The most common option when buying a company in Denmark, are private M&A transactions structured as share deals
(So-called) asset deals are also frequently used, however to a much lesser extent than share deals. The difference in popularity between these two options is due to tax and business circumstances as well as the complexity of these transactions.
Instead of buying a company in Denmark, there is also the option of establishing a joint venture. This would be relevant for businesses wanting to combine their activities or make add-on acquisitions.
Public M&A transactions and statutory mergers are less frequent in the Danish market, although we have seen an increase in the last few years.
In this article, we will provide you with a general overview of the different acquisition options available in Denmark relating to listed and non-listed companies.
Non-listed companies
Non-listed companies are usually acquired through a voluntary private offer on the shares (share deal) or the assets (asset deal) of the target company.
There are no major differences between share and asset transfers in terms of the documents used for the acquisition (purchase agreement), – although purchase agreements for asset deals tend to be more detailed. However, share and asset deals do differ from each other from a legal- and tax perspective.
Share deals
Companies that wish to acquire the target company in its totality usually prefer share structures – by contrast, companies that wish to acquire part of a company usually prefer asset structures.
When an acquisition is structured as a share deal, all the assets and liabilities in the target company are transferred to the acquiring company, which makes the transaction slightly more risky for the acquiring company as all the unknown liabilities from the past are transferred to the buyer.
On the other hand, shares are completely transferable. The only limitations in order to transfer a share can be found in the company’s Articles of Association, its shareholders agreement, or shareholders’ register. As these documents are under the control of seller, there is usually no issue in obtaining permission to the transfer of shares. Worth noting, however is that third party can restrict the transfer of shares pledges (usually bank pledges).
Therefore, share deals do generally not require consent from external stakeholders (such as suppliers, agents, customers etc.). Sometimes certain larger suppliers have incorporated a change-of-control clause in the framework agreement. Depending on the wording of the change-of-control clause, such a clause could entail a requirement of consent from the contracting party. The supplier will not have authority to deny the transfer of the shares under a change-of-control clause as such, but the clause would typically result in an option for the supplier to terminate the supply agreement with immediate notice. Although consent from external stakeholders such as suppliers is usually not required in a share deal, we recommend informing those stakeholders of the transaction in any event.
A transfer of shares can be exempted of corporate tax in Denmark if the seller is a Danish limited liability company, and the seller holds at least 10% of the shares in the target company. In addition, there are no immediate Danish tax consequences for a foreign company acquiring shares of a Danish company. A legal assessment of the tax-part of the transaction however will always be required, including an examination of the applicable double taxation treaty or other similar applicable tax regulations on a case-by-case basis.
Asset deals
In the case of an asset deal, the acquiring company will assume the assets and liabilities in accordance with the purchase agreement. This allows for “cherry-picking” the best parts of a business and excluding hidden liabilities largely than in a share deal. Asset transfers (including the transfer of contracts) will however require the consent of the external stakeholders/contracting parties.
In an asset transfer, employees in the target company will automatically be transferred to the buyer, including all existing rights to pension, pay-level, seniority etc. Some buyers have made the costly mistake of thinking they could terminate employees blaming the business transaction. However, under Danish employment law, a business transfer is not a valid justification for a fair dismissal. Unfair dismissals triggers penalties as well as payout of compensation. Therefore, the employee-part of the transaction should always be thoroughly examined during the Due Diligence process. You can read more about employment law in Denmark in our article “Danish Employment law at a glance”.
In an asset deal, the seller (domestic of foreign) is taxed on the profit of the sale of assets, having the possibility to deduct the losses incurred in this respect (with the possibility to carry the loss forward to subsequent income years).
Listed companies
Acquisition of listed companies is usually performed through “stake building” following a public tender offer. Generally, shareholders who already hold a significant amount of shares in the company will apply this strategy to increase their position in the company in order to prepare a bid.
Stake building consists of the acquisition of shares in a target company by a potential offeror (usually a shareholder). The more shares an offeror buys, the greater chance the offeror has of acquiring the company. Moreover, if the bid was contested (raising the price of the target company), an offeror with a great portion of shares may reduce the expenses of failure by selling its stake at a profit.
Another way of increasing “bid certainty” is that the potential offeror enters into an “irrevocable undertaking” with significant shareholders, where the shareholders agree to tender their shares to the offeror in the takeover offer. However, this strategy can be risky for the offeror given that shareholders are entitled to withdraw their acceptance in case of a competing offer.
Also read more about share and asset acquisitions in our article “Buying a company in Denmark? Here’s what to know?”.
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