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Special aspects of negotiating with German medium-sized businesses for Baltic investors

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published on 22 February 2022 | reading time approx. 2 minutes

 

 

 

 

What special issues do companies from the Baltic states await, when they take over or acquire a stake in an owner-managed company in Germany?

The Baltic states and Germany generally have very similar company law frameworks. When it comes to M&A-transactions in particular, both Germany and the Baltic States rely on internationally established procedures. It is worth mentioning that investors in a German GmbH (limited liability company) as shareholders have much greater leeway for structuring the transaction than they are used to in a Lithuanian UAB, a Latvian SIA or an Estonian OÜ – which are the comparable legal structures in the Baltic countries. In the Lithuanian UAB, for example, this is the case for the drafting of the articles of association, where the number of provisions mandatorily observed is bigger than in Germany.
   
There are further details to consider as well. For example, a German GmbH can have several management board members who do not have to be the company's employees, while, for example, in the case of a Lithuanian UAB, only one management board member may be appointed who must also be employed by the company based on an employment contract.  
    
The tax requirements in the three Baltic states differ very much from each other, but, when considered sepa­rately, they are relatively clear and usually easy to navigate. In comparison, Germany has a highly complex tax system, which is why it is advised to carefully examine the tax situation, the consequences of the invest­ment and the leeway for structuring it. 
    
It should also be noted that certain commercial customs have found their way into the legal system in Germany, for example the commercial letter of confirmation. Customary law such as the so-called apparent authority, agency by estoppel or public reliability of the company register does not exist in this form in the Baltic states. Also the practice of incorporating and applying general terms and conditions varies between Germany and the legal systems of the Baltic states. In Germany, it is also regulated down to the smallest detail either by law or by case law of the highest courts. When it comes to assessing facts and circumstances of cases, Germany's case law and legal theory can draw on more than 100 years of almost uninterrupted development in many areas, so that legal certainty – even without explicit contractual provisions – is generally higher. German courts have considerably more leeway when it comes to the (also gap-filling) interpretation of contracts and the consi­deration of economic consequences (e.g. in the case of claims for damages) – and they also make use of it. Thus, from a legal point of view, the spoken word has considerably more weight in Germany. This applies especially to negotiations before signing a contract. German medium-sized companies assume – knowingly or not – that their foreign contractual partners are also aware of such German peculiarities.
    

What aspects should Baltic companies take into account when negotiating with German medium-sized businesses?

German medium-sized companies are characterised by a special corporate culture and – which should not be underestimated – a particular mentality when it comes to doing business. Especially the German medium-sized (often owner-managed) companies stand out due to their personal management style, flat hierarchy, short decision-making paths and regional networking. This is also reflected in how they handle negotiations. In most cases, they make decisions not with short-term effects in mind or to please shareholders or external finance providers but based on long-term planning and strategies – often across many family generations. They usually value certainty and sustainability of transactions and partnerships far more than opportunities promising ample profit prospects yet involving respective risk exposure. Some well-intentioned yet rather unorthodox or aggressive approaches (e.g. to save time, taxes or costs) tend to have a deterring effect rather than be positively received by the German counterpart. If Lithuanian companies take this into account while preparing investment concepts, acquisition offers and negotiations, the takeover and investment process will be easier to handle. 
    
In our experience, however, many of the cultural and mental characteristics mentioned above also apply to entrepreneurs and SME from the Baltic states. Your own company, the company you work for and your business partner are very often treated as a "highly personal" matter. Therefore, the chances are good that the parties will discover during the talks that they have many things in common, which will create trust during the nego­tiations and form a solid basis for a successful transaction or even a long-term partnership.

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