In a merger two companies combine into one legal entity; in an acquisition one party buys the shares or the assets of another company, which usually continues to exist. The most important choice is between a share deal and an asset deal, because it decides what the buyer takes on, including the employees: in an asset deal staff transfer automatically if an undertaking is transferred, while in a share deal their employer simply stays the same.
Dutch law adds a few fixed points to any sizeable transaction. Shares in a Dutch private or public limited company (BV or NV) are transferred by notarial deed. A works council, if there is one, must be asked for advice before the decision is taken, and the SER Merger Code may require the trade unions to be informed. Above certain turnover thresholds, the deal must be notified to the Netherlands Authority for Consumers and Markets (ACM) before completion. Below we follow a transaction from the first talks to completion and integration.
What is the difference between a merger and an acquisition?
In a legal merger one company absorbs another, or both merge into a new company, and the disappearing company ceases to exist. In an acquisition the buyer takes over shares or assets, and the target usually continues as a subsidiary or as a business within the buyer’s group.
The term “merger” is used loosely in business. In Dutch law, a legal merger (juridische fusie) has a specific meaning. Under Article 2:309 of the Dutch Civil Code (BW), the acquiring company takes over the entire assets and liabilities of the disappearing company by universal title. The disappearing company ceases to exist, and its shareholders become shareholders in the acquiring company. The procedure involves a merger proposal, filing with the trade register, a creditor objection period and a notarial deed.
In practice, most transactions are acquisitions. The buyer purchases the shares in the target (a share deal) or specific assets and liabilities of its business (an asset deal). A “merger of equals” is rare; most deals have a clear buyer and seller, even when they are presented publicly as a merger. The table below sets out the main differences.
| Characteristic | Legal merger | Acquisition |
|---|---|---|
| Structure | One company absorbs another, or both merge into a new company. | The buyer acquires shares or assets of the target. |
| Outcome | The disappearing company ceases to exist; its assets and liabilities pass by operation of law. | In a share deal the target continues to exist under new ownership; in an asset deal the seller’s company remains, without the assets sold. |
| Identity | Often a combined name and shared management. | The buyer’s identity usually dominates; the target may remain a brand or subsidiary. |
| Common aim | Combining two businesses into one legal structure. | Gaining market share, technology, staff or a competitor’s business. |
Why do companies merge or acquire?
The aim is to create more value together than apart. The usual motives are:
- market expansion: entering new countries or customer groups without building from scratch;
- diversification: spreading risk over new products or sectors;
- competitive position: increasing market share by buying a competitor;
- technology or talent: acquiring patents, software or a specialised team.
Which types of mergers are there?
Economists distinguish three types. A horizontal merger combines companies in the same sector and at the same stage of production, such as two manufacturers of similar products. A vertical merger combines a company with a supplier or customer in its own supply chain, such as a retailer that buys a producer. A conglomerate merger combines companies in unrelated sectors to spread risk. Horizontal deals attract most attention from competition authorities, because they directly reduce the number of competitors.
What are the benefits and risks?
A well-executed deal can be a shortcut to growth that is hard to achieve on your own. The risks lie mainly in overpaying, hidden liabilities and a failed integration.
Benefits usually fall into a few areas. Economies of scale: two regional companies that merge can negotiate better terms with suppliers and spread fixed costs over a larger volume. Access to markets and talent: buying an established business brings customers, staff and a market presence at once. And intellectual property: acquiring the company that developed a technology is often the quickest way to obtain it.
The risks are just as real. A clash of corporate cultures can lead to low morale and the departure of key staff. In a competitive bidding process a buyer may pay more than the business is worth, which makes a positive return difficult. And expected savings may never materialise if systems, supply chains and teams are not properly integrated.
Typical scenarios in which a deal disappoints are a lack of planning for IT integration, the departure of key employees who are uncertain about their future, and a change in market conditions that undermines the reason for the deal. From a legal point of view, the main defence against these risks lies in careful due diligence and well-drafted warranties and indemnities in the purchase agreement.
Which Dutch rules apply to a transaction?
Company law determines how shares or assets transfer. Employee participation rules, competition law and, for some sectors, investment screening determine what must happen before completion.
