Chemical M&A in Germany and France: Key Jurisdictional Considerations

1. Introduction

After peak European chemical sector M&A activity in 2021, rising inflation, geopolitical conflict, and destocking led to a decline in sales volumes and profit margins. In addition, chemicals companies operating in Europe are under immense pressure from energy costs, dropping consumer demand, tariff barriers, overcapacity in China, increased regulation, and environmental liabilities.

Those pressures led to a production fall in 2025, and compression and aging assets are accelerating carve-outs and divestments.

As a result, chemical sector M&A volumes began to decline and a majority of the deals that were launched were not consummated.

US companies intending to acquire or divest chemical assets in Europe need to be aware of general differences between US and European M&A transactions and need to be well acquainted with the peculiarities in these jurisdictions relevant to the transactions.

This article provides a brief overview of select key issues that need to be considered when acquiring or divesting chemical assets in both Germany and France, two countries where many of Europe’s chemical productions facilities are located.

2. Doing Deals in Europe

Doing business in Europe, and especially in Germany and France requires identifying differences in transactions and legal matters, as well as understanding the framework for merger control and foreign investment approvals, labor laws, and environmental laws.

2.1 Focus on differences between US and European M&A Transactions

There are several contractual and market differences to consider when undertaking transactions in Europe, specifically in Germany and France, compared to the US.

(i) Purchase Price – Completion Accounts vs. Locked Box Structure

While a minority of European M&A deals feature US-style purchase price adjustments – by reference to completion accounts drawn up after completion; they very often use a locked box structure – where the price is determined in advance of signing based on a balance sheet drawn up to a specific locked box date that is before signing. The seller will undertake that, other than disclosed and pre-agreed sums, there has been no “leakage” in value from the target to the seller from the locked box date to completion and the seller will be obligated to repay any leaked sums that do occur. The buyer then takes the risk and reward of the target’s performance from the locked box date to completion. The locked box provides greater certainty around the economics of the deal and typically favors a seller. Locked box structures are most common in auction sales.

(ii) Transaction Certainty

European M&A transactions often provide a higher degree of certainty of closing than US M&A transactions. In Europe, closing conditions are usually limited to those which are required by mandatory law, such as regulatory or antitrust consents.

Wide-ranging material adverse change (MAC) clauses and the bringing down of representations and warranties at closing, which are very common features of US M&A transactions, are less used in European M&A transactions. Where MAC clauses are used, they are frequently narrowly drafted and target specific. 

(iii) Liability

The liability regime in US and European deals is, in general, similar; however, differences exist. Whereas, in European deals, liability for breaches of non-fundamental warranties is typically capped to a share of the purchase price (between 15% and 50%, depending on the jurisdiction), such caps are typically lower in US deals. In addition, disclosure exceptions in European deals are often more generous – it is foreseen that all information that has been fairly disclosed in the data room is deemed to be disclosed against the warranties and therefore cannot be the basis for a respective warranty claim of the buyer. In US deals, the seller does not get the benefit of information that is disclosed in a data room if it is not also captured in the disclosure schedules. The seller is typically required to specifically disclose exceptions against each representation and warranty in reasonable detail in the corresponding disclosure schedules.

In addition, in European deals, buyers increasingly rely on W&I insurances to cover potential claims, whereby retention of the purchase price (hold back) or escrow provisions are being used less and less.

In both US and European Deals, there is a strong trend to insured deals with no liabilities.

2.2 Diversity of Legal Systems

A US buyer/seller planning an M&A transaction in Europe should be prepared for a number of special features resulting from the different legal, cultural and economic framework conditions, particularly since Europe is not a single legal area. Each EU member state has its own laws and regulations that affect M&A transactions. Mandatory legal regulations are combined with additional acts at the European Union’s level either directly applicable (EU regulations) or transposed in member states (EU directives).

The chemical industry is highly regulated in Europe, in particular by the REACH Regulation (Registration, Evaluation, Authorisation and Restriction of Chemicals) applying to all companies or entities in the European Economic Area who manufacture, import, distribute, or use chemicals in their business, whether these substances are on their own, in mixtures, or contained in articles.

