Road book on mergers and acquisitions in Belgium (part 1)

I. Structuring the private M&A transaction

1.1 Share deal or asset deal

Business acquisitions in Belgium are most often structured as an acquisition of shares in limited liability companies. However, similar transfers can also be carried out as assets transfers. 

The main characteristics of both techniques and the differences between them have already been described in an earlier contribution on our website, that you can read by clicking here.

An asset deal is the prevailing alternative in situations where a share deal would not be optimal, for example in the following situations:

• A target company holds assets that will be acquired by more than one purchaser.
• A target company holds specific assets or liabilities that a purchaser wishes to exclude from the transaction.
• Regulatory issues prevent a share deal.
• The purchaser does not wish to take over (certain) liabilities of the target company, but only assets and rights.

1.2 Consideration and financing

In Belgian private M&A transactions, the predominant form of consideration is cash. However payment in shares or a combination of shares and cash are also permitted and frequently used.

II. The Route to the private M&A transaction

2.1 An outline of the process

A Belgian private M&A transaction may be accomplished by negotiations directly between the seller and the purchaser or, in case of a share deal, also by a controlled auction where the seller invites several prospective purchasers.

A controlled auction normally includes the following steps:

• Before initiating the actual control auction process, the seller conducts a vendor due diligence review of the company and business contemplated to be sold in order to anticipate any issue or uncertainty and to undertake any restructuring measures required to facilitate the upcoming transaction.

• A number of potential purchasers are evaluated and invited.

• A brief teaser is provided to the prospective purchasers who have been invited.

• Prospective purchasers who wish to participate in the auction process enter into confidentiality or non-disclosure agreements and are then provided an information memorandum, presenting the target company.

• Interested purchasers give their initial bids in non-binding bid letters.

• The seller evaluates the initial bids and selects prospective purchasers who are invited to proceed to the next stage of the process and to carry out a more detailed investigation – a due diligence review – of the target company.

• Based on the outcome of the due diligence review, the prospective purchasers submit their revised bids.

• Following evaluation of these revised bids, the seller selects one or a few prospective purchasers with which to finally negotiate the transaction and conclude a sale and purchase agreement.

2.2 Initial “pre-contract” agreements

At an early stage of the process, the parties may conclude a letter of intent (“LOI”) or similar pre-contract to facilitate the further negotiations. LOI’s are typically non-binding agreements setting out general terms for the process to draw up the main lines for the future negotiations. Other terms, such as “memorandum of understanding” and “heads of agreements” are also frequently used to describe pre-contract agreements of this kind.

LOI’s and similar pre-contracts are widely used in Belgium. 

They may include statements on :

• the purchase price,
• conditions for the conclusion of a future sale and purchase agreement (approval from the board of directors, obtaining of financing, clearance from relevant competition authorities, etc.),
• regulations of the potential purchaser’s rights to perform a due diligence review of the target company,
• terms regarding non-disclosure/confidentiality, non-solicitation of employees and purchaser’s exclusivity to negotiate the transaction for a certain period of time and various other provisions.

The level of commitment of the parties to complete the transaction may differ. 

However, parties should take into account that under Belgian law an agreement has in principle binding force as soon as the parties agree on the price (or the calculation thereof) and the object of the transaction. Parties may nevertheless deviate from this rule, but this should be explicitly stated in the LOI or similar pre-contract. 

Parties may explicitly deviate from the rule that an agreement has in principle binding force as soon as the parties agree on the price

To avoid any possible conflicts in case the transaction would not go through, it is strongly recommended to approach this deviation and its implementation (i.e. drafting such clauses) with the highest level of care. Some key provisions such as confidentiality, governing law and dispute resolution, non-solicitation, exclusivity and return of documentation are, however, normally made binding.

A mere exclusivity agreement may also be concluded. 

As the number of possible purchasers involved in each controlled auction has increased in the last years, bidders tend to find exclusivity even more important. Sellers, on the other hand, often strive to keep as many potential purchasers as possible in the process. 

If an exclusivity agreement is concluded, it usually contains a clause giving the seller the opportunity to withdraw from the exclusivity commitment in the event that the process makes limited progress (after giving the potential purchaser notice and the opportunity to resume the process). 

In some auction processes, exclusivity agreements can also contain various provisions that are typically included in an LOI, such as conditions for the conclusion of a future sale and purchase agreement.

Furthermore, the parties often enter into standalone confidentiality agreements more elaborate than the equivalent provisions that may be included in e.g. an LOI.

More chapters to come ...