The European Lawyer

12 Mar 2010

International Acquisition Finance - Foreword

Editors: Hendrik Haag - Hengeler Mueller

This book is published at a time of unprecedented financial turmoil. The landscape of the financial industry around the world is changing quickly. Just the day before I am writing this preface, one of the oldest and finest investment banks, Lehman Brothers, has filed for insolvency and sent home its employees. Since what has become known as the “subprime crisis” has hit the financial markets in July 2007, money has become a scarce resource even amongst banks. Suspicion and distrust are in control of what used to be an efficient, global market of financial resources.

Acquisition finance has been hit particularly hard by this. As it is a leveraged form of finance, where the service of the debt heavily relies on all things continuing to be equal or even becoming better, banks are hesitant to incur these risks while they see their equity melt away as a result of ever increasing write offs on subprime assets. Hundreds of billions of euros in acquisition debt which have been underwritten before the crisis began are still waiting to be syndicated. Conditions for new transactions have materially deteriorated. Debt to equity ratios of four to one, and debt equalling more than seven times of EBITDA, constituted all time highs in the middle of 2007. By midyear 2008, the few transactions that came to the market showed an average equity of close to 50%, and debt EBITDA ratios came down significantly. This has made it much harder for private equity funds, one of the main drivers of acquisition finance, to continue delivering the returns the investors have become used to over the last ten years. This has opened a window of opportunities for strategic buyers, who often had felt squeezed aside by private equity firms and the prices they were willing to bid. Strategic buyers traditionally need less leverage and have a healthy income stream from their business which supports the financing.

Although at present times it may not look as bright for leveraged acquisition finance, it is however a good moment for introducing this book. Structuring acquisition finance is an art not only for bankers but also for lawyers. Bankers are building their case on cash flows made available from the acquired businesses. However, sometimes it is not easy to access those as corporate laws may stand in the way of providing financial assistance to a company’s acquirer. There are many other questions that finance lawyers need to analyse and provide answers to before the best, and least expensive, acquisition structure is defined these answers vary from jurisdiction to jurisdiction. What is perfectly acceptable in one country may bring corporate officers directly to jail in another. Many of the structures which were worked out in recent years may now be put to unexpected tests.

When starting to work on a multi jurisdictional acquisition finance deal, I often wished I had a book which could provide me with a quick overview of the rules in a particular country. This book is now in front of you and readily available. It is not meant to substitute legal advice, but to give early alert of structural opportunities and pitfalls.

I am very proud that this esteemed group of law firms across the world has followed my invitation to contribute a chapter on their respective countries’ laws. This group comprises the experience of thousands of transactions in which the contributors have worked as advisers for borrowers and lenders alike. I am very thankful to the authors for sharing their knowledge and experience with the readers of this book. I admire their discipline to have delivered their contributions to schedule thereby allowing a timely production. This is particular true since bad times are often a lawyer’s busiest times. My thanks also go to the staff of The European Lawyer, in particular Ania Neuman and Nicole Lee, who have pushed all of us forward with a gentle nudge here and there. Finally, I am obliged to Patrick Wilkins, the publisher of the fine journal, The European Lawyer, for giving me the opportunity to edit this book.

Hendrik Haag
Hengeler Mueller
Frankfurt am Main
September 2008