Transferring shares
Shares in a Dutch BV are transferred by a notarial deed executed before a civil-law notary in the Netherlands (Article 2:196 BW); for an NV the same applies to registered shares (Article 2:86 BW). The articles of association of a BV may contain transfer restrictions (Article 2:195 BW), such as a requirement to offer the shares to the other shareholders first or to obtain approval from a corporate body. Check these rules at an early stage, because they can affect the timetable. Dutch corporate law also governs the approvals needed within the buyer and the seller.
Works council and trade unions
If the target or the buyer has a works council (ondernemingsraad), it must be asked for advice on a proposed transfer of control of the enterprise under Article 25 of the Works Councils Act (Wet op de ondernemingsraden, WOR). The request must come at a time when the advice can still have a real influence on the decision. In practice, the purchase agreement is often signed only after the works council has advised, or the signing is made subject to that advice.
The SER Merger Code (SER-Fusiegedragsregels 2015) applies to acquisitions of control of an enterprise that normally employs 50 or more people in the Netherlands. The parties must then inform the trade unions involved and the Social and Economic Council (SER) before reaching agreement, and consult the unions.
Merger control by the ACM
A concentration must be notified to the ACM if the parties’ combined worldwide turnover exceeds EUR 150 million and at least two of them each achieve at least EUR 30 million in the Netherlands (Article 29 of the Dutch Competition Act (Mededingingswet)). The deal may not be completed before the ACM has cleared it. If the ACM has serious concerns, it can open a second, longer investigation phase, which affects the timetable. Larger deals may fall under the EU Merger Regulation instead, with notification to the European Commission.
Investment screening and sector rules
Acquisitions of certain vital providers, operators of business campuses or companies active in sensitive technology may require prior notification under the Security Screening of Investments, Mergers and Acquisitions Act (Wet Vifo), which applies since 1 June 2023. Some sectors, such as financial services, energy and telecommunications, have their own approval requirements. Include such approvals as conditions in the purchase agreement.
Employees
In a share deal the employer does not change: the target remains the employer, and employment contracts continue unchanged. In an asset deal in which an economic entity retaining its identity is transferred, employees transfer to the buyer by operation of law with their existing terms (Article 7:662 and following BW). The buyer cannot pick and choose staff in that situation. Our article on transfer of undertaking explains the rules.
What are the stages of a transaction?
A typical transaction moves from a letter of intent through due diligence, negotiation and structuring to signing and completion, followed by integration. Each stage builds on the previous one.
Letter of intent
Once the first talks have gone well, the parties usually sign a letter of intent. It records the main terms, such as the indicative price and the structure, and contains binding clauses on confidentiality and exclusivity. Under Dutch law, breaking off negotiations at an advanced stage can lead to liability. Our article on the letter of intent explains when such a document binds you.
Due diligence
The buyer investigates the target’s financial, legal, tax, operational and commercial position. The purpose is to verify the seller’s information and to uncover risks before the price and the warranties are fixed.
Teams of lawyers, accountants and sector specialists review contracts, accounts, permits and internal procedures, usually through a virtual data room. The table below shows the main areas.
| Type of due diligence | Main focus | Example of a red flag |
|---|---|---|
| Financial | Annual accounts, revenue streams and quality of earnings. | A large part of the profit comes from one-off asset sales, not from the core business. |
| Legal | Contracts, permits, corporate records, disputes and compliance. | Key intellectual property is owned by a founder personally, not by the company. |
| Operational | Processes, IT systems and the supply chain. | Core software is an unsupported, custom-built system that is hard to integrate. |
| Commercial | Market position, customers and competitors. | The main product is about to be overtaken by a competitor’s technology. |
A common legal red flag is dependence on a few customers without long-term contracts, or contracts that the other party may terminate on a change of control. Employment matters also deserve attention: the terms of key staff, collective labour agreements, pension arrangements and any pending dismissal cases. Increasingly, buyers also examine environmental, social and governance (ESG) risks, such as permits, emissions and supply-chain compliance, because these can affect both value and liability.
