Finance Monthly

Dr. Wolfgang Hermann

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Dr. Wolfgang Hermann

Hermann & Kollegen

Dr. Wolfgang Hermann, a partner at Hermann & Kollegen is known for his profound expertise in complex real estate transactions and today, he shares valuable insights into his firm's strategies and experiences in the industry, particularly in managing high-stakes property deals like shopping centres and hotels. Join us as we explore the intricacies of these sophisticated transactions.

Interview with Dr. Wolfgang Hermann

Dr. Hermann, given your firm's comprehensive advisory services on all variants of real estate transactions, including asset deals, share deals, and sale and leaseback transactions, could you share a standout experience that highlights your team's expertise in handling complex properties like shopping centres and hotels?

Very much so. The transaction involved legal advice on the buyer's side for the acquisition of a shopping centre and an adjacent hotel. Both properties were strategically located but posed a number of challenges due to long-term leases, complex operating structures and regulatory requirements. It was also unclear at the beginning whether the transaction should be realised as an asset or share deal.

One challenge was the complex lease structures and operational interdependencies: the shopping centre had various tenants with different terms and conditions, including some long-term leases that required special attention. The hotel was part of an international franchise and was subject to specific franchise agreements that had to be taken into account in the transaction. Both properties were subject to strict building and environmental regulations, which had to be analysed in detail and taken into account in the transaction planning. Our team carried out a comprehensive due diligence process covering legal, financial, technical and environmental aspects to obtain a complete picture of the risks and potential of both properties.

Due to the complexity of the transaction, the team opted for a structuring that included asset deals for certain parts of the shopping centre as well as share deals for the hotel and other parts of the property. This mixed strategy enabled the tax burden and regulatory requirements to be optimised.

The team negotiated intensively on guarantees and exemptions in order to minimise the risk for the investor group. In particular, this included aspects resulting from the long-term leases and franchise agreements. Together with our manager and his tax advisors, the team developed a long-term operating concept that ensured both the ongoing attractiveness of the shopping centre and the profitability of the hotel. This included strategies for tenant retention and acquisition as well as increasing operational efficiency.

The transaction was successfully completed, and the investor group was able to integrate the shopping centre and hotel into its portfolio. Thanks to careful planning and comprehensive due diligence, the team was able to minimise the risks associated with the transaction and ensure a smooth transition to the new operating structures.

This example underlines the importance of a comprehensive and strategic approach to complex property transactions. The combination of thorough preparation, detailed due diligence and innovative transaction structuring is crucial to ensure the success of such endeavours.

With the firm's emphasis on ensuring clients have a dedicated partner to lead their transaction, how has this approach enhanced the efficiency and outcomes of the deals you manage?

A dedicated contact person ensures a direct and uncomplicated line of communication between the client and the firm. This reduces misunderstandings and ensures that information can be exchanged quickly and efficiently. Clients feel better informed and involved, which strengthens the relationship of trust.

Through continuous support, the contact person gets to know the client's specific needs, goals and preferences in detail. This enables tailored advice that increases the chances of a successful transaction while minimising risks.

A dedicated point of contact who is familiar with all the details of the transaction can react quickly to problems and find efficient solutions. This saves time and resources and can be decisive in meeting deadlines and ensuring the success of the transaction.

Complex transactions often require expertise from different areas of law. A contact person can act as a central coordination point, ensuring that all specialists involved work together effectively and optimally integrate their contributions into the overall strategy.

Ongoing support from the same contact person ensures consistent quality advice throughout the entire transaction process. This helps to avoid errors and maintain the integrity of the transaction.

Clients who know that they have a reliable and competent contact person feel more secure and satisfied. Thus, the law firm can establish itself as a reliable partner that not only offers legal expertise but also actively supports its clients' business success.

Given the range of services that your firm provides, from establishing property companies and joint ventures to structuring the buying and selling process. Could you explain how the integration of these services benefits your clients throughout their transaction journey?

This holistic advice enables transactions to be completed more efficiently, securely, and with greater strategic focus. Key benefits include (i) comprehensive strategic planning that takes into account all legal, financial and operational aspects, (ii) risk minimisation, (iii) increased efficiency, (iv) flexibility and adaptability and (v) cost efficiency by leveraging synergies and avoiding redundant services. If required, specialised services can be seamlessly integrated to respond to specific challenges or opportunities within a transaction. This ensures access to in depth expertise exactly when it is needed. This leads to a more secure, efficient and strategically focused execution of transactions.

Reflecting on the past 12 months and considering non-confidential details, could you share insights into a transaction your firm has been particularly proud of, highlighting the challenges overcome and the innovative strategies employed?

In the above example, the challenge was particularly the complexity of the transaction and the time aspect, as well as considering the turn of the year and the associated Christmas holidays. Everyone on the team was highly motivated, and there was no question of bringing the project to a successful conclusion that was in line with the client's time requirements despite the Christmas holidays and the desire for family and time off. Everyone was there for each other and compensated for each other's time off. Working from home also made things a lot easier. This united team effort from within the team makes me particularly proud and makes the transaction so important for our law firm. This is not an innovative approach (such as AI), but I am convinced that without the people behind it and a really well-functioning team, you cannot be successful.