In Germany and France, there are additional national regulations completing EU law by setting detailed rules on pollution, noise, and environmental risks. In Germany, the Federal Emission Control Act (BImSchG) provides an integrated framework for air, noise, and industrial emissions. In France, the French Environmental Code (Code de l’Environnement) governs issues through regimes such as ICPE, air quality, and noise control, ensuring prevention and enforcement. Those regulations are reshaping M&A deals by expanding due diligence requirements and making environmental and ESG risks key factors in deal feasibility and valuation. They also influence both deal structuring and negotiations, particularly through environmental warranties and sustainability commitments.

2.3 Merger Control and Foreign Direct Investment

Merger control and foreign investment regulations are key issues that must be considered when transacting in Europe. Many European countries have strict merger control regulations and sometimes special investment screening laws applicable to foreign investors.

Germany’s merger control’s legislation is operated by an antitrust law (“GWB” in German). This legislation is completed by additional related laws which aim to protect themselves against unfair and illegal competitive practices committed by certain actors. Foreign investment control is operated by the “AWG”, a legislation related to foreign exchanges, and the Foreign Trade Regulation (“AWV”). AWG details the legal framework and general principles while the AWV specifies the details of the sectors concerned, the notification and authorization procedure. Whereas the chemical industry is not considered as a critical sector/infrastructure as such under these regulations, careful checks are required since often chemicals can be or are used as pre-products in such critical sectors such as food, pharma, or the defense sector. Thus, the chemical sector can be heavily affected and can often be subject to such clearances, and a diligent screening and assessment is critical in particular since the assessment of critical sectors/infrastructure is constantly evolving.

France’s merger control’s legislation is managed under the control of French Competition Authority (Autorité de la concurrence). The system mirrors EU rules and adds specific thresholds. In addition, foreign investment control in France is a key regulatory framework that safeguards national interests and this screening ensures compliance with EU principles of free capital movement while allowing exceptions for public order and security. Understanding and anticipating these requirements is essential to secure deal certainty and avoid sanctions, especially when the target involves strategic industries such as chemical industry.

For instance, at the European level, on 14 November, the European Commission approved the acquisition by ADNOC of Covestro AG. The approval is conditional upon full compliance with the commitments offered by the parties. Those commitments include ADNOC’s obligation to remove its unlimited State guarantee by amending its articles of association and to grant competitors access, on transparent and pre-defined terms, to Covestro’s sustainability patents, for a period designed to fully remedy the distortive effects of the foreign subsidies on the EU internal market.

2.4 Labor Law and Co-determination

Transactions involving chemical production facilities very often implicate labor issues that impact how transactions are structured.

In Europe, labor law plays a central role in shaping the structure and execution of mergers, acquisitions, and corporate restructurings. Unlike in the US, where employee involvement is often limited, EU jurisdictions – particularly Germany and France – impose extensive obligations on employers to inform, consult, and in some cases negotiate with employee representatives. These obligations are not merely procedural; they can materially affect deal timelines, confidentiality, and post-transaction integration.

Both Germany and France implement the EU Acquired Rights Directive, which ensures that employees affected by a transfer of business retain their existing employment rights. The core principle is that employment contracts transfer automatically to the new employer, preserving continuity of employment and protecting against dismissal solely due to the transaction. This principle differs from US asset sales, which typically require the seller to terminate the employment relationship and the buyer to undertake an “offer and acceptable” process with the impacted employees.

Germany’s labor law framework is characterized by strong co-determination rights and institutionalize employee representation:

Works Councils: If a works council is formed at the respective company, it must be informed and consulted in advance of any operational changes, including restructurings and M&A transactions. In cases of significant changes to the business, employers must negotiate an interest reconciliation agreement and a social compensation plan. While there are no formal veto rights for works councils regarding the transaction itself – their role is consultative, not decisional – failure to properly inform and consult with works councils can lead to delays, legal challenges, and reputational damages.

Supervisory Board Representation: In companies with more than 500 employees, the establishment of a supervisory board, including certain seats held by appointed employees, is required under the Co-Determination Act. While the employees sitting on the supervisory board typically have no veto rights, they are involved in the information and decision-making process of matters that are subject to information of or approval by the supervisory board.

Dismissal Protection: Employees in Germany are typically subject to a statutory dismissal protection. Employment relationships cannot be terminated at will but dismissals are only permitted for personal, behavioral, or operational reasons. Dismissals directly linked “only” to the transfer of the respective business are invalid.  