Valuation and negotiation
With the due diligence findings on the table, the parties negotiate the price and the terms. Valuation involves more than last year’s profit: forecasts of future cash flows, the value of the assets and comparisons with similar companies all play a role.
The findings often lead to a price adjustment or to specific protection in the purchase agreement. Besides the price, the parties negotiate the payment structure, the position of the management and any obligations of the seller after completion, such as a non-compete clause. A price mechanism is also agreed: a locked box, in which the price is fixed on the basis of an earlier balance sheet, or completion accounts, in which the price is adjusted after completion.
Share deal or asset deal?
In a share deal the buyer acquires the entire company, with all its assets and liabilities, including those that are not yet known. In an asset deal the buyer selects the assets and liabilities it takes over, but each asset must be transferred in the way the law prescribes.
A share deal is usually simpler to execute: one notarial deed transfers the shares, and contracts, permits and staff remain with the company. The buyer needs strong warranties and indemnities to cover risks from the past. An asset deal gives more control over what is taken on, but requires separate transfers: a notarial deed for real estate, assignment of receivables, consent from counterparties for the transfer of contracts and, where needed, new permits. Employees can transfer by operation of law, as explained above.
The choice is also influenced by tax consequences for buyer and seller. Law & More does not advise on tax structuring; we work alongside your tax adviser on that aspect.
The purchase agreement
The share or asset purchase agreement contains the definitive terms. The key provisions are the price and payment, conditions for completion, warranties, indemnities and limitations of liability.
Warranties are statements by the seller about the condition of the company, for example that the accounts are correct and that there are no pending disputes. If a warranty turns out to be incorrect, the buyer can claim compensation within the limits agreed. Indemnities cover specific risks identified in due diligence, euro for euro. The agreement usually limits the seller’s liability in amount and in time, and requires the buyer to notify a claim within a set period. Such contractual arrangements usually replace the general Dutch rules on non-conformity. Some buyers take out warranty and indemnity insurance.
Signing and completion
Signing and completion often take place at different moments. Between them, the conditions must be fulfilled, such as ACM clearance, financing or the works council’s advice.
At completion, the notary executes the deed of transfer of the shares, the price is paid and the buyer takes control. The seller usually delivers resignation letters from directors, updated registers and other documents agreed in the purchase agreement. The new shareholder is then entered in the shareholders’ register and the change of directors is registered with the Chamber of Commerce.
Integration after completion
Post-merger integration is the process of combining the two organisations: harmonising IT systems, aligning processes and bringing teams together. Legally, this phase often involves adjusting employment terms, restructuring group entities and renegotiating contracts.
Integration should be planned alongside the deal, not after it. Changes to employment terms require the consent of employees or a valid unilateral amendment clause, and restructuring may again require the works council’s advice. Communication with staff and customers from day one reduces the risk that key people or clients leave.
How do you protect yourself as a seller?
By disclosing known issues, limiting warranties and liability, and agreeing clear rules on payment. A seller who discloses openly reduces the risk of claims after completion.
The disclosure letter is the seller’s main tool. Matters that are fairly disclosed in it, or in the data room, can usually not be the basis of a warranty claim later. Agree in the purchase agreement what counts as fair disclosure and whether the whole data room is deemed disclosed.
Negotiate the limitations: a maximum amount for warranty claims, often expressed as a percentage of the price, a minimum threshold below which claims are not admissible, and a period within which claims must be notified. Longer periods are usually agreed for tax and title to the shares. If part of the price is deferred or held in escrow, agree when it is released and on what conditions.
A non-compete clause for the seller is common, but it must be reasonable in scope, duration and territory. Competition law limits how far such a clause may go, and an overly broad clause may not be enforceable in full.
What happens to the directors and management?
The buyer usually wants to appoint its own directors at completion, and the seller wants to be released from liability for the period before. Both points are arranged in the purchase agreement.
A statutory director of a BV is appointed and dismissed by the general meeting (Articles 2:242 and 2:244 BW), unless the articles of association provide otherwise. At completion, the new shareholder adopts resolutions to accept the resignation of the outgoing directors and to appoint new ones. Outgoing directors often ask for discharge (décharge) for their management; whether a buyer grants that, and to what extent, is a matter for negotiation.