Legal due diligence is a cornerstone of your advisory services. How does creating a detailed due diligence report set the foundation for successful negotiations and transaction closures?

Legal due diligence is a crucial step in transactions. It serves to identify, assess and ultimately minimise risks by thoroughly examining all legal aspects of the target company or investment object. The preparation of a detailed due diligence report can, in many ways, form the basis for successful negotiations and transaction closings:

Risk identification and assessment: a thorough due diligence report uncovers potential legal risks, such as ongoing or impending litigation, regulatory violations, intellectual property issues and problems with contracts. By identifying these risks before the transaction is finalised, companies can make informed decisions and develop risk mitigation strategies.

Negotiation basis: The results of legal due diligence provide a solid basis for negotiating purchase price adjustments, warranties, indemnities and other contractual clauses. They allow the buyer to address specific risks and negotiate protections that minimise their risk.

Compliance assurance: The report helps to ensure that the target company fulfils all relevant legal and regulatory requirements. This is particularly important in highly regulated industries or where breaches of compliance regulations can cause severe financial and reputational damage.

Increase investor confidence: A comprehensive due diligence report can increase the confidence of investors and financing partners by demonstrating that the investment has been thoroughly vetted and that known risks have been adequately addressed. This can facilitate the raising of capital and positively influence the valuation of the target company.

Strategic planning: The findings from legal due diligence can be decisive for strategic planning after the transaction. They provide insight into legal obligations, contracts, and potential liability issues that are important for integration and future business strategies.

Reputational protection: Careful review and documentation of legal relationships can also protect companies from unwittingly becoming involved in illegal activities or scandals that could damage their reputation.

Overall, preparing a detailed due diligence report is not only a risk mitigation tool but also a key factor in the success of business transactions. It enables the parties involved to act with greater certainty and clarity and helps to maximise the value and stability of the transaction.

When it comes to the drafting, negotiating, and processing of purchase contracts, what key factors do you consider to ensure that the contracts reflect the due diligence findings and safeguard your clients' interests?

These factors include:

Detailed representation of assets and liabilities: The purchase agreement should contain an accurate and detailed statement of all assets and liabilities to be transferred. The results of the due diligence can help to identify unclear or potentially problematic aspects that need to be addressed in the negotiations and in the contract text.

Adjustment of the purchase price: Based on the due diligence results, it may be necessary to adjust the purchase price to take account of any risks, identified defects or future liabilities. Mechanisms such as earn-outs can also be agreed in order to link the purchase price to the future performance of the company.

Guarantees and warranties: The seller should provide comprehensive warranties and guarantees regarding the accuracy of the information provided and the absence of hidden defects. These clauses should be specific to the findings of the due diligence and protect the buyer from unknown risks.

Indemnities and limitations of liability: Indemnification clauses are critical to protect the buyer from future liability claims arising from pre-purchase activities. At the same time, limitations of liability can be agreed to limit the seller's exposure.

Provisions for disputes: The contract should contain clear procedures for resolving disputes that may arise from the interpretation or application of the contract. This may include arbitration, mediation or other forms of dispute resolution.

Compliance and regulatory approvals: The contract must ensure that all necessary regulatory approvals are obtained and compliance requirements are met. This also includes consideration of the results of legal due diligence with regard to regulatory risks.

Transition and integration plans: For a smooth takeover, it is important to include detailed plans for the transition phase and the integration of the company's activities in the purchase agreement. This includes provisions regarding personnel, IT systems and other operational aspects.

Protection of intellectual property and other key resources: The agreement should ensure the protection and transfer of intellectual property and other critical resources and secrets of the target company.

Clarity and precision: To avoid misunderstandings and later disputes, it is important that the contract is clear and precise. Each section should clearly define what is covered and clearly set out the terms and obligations of the parties.

For transactions with project development potential, how does your extensive experience in project development complement your advice in other areas of real estate law, such as property developer law, to provide a holistic service to your clients?

In transactions with project development potential, comprehensive advice that includes both project development-related aspects and other relevant areas of property law is crucial. My experience in project development complements my expertise in other areas of property law to provide clients with a holistic service.

Knowing the different phases of a project development - from site acquisition, planning and approval to the construction phase, marketing and utilisation - enables us to proactively advise clients and identify potential legal hurdles at an early stage.

Our experience in project development helps us to precisely understand the practical requirements and risks of the project and to address them adequately in the contracts.

By combining project development-related knowledge with expertise in other areas of real estate law, such as construction law, planning law and tenancy law, we can comprehensively assess risks and develop strategies to minimise them. This includes advising on the structuring of transactions, the choice of the appropriate legal form and the preparation of collateral.

An in-depth understanding of the regulatory requirements applicable to project developments, including environmental assessments, planning permission and compliance with local building regulations, is essential.

Project developments often require cooperation with professionals from various fields, such as architects, engineers, urban planners and environmental consultants. Our experience in interdisciplinary work enables us to liaise effectively with these professionals and ensure that all legal, technical and planning aspects of the project are aligned.

By combining our knowledge of project development with comprehensive advice in other areas of property law, we are able to offer our clients a holistic service covering all legal aspects of their projects. This approach makes it possible to realise projects efficiently and with legal certainty while at the same time protecting and promoting the objectives and interests of our clients.

Connect with Dr. Wolfgang Hermann & Hermann & Kollegen

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