Business and professional services

Retention is a structuring question rather than an integration question. Where a founder is the client relationship, the transaction has to hold that person in place long enough for the relationships to move to the group, and the mechanisms that do so are deferred consideration, an earn-out, a rollover into the acquiring group and a set of leaver provisions that determine what happens if the founder departs early. Those mechanisms only work if they are consistent with each other. An earn-out measured on the founder's own accounts, combined with an integration plan that dissolves those accounts, can create a dispute rather than align interests.

Restrictive covenants carry the rest of the weight, and Dutch employment law is exacting about how they are agreed. A non-compete clause has to be agreed in writing, and additional requirements apply in a fixed-term contract. A court can annul the clause in whole or in part where the employee is unfairly disadvantaged in relation to the employer's interest, and can award compensation. The courts apply the same regime to non-solicitation clauses. A covenant given by a seller in a purchase agreement is assessed differently again, under competition law, where the accepted duration is shorter where only goodwill is transferred than where know-how transfers with it.

The customer base is the second value item and it does not always travel. Transfer of a contract under art. 6:159 DCC requires the counterparty's cooperation, so an asset transaction involving a large contract portfolio carries a consent exercise that usually determines the timetable. In a share transaction the contracts stay with the same legal entity, but framework agreements, managed service agreements and outsourcing contracts with the largest customers frequently contain change-of-control provisions that give a right to terminate, to renegotiate or to be consulted. Due diligence is therefore sequenced by revenue concentration rather than by contract volume, and the consents that matter are addressed as conditions rather than left to be dealt with after closing.

Where the customer is a public body, a change of contractor raises a further question under procurement rules, and in labour-intensive services a change of provider on a retender can itself constitute a transfer of undertaking under artt. 7:662 e.v. DCC where an identifiable economic entity retains its identity. Some sector collective labour agreements contain their own contract-transfer provisions obliging an incoming provider to offer employment to the outgoing provider's staff. Whether contracts, employees and related liabilities transfer is determined case by case, and the purchase agreement needs to allocate the resulting risks clearly.

Buy-and-build is the dominant model in accountancy, engineering consultancy, IT services, marketing services and funeral services, and it changes what good documentation looks like. A platform completing several acquisitions a year benefits from a standard purchase agreement, a standard warranty package and a standard set of founder terms, adapted for the target rather than renegotiated from first principles. The discipline that matters is consistency across the programme: leaver definitions, earn-out measures and non-compete periods that differ from one bolt-on to the next become difficult to administer once the founders sit in the same group. Merger control is tested transaction by transaction rather than assumed from the previous one, because a series of acquisitions moves the group across the Dutch turnover thresholds at some point in the programme.

At the other end of the scale, consolidation in the sector reaches listed companies, where a separate regulated framework applies to the announcement, the offer and the treatment of a remaining minority.

• Non-compete and non-solicitation clauses have to be agreed in writing, additional requirements apply where the contract is for a fixed term, and a court can annul or limit the clause and award compensation for the period of restriction.
• The making available of labour to third parties is governed by the Waadi. Businesses that supply workers, including through secondment, payrolling and certain in-house staffing arrangements, must meet the statutory registration or admission requirements, and both the supplier and the hirer can be penalised where they do not. Because the registration requirement is being replaced in stages by a mandatory admission scheme, the position is tested against the rules in force at closing.
• Under the Waadi, a worker made available is entitled to the pay and other terms applying to comparable employees of the hirer, and payroll employees have additional equal-treatment and pension rights.
• A hirer is jointly and severally liable under the Dutch Civil Code for the wages of workers made available to it, and separately liable for wage tax and turnover tax under the Invorderingswet 1990, which is why blocked accounts and specific indemnities are common in staffing transactions.
• Mandatory participation in the sector pension fund for personnel services and the scope of the sector collective labour agreements are recurring diligence items in staffing targets, because a scope finding operates retrospectively rather than prospectively.
• Audit practices are subject to ownership and control requirements derived from the European audit rules and implemented in the Audit Firms Supervision Act, which constrain how an audit-licensed entity may be held and are one reason that consolidation in accountancy separates the audit practice from the advisory practice.
• Funeral services are regulated under the Burial and Cremation Act, which restricts who may operate a crematorium, while its siting requires an environmental permit and must fit the municipal environment plan, and in-kind funeral insurance is a regulated insurance activity under the Financial Supervision Act.
• Share transfers require a notarial deed (art. 2:196 DCC), employees within a transferring undertaking pass to the buyer by operation of law under the transfer of undertaking rules, and works council consultation under the WOR applies in the usual way.