DENMARK Law and Practice Contributed by: Dan Moalem, Jakob Skafte-Pedersen, Poul Guo and Thomas Enevoldsen, Moalem Weitemeyer
5. Structure of Transactions 5.1 Structure of the Acquisition Negotiated Private Transactions
4.2 Vendor Due Diligence Market Standard in Auction Processes
Vendor due diligence (VDD) is a common feature in private equity-led auction processes in Denmark. It is typically used to streamline the sale process, ensure consistency of information and reduce execution risk. The VDD is prepared by external advisers (legal counsel for legal VDD). Legal VDD usually covers key areas such as corporate structure, material contracts, employment, real estate, litigation, compliance and intellectual property. Formats and Report Types Depending on deal size and process structure, the sell-side may provide: • a full-scope legal vendor due diligence report; • a red-flag vendor report highlighting key risks only; or • a legal factbook summarising factual information without legal conclusions. The choice depends on the nature of the sale pro - cess and the expectations of potential buyers and the insurability of such report in context of W&I insurance. Reliance and Access While initial reports are shared for information pur - poses, it is increasingly common, especially in com - petitive or sponsor-to-sponsor deals, for shortlisted bidders or the ultimate buyer to receive reliance on the legal VDD report. This is often coupled with W&I insurance processes, where the insurer also receives access to the report and underlying documentation. Reliance is usually subject to execution of a reliance letter and may be limited in scope or liability. The use of W&I insurance in Danish private equity transactions has contributed to a more structured approach to legal due diligence. To obtain broad cov - erage and limit exclusions, insurers generally require that key risk areas are adequately addressed, which may influence the scope, format and supporting docu - mentation of the VDD in auction processes.
In Denmark, private equity acquisitions are almost exclusively structured as privately negotiated share deals under Danish contract law, typically document - ed in a sale and purchase agreement (SPA). The use of statutory mergers is very rare in the context of private equity transactions. Private vs Auction Transactions While the core structure remains similar, the terms of the acquisition often differ depending on whether the transaction is a bilateral deal or a competitive auction process. • In bilateral negotiated transactions, there is gen - erally more flexibility for bespoke risk allocation, including tailored indemnities, negotiated earn- outs, and more room for mutual negotiation. • In auction processes, terms are more seller-friendly and standardised. The transaction documents are typically prepared by the seller and negotiated only to a limited extent during the process. This includes tighter limitations on warranties, exclusion of indemnities, no liability if W&I insurance does not cover, and use of locked-box pricing mechanisms. W&I insurance is commonly used to streamline nego - tiations and reduce post-closing liability for private equity sellers. 5.2 Structure of the Buyer Acquisitions via BidCo Structures Private equity-backed acquisitions in Denmark are typically structured through Danish or foreign special purpose vehicles (SPV/BidCo). The BidCo is usually established solely for the purpose of the acquisition and will often be owned by another SPV (TopCo) to allow for structured financing. The TopCo will then be owned by one or more fund entities, co-investors and the respective management. The use of a BidCo/TopCo enables ring-fencing of liabilities, facilitates debt financing and allows for a tailored equity structure, including sweet equity instru -
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