Transfer of Business (“TUPE”-transfer): In the case of an asset deal or other transfer of an “economic entity,” employees automatically transfer to the new employer with all existing rights and obligations. The transferor and transferee are jointly and severally liable for pre-transfer obligations. Employees must be informed in writing about the transfer and have a right to object within one month. If they object, their employment relationship does not transfer to the buyer by operation of law but remains with the seller.

France also provides strong protections, though the mechanisms differ from those in Germany:

Social and Economic Committee (CSE): Companies with 50 or more employees must consult the CSE and get their formal opinion on the project before any binding decision is made. The process typically takes one to two months and is a prerequisite for signing definitive agreements. Employee representatives do not have a formal veto right over the transaction and their consent is not legally required for the deal to proceed. However, failure to consult with employee representatives can result in criminal fines and suspension of operations until the consultation is completed.

Hamon Law: In small and medium enterprises, employees must be informed of a proposed sale to allow them to make an offer. This applies to sales of more than 50% of shares or business assets.

Transfer of Business (“TUPE”-transfer): Employment contracts transfer automatically when an autonomous economic entity is transferred and whose activity will be continued after the transfer. Unlike in Germany, no objection right is granted to the transferring employees. Collective agreements continue temporarily, and changes to employment terms require employee consent.

2.5 Environmental/Regulatory Law

Industrial properties such as chemical plants harbor considerable risks with regard to contaminated sites and related obligations under applicable environmental laws, which must be carefully examined during transactions, particularly as part of due diligence. Those elements (whether they are legal, financial, or operational) often have long-term effects on the purchaser of an industrial site.

Chemical production and use often leads to contamination of the soil and groundwater either from previous production processes, improper storage or accidents. For instance, the per- and polyfluoroalkyl substances (PFAS) known as “permanent pollutants” are commonly used in many consumer and industrial applications and have a tendency to persist in the environment and accumulate in the human body and food chains.

Under German environmental laws (e.g., Federal Soil Protection Act, Federal Water Act) owners and polluters may be obliged to remediate by high penalties and extended liability any contaminated sites that are identified. This applies even in the case of acquiring the assets by way of an asset deal. This means, that the buyer as the new owner can be responsible for historical acts/contamination of the prior owner(s). Of course, in the purchase agreement, the Parties can agree who shall be responsible to which extent for the existing contamination, being it known or unknown. But in Germany the public authorities are not bound by these regulations of the parties in the purchase agreement. In case, from a public law perspective, any remediation works are necessary, the public authorities may go either after the one who caused the contamination or after the one who is the owner of the contaminated site. The public authorities are free to choose and usually go after the one who is best situated to remedy the contamination or has the necessary financial strength. If this is not in line with what has been agreed in the purchase agreement, indemnities are typically agreed.

In France, the legal framework governing contaminated industrial sites is primarily – but not exclusively – based on the “polluter pays” principle, according to the French Environmental Charter (Charte de l’Environnement) which has constitutional status. Under this general principle, upon the permanent cessation of operations of a regulated facility, the operator is responsible for  restoring the site to a condition that does not adversely affect interests protected by law (health, safety, environment, etc.) and that allows for its designated future use. Case law has clarified that, in principle, the owner cannot be held liable. This liability is subject to a thirty-year statute of limitations. In a share deal, the same legal entity continues to operate the site. It is therefore important to include a warranty clause to allocate the cost of historical pollution. In an asset deal, the buyer will succeed to the seller in operating the site. Liability for the site’s remediation will depend on the activity conducted by the buyer. If the buyer carries out the same classified activity of his predecessor, he will be required to carry out all site remediation work, regardless of whether the pollution results from his own activity or that of his predecessor(s). The transaction must therefore also include a warranty clause. Conversely, if the buyer carries out a different classified activity of his predecessor, each operator must remediate the pollution resulting from their own activities.

As a result, transactions involving the chemical industry in Europe are largely governed by various legal aspects related to social and environmental law, as well as by specific legislation governing transactions involving chemical products and the technical specificities of European transactions.

In light of challenging market conditions in Europe which is the second largest chemical producer globally (after China), many companies are evaluating their European assets. We anticipate a rise in M&A opportunities. An opportunistic buyer should be aware of the differences between European deals and US deals and knowledge and anticipation of these constraints ensure, in the best case scenario, a smoother transaction process, but in the worst case scenario, they can prevent the transaction from being completed and result in penalties for the parties involved.