FRANCE Law and Practice Contributed by: Idris Hebbat, Camille Perrin, Franck Vacher and Nicolas Menard-Durand, C-Level Partners
larly, some large investment funds are more willing to take minority positions in order to gain access to more satisfying opportunities, in the context of a managers’ buyout or the acquisition of a minority stake in a family business. 5.4 Multiple Investors With the development of public investment funds, such as the European Investment Bank at the Euro - pean level or the Public Investment Bank at the French level, it is essential to note that co-investment strate - gies are increasingly common. The implementation of such strategies can be explained by the desire not to neglect any growth potential. For example, co-investment is often used to invest in start-ups or in developing companies. These co-investment strategies are implemented in particular with venture capital funds, in the context of projects that target innovation-oriented companies in the science, information and communication technol - ogy, infrastructure and renewable energy sectors. Family offices often invest alongside private equity or venture capital firms on smaller deals, as some of the family members of such family offices are also some - times limited partners of the private equity fund. Some family offices tend to be bigger and are now able to do deals on their own, even in large cap transactions. 6. Terms of Acquisition Documentation 6.1 Types of Consideration Mechanism Locked-box and completion accounts are by far the most common forms of consideration structure in France. The earn-out clause is also quite popular in the French jurisdiction. Although this clause is inserted in a minority of all private equity transactions, this clause appears in a good proportion of deals overall. Earn-out and completion accounts mechanisms con - tinue to be used in transactions, as buyers wish to share the risks related to their acquisition with the sell - ers. The sellers may also see it as an opportunity to
reap the benefits of developments or support that will continue after the deal. Nonetheless, it is evident that the earn-out clause is more prevalent in transactions under EUR100 million. Above these amounts, the parties involved tend to prefer a price that is definitively fixed at the time of closing (usually, by using a locked-box mechanism) without any subsequent contingencies. 6.2 Locked-Box Consideration Structures When a locked-box mechanism is used, there is typi - cally no interest on the leakage and the adjustment is made on a euro basis. However, when the market is pro-seller, there may be a discussion about including an interest on the equity price, which is often refused by the buyer. 6.3 Dispute Resolution for Consideration Structures Both the locked-box mechanism and the completion accounts mechanism can lead to an adjustment of the purchase price post-closing, in the event of leakage (in the first case) or if the target’s assets and liabili - ties have changed (in the second case). But litigations are far more common with the use of the completion accounts mechanism. In the event of persistent disagreement between the buyer and the seller concerning the purchase price adjustment, it is standard practice to include an expert determination clause in the share purchase agree - ment, as a resolution mechanism. Pursuant to this, either the buyer or the seller may request the com - mercial courts to appoint an independent expert. Following the expert’s appointment by the judge, the expert will determine the amount of the price adjust - ment, which will be binding on both parties (except where a serious error has been committed). 6.4 Conditionality in Acquisition Documentation Conditions Precedent Commonly Used Most private equity deals are conditional upon the fulfilment or waiver of certain conditions precedent. Such conditions precedent generally include:
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