IRELAND Law and Practice Contributed by: Enda Garvey, Brian McCloskey and Robert Maloney Derham, Matheson LLP
5.4 Multiple Investors M&A deal activity involving a consortium of private equity sponsors is not common in Ireland. Private equity transactions are commonly financed through a mixture of equity provided by a private equity sponsor in combination with third-party debt finance, which is arