so-called “material asset re- structuring”4 of the listed company. Chinese outbound investments in Germany usually do not meet these criteria. 2.3 The State Administration of Foreign Exchange and SAFE-Qualified Banks The regulatory framework for outbound investments provides that SAFE-qualified banks in China deal direct- ly with the foreign exchange registration of outbound investment transactions and process subsequent mat- ters, 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 has required permission from SAFE before it can be dealt with by qualified banks. In addition, the local SAFE au- thority now interviews the relevant Chinese investors to assess the authenticity and compliance of the outbound investment target. In summary, SAFE has moved to center stage from its previous indirect supervision func- tion since the capital control measures were intensified. Besides the aforementioned generally applicable regu- latory framework, there are specific regulatory aspects that apply to state-owned enterprises (SOEs) and listed companies, respectively, both of which are the main players in the outbound investment market. 2.4 The State-Owned Assets Supervision and Administration Commission of the State Council (SASAC) Under the SASAC Rules, a central SOE3, or any of its subsidiaries which 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, which- ever the case may be, and the process must be complet- ed 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. 2.5 The China Securities Regulatory Commission (CSRC) and Stock Exchanges CSRC approval is required only for an overseas invest- ment by a Chinese-listed company if the outbound 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. 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 which fulfill certain criteria requiring a disclosure of the transaction,5 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. Pursuant to approval, an an- nouncement must be released in a timely manner that briefly describes the basic conditions of the transaction with information on the deal structure, the counterpar- ty, 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. Recent Changes to the Regulatory Framework in China for Chinese Outbound Investment The regulatory framework applicable to Chinese out- bound investments was substantially amended by the so-called Measures for the Administration of Overseas Investment of Enterprises (Measures), which took effect on March 1, 2018. The most relevant changes intro- duced by the Measures, which overall aim to encourage outbound investments, are summarised below: 3.1 Cancelling the Requirement of Project Information 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 in- vestor was required to submit an additional project in- formation report to NDRC before starting any substan- tive work, such as signing a binding agreement or the proposal of a binding offer. Since the Measures came into effect, this requirement has become obsolete. 4 A transaction constitutes a material asset restructuring if the listed company or any of its 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. 5 A disclosure is required if any figure such as total assets, operating income or profits of the acquired asset in the most recent year is in excess of 10 percent of that of the listed company for the same period. 26 M&A REVIEW 2018 • Vol. 29 • Special for MuMAC 2018

REPORT • CHINA 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. The following overview focuses on the cross-sectoral in- vestment 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 (Außen wirt schafts ver ord- nung, 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 con- tained in the Chinese 2025 plan and the belt road ini- tiative, they have certainly taken careful note of the New Rules. The New Rules follow a certain trend toward closer scrutiny of foreign (including Chinese) invest- ments into Germany, as illustrated by cases such as KUKA, Osram, Aixtron and most recently 50Hertz and Leifeld Metal Spinning. 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 invest- ment 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 trans- action 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 af- ter the conclusion of the acquisition agreement. The le- gal 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 advisa- ble in many cases to approach the BMWi voluntarily. 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 the application would be admissable even 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 circum- stances) might have changed as compared to the point in time when the pre-signing application for non-ob- jection 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. 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 clear- ance under the applicable AWG/AWV should be con- sidered as a closing condition. 5. Summary Compared with European investors bidding in auction processes for German targets, Chinese investors are burdened with additional regulatory requirements in China and also, potentially, to some extent, in Germany. However, in many cases, Chinese investors continue to be an attractive choice for sellers because they tend to offer high purchase prices and grant the opportunity to access the Chinese market. The Chinese government, despite certain regulatory restrictions, continues to encourage outbound invest- ments, as illustrated by the Measures. According to guidance on outbound investments issued by China’s State Council in 2017, the Chinese government is fur- thermore obliged to provide more convenient services regarding approval/filing processes, foreign exchange and other services in order to encourage outbound investments in areas which fall under the Chinese 2025 plan and the belt road initiatives, such as infrastructure, energy, high-tech manufacturing, automation, key software and hardware, and logistics targets. 28 M&A REVIEW 2018 • Vol. 29 • Special for MuMAC 2018

REPORT • FRANCE Graphic 1 • French Quarterly Breakdown Trend 2012–2017 Source: Mergermarket, French Quarterly Breakdown Trend 2012–2017 125 100 75 50 25 0 ) n b R U E ( e u a V l l a e D 5.6 18.2 11.4 3.4 2013 Q2 5.7 2012 9.4 3.8 5.3 2012 Q1 26.0 10.6 70.0 17.3 2014 Q3 11.2 8.0 47.8 25.7 2017 13.2 27.0 28.5 9.9 2016 Deal Count 12.8 6.9 37.1 14.9 2015 Q4 1.000 900 800 700 600 500 400 300 200 100 0 D e a l C o u n t Furthermore, M&A transactions, for the companies in difficulty, are fostered, thanks to the simplification of the legal tools made available to them. Collective contractual termination procedures will be adapted in order to avoid the expensive programs of collective dis- missals. Indeed, the reform would allow codification of voluntary redundancy plans approved by the adminis- tration (the DIRECCTE).8 Moreover, troubled companies can temporarily dero- gate from some provisions in employment contracts, such as those regarding remuneration or employees’ working time in order to face economic difficulties. Dismissal of employees who refused modifications will be facilitated by the new regulation. This greater flexi- bility should attract the potential buyers, fostering M&A transactions by those companies. Otherwise, Article L.1233-3 of the French Labor Code, regarding dismissal for economic reasons, is completed, and now limits the geographical scope of assessment of the reclassification obligation of the sole national ter- ritory.9 This amendment puts an end to the strict case law which made it necessary to take into account the situation of all companies of the same group sector of activity, including those located abroad, often prevent- ing reorganization, since the foreign companies of the group did not face these same difficulties. These revisions (which will be followed by other reforms like those announced on unemployment insurance, the social security system of self-employed workers, voca- tional training and retirement) should provide greater flexibility to the French social framework, and thus directly benefit the M&A sector.10 8 Option Finance, 2 October 2017, L’impact potentiel de l‘élection d’Emmanuel Macron sur le secteur du M&A, Arnaud Hugot et Maïté Ollivier 9 Ibid. 10 Ibid. 30 M&A REVIEW 2018 • Vol. 29 • Special for MuMAC 2018

REPORT • FRANCE Graphic 2 • Top Deals of Q1 2018 Source: Mergermarket, Top Deals of Q1 2018 Target Bidder XL Group Ltd (Bermuda) AXA SA (France) Target Sector Financial Services Bioverativ Inc (USA) Sanofi SA (France) Pharma, Medical & Biotech Ablynx NV (Belgium) Sanofi SA (France) Pharma, Medical & Biotech Fenner Plc (UK) Compagnie Générale des Etablissements Michelin SA (France) Industrial & Chemicals Naturex SA (France) Givaudan SA (Switzerland) Industrial & Chemicals 14 12 10 8 6 4 2 0 ) l m R U E ( e u a V XL Group Ltd (Bermuda) 5. Mar Bioverativ Inc (USA) 22. Jan Ablynx NV (Belgium) 29. Jan Fenner Plc (UK) 19. Mar Naturex SA (France) 26. Mar Target Company The ongoing substantial reform of French social law was noticed. This also considers, among other actions, setting up a digital Labor Code by 2020 to respond and adapt to the digital challenge. It should create a peda- gogical internet tool that would allow the facililtation of understanding and access to labor law, and encour- aging prospective investors to opt for M&A operations in France, rather than elsewhere. Lastly, a new law project has been announced for 2018, called the PACTE Law. With this new law, Minister of Economy Bruno Le Maire aims to ease the legal provi- sions of the Hamon Law of March 17, 2014 regarding consumption. It would principally target the ameliora- tion of the performances of the very small firms (TPE), as well as of the small and medium-sized enterprises (PME), and to associate the employees with the compa- ny’s results. With these improvements on the legal and economic sides, many French companies should strengthen their domestic capabilities, and at least some of them should be able to establish themselves interna- tionally by taking part in M&A transactions. 32 M&A REVIEW 2018 • Vol. 29 • Special for MuMAC 2018

AUTHORS Dr. Nikolaus von Jacobs, Partner, McDermott Will & Emery Rechtsanwälte Steuerberater LLP, Munich Dr. Alexa Ningelgen, Partner, McDermott Will & Emery Rechtsanwälte Steuerberater LLP, Duesseldorf 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. Dr. Alexa Ningelgen advises clients on all aspects of public law, including administrative, regulatory and constitutional law. She has in-depth knowledge of administrative litigation and relevant procedures. Alexa regularly represents major private and public companies and authorities with interests in a wide range of industries, including real estate, infrastruc- ture, energy and the food sector. Other main areas of focus include public institution law and immigration law. Jacob A. Kuipers, Associate, McDermott Will & Emery LLP, Boston Jacob (Jake) A. Kuipers advises public and private companies on complex domestic and cross-border corporate transactions, including venture financings, mergers and acquisitions, private equity transactions, international reorganizations, and Securities and Exchange Commission (SEC) compliance. 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 va- riety 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. 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 fi- nancial investors in acquisitions and sales of busines- ses 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. Nicolas Lafont, Partner, McDermott Will & Emery AARPI, Paris Nils Vitalis, (Intern, McDermott Will & Emery Rechtsanwälte Steuerberater LLP, Munich) Nils Vitalis is studying French law in Paris and is an intern in the Munich office. Nicolas Lafont focuses his practice primarily on cor- porate law, mergers and acquisitions (M&A), joint ventures and corporate restructurings, with particular emphasis on cross-border deals. Nicolas advises do- mestic and international companies in negotiation complex transactions in a broad range of industries, including life sciences, informa tion technology (IT) and energy. He also has represented clients in several ar- bitration and litigation disputes in France and in the United States. Nicolas is head of the Spanish and Latin American desk of the Firm‘s Paris office, advising both companies investing in Latin America, and Spanish and Latin American com- panies doing business in Europe. He also co-authored the French chapter of the 2nd Edition of the Corporate Governance book published by Thomson Reuters. Before joining the Firm, he served at the European Commission in Brussels as a legal analyst. He subsequently spent two years at a prestigious New York law firm de- fending a French-based company in major accounting fraud class action litigation, before returning to Paris to practice corporate law. 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. 34 M&A REVIEW 2018 • Vol. 29 • Special for MuMAC 2018

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