392 11 Takeovers: Introduction
collapse, a company that has filed for bankruptcy, or a company that sells assets as
part of a confirmed Chapter 11-type reorganisation plan.^3
For some firms, buying and selling companies is the main activity. A private-
equity firm, a venture capital fund, or an LBO fund would act according to its own
business model when acquiring a company.
Deutsche Bundesbank has defined private-equity firms, venture capital funds and LBO
funds as follows:^4 “Private equity denotes, in the narrower sense, equity raised by an enter-
prise privately, ie not on a stock exchange. This is done by a financial investor – also
known as a private-equity firm – collecting capital from wealthy individuals^5 and institu-
tional investors and using it to purchase equity shares in firms. A venture capital fund is
created when a financial investor provides funds for target companies that are either newly
established or are refining products which are not yet ready for the market. An LBO fund,
by contrast, uses these funds for leveraged buyouts, ie usually for purchasing an established
company outright using a large proportion of debt.”
11.2 Structures.............................................................................................
The structure of the acquisition is influenced by: funding; company and securities
law considerations common to all mergers and acquisitions; tax and accounting is-
sues; general regulatory concerns (such as competition law concerns); industry-
specific regulatory concerns (such as banking law concerns);^6 and other factors.
Cross-border transactions are legally more complicated than domestic ones.
A typical acquisition can be structured as: the acquisition of shares (a share
sale, share deal); the acquisition of assets (an assets sale, asset deal); the subscrip-
tion of shares issued by the target; or a merger. Sometimes the sale is a sale by
auction.
Although different legal structures could in principle be used to transfer control
over the same business, those legal structures are not identical in the general eco-
nomic sense, because the identity of the parties, the allocation of rights and obliga-
tions between the parties, the allocation of risks, the consideration, and many other
things depend on the legal structure of the deal.
(^3) For an introduction to acquisitions of insolvent companies or their assets, see van Bet-
teray W, Gass W, Vorverträge, Asset Deals und Unternehmenskaufverträge in der In-
solvenz, BB 2004 pp 2309–2318; Gassner UM, Braun M, Die Failing Company Defense
in der deutschen, europäischen und US-amerikanischen Fusionskontrolle, RIW 2004 pp
891–898.
(^4) Deutsche Bundesbank, Leveraged buyouts: the role of financial intermediaries and as-
pects of financial stability. In: Monthly Report, April 2007 p 16.
(^5) There are also listed funds which provide a wider range of investors with the opportu-
nity to invest directly in private equity.
(^6) Cole J Jr, Kirman I, Takeover Law and Practice. In: PLI, Doing Deals 2008: Under-
standing the Nuts & Bolts of Transactional Practice. New York City (2008) pp 129–130.