Mergers and acquisitions in Finland; what can go
wrong?
In the past few years I
have seen many great cross border acquisitions; most of them great successes. But
it’s worthwhile to have a look at missed
opportunities and learn a lesson of the past failures. I have tried to
summarize what usually goes wrong.
1)
A
business acquisition is a major investment and decisions for such large projects need to be properly validated
to minimize the business risks involved. This is not a legal issue but why
acquire a company if you are not convinced of the profitability. You would be
surprised how often these kinds of studies and validations are neglected even
by multinational companies. We were recently able to prevent such a tragic mistake from happening by being
able to show that the business was no longer profitable in Finland due to
changes in the legal and subsidiary framework.
2)
Tax considerations are sometimes poorly dealt with by
small and medium sized companies. You should bear in mind that when acquiring
shares in a company there is an added layer of complexity which arises from the
fact that the buyer is acquiring an entity with a tax history and attached
liabilities. As the tax climate hardens buyers should conduct thorough due
diligences regarding their targets’ tax affairs and be sure to negotiate
appropriate indemnities and warranties as part of any deals. This goes also
with the target company’s compliance related to value added tax (VAT ) and
other indirect taxes.
3)
When
planning the fiscal aspects of your financing you should not always trust past
experiences. Many countries are working to increase tax revenue,
shore up their tax bases and curb aggressively financed M&A transactions. In
many countries e.g. the non-deductibility
of interest has emerged as a common
legislative means of eliminating the tax benefits of cross-border debt
financing structures. Today’s truth may not be that of tomorrow.
4)
The
buyer should cover all its legal bases and get a thorough assessment of
possible legal risk. I have seen cases with costly and large due diligence
reports consisting of copies of the due diligence material. Little do they serve the buyer’s
interest if there is no assessment. A clear analysis of the existing employment
contracts is also vital as the Finnish labour laws can become a costly affair
for the buyer.
5)
Try to
persuade your counterpart to acquire knowledgeable legal advice as well. It
saves a lot of the buyer’s time and money if the seller is represented by a business-minded
professional who knows his trade.
It is money well spent to have appropriate advisors at
one’s side to help avoid pitfalls by tackling them early on at the negotiation
table. The earlier the better - and usually a lot less costly.