If a director is also an employee, the employment contract does not end automatically when the director steps down. Directors of a BV have a special position: dismissal as director in principle also ends the employment relationship, but the usual rules on notice and on the transition payment (transitievergoeding) may apply. Arrange the position of management that stays on in new agreements, sometimes combined with an earn-out or a management participation.
Which contracts need attention?
Contracts with change-of-control clauses, contracts that cannot be transferred without consent and financing agreements need attention. They can give a counterparty a right to terminate or to renegotiate.
In a share deal the contracts remain with the target company, but many commercial agreements, leases and licences contain a clause allowing the other party to terminate if control of the company changes. Identify these in due diligence and decide whether consent must be obtained before completion. Financing agreements often provide that the loan becomes due on a change of control; the buyer then has to arrange refinancing.
In an asset deal each contract must be transferred with the cooperation of the other party (Article 6:159 BW). Without that consent, the contract stays with the seller. The parties then agree how the benefits and obligations are passed on in the meantime. Permits are often tied to a specific holder and may need to be applied for again.
How does it work in practice?
Most acquisitions of Dutch small and medium-sized companies are share deals, with a letter of intent, a due diligence investigation and a purchase agreement with warranties. The legal work is concentrated in the due diligence and in the negotiation of the purchase agreement.
Take a foreign technology company that wants to buy a Dutch software business with a works council. The buyer signs a letter of intent with exclusivity, carries out due diligence and discovers that the source code was partly written by freelancers without a transfer of intellectual property. The parties agree that the seller will arrange the transfer before completion, and that an indemnity covers any remaining claims. The works council is asked for advice on the draft agreement, and the shares are transferred at the notary after the advice has been received.
How long does a transaction take?
That depends on the size and complexity of the deal and on the approvals required. A straightforward acquisition of a private company takes months; larger deals with regulatory approvals can take considerably longer.
The main factors that affect the timetable are the depth of due diligence, the degree to which the parties agree on price and structure, and external steps such as financing, shareholder approvals, works council advice and ACM clearance. Plan these steps early and include them in the timetable of the letter of intent.
In summary
- A legal merger combines two companies into one; in an acquisition the buyer takes over shares or assets and the target usually continues to exist.
- In a share deal the buyer takes on the whole company, including its history; in an asset deal it selects what it takes, but employees can transfer by law.
- Shares in a BV or NV transfer by notarial deed; check transfer restrictions in the articles of association.
- Ask the works council for advice in time, observe the SER Merger Code and notify the ACM when the turnover thresholds are met.
- Protect yourself through due diligence and clear warranties, indemnities and limitations in the purchase agreement.
Frequently asked questions
How long does a Dutch M&A deal typically take?
That depends on the size and complexity of the deal. A straightforward acquisition of a private company usually takes several months. Deals that require ACM clearance, works council advice, financing or shareholder approvals can take considerably longer.
What is a share purchase versus an asset purchase?
In a share purchase the buyer acquires the shares and thus the entire company, including unknown liabilities; employees stay with the same employer. In an asset purchase the buyer selects specific assets and liabilities, each of which must be transferred separately. If an undertaking is transferred, employees move to the buyer by operation of law.
What is an earn-out in an M&A transaction?
An earn-out makes part of the purchase price dependent on the performance of the business after completion, for instance revenue or profit targets over an agreed period. It bridges a gap between the seller’s and the buyer’s view of the value. Define the targets, the accounting rules and the seller’s influence on the business precisely to avoid disputes.
What is the role of a letter of intent?
A letter of intent records the main terms of the proposed deal, such as the indicative price, the structure and the timetable, before the parties start full due diligence. Most of it is usually non-binding, but clauses on confidentiality and exclusivity are binding. Under Dutch law, breaking off negotiations at an advanced stage can lead to liability.
Law & More advises buyers, sellers and investors on acquisitions, mergers and shareholder arrangements in the Netherlands, from the letter of intent to completion. Unsure where you stand? Tell us about your situation. We will let you know your options within one working day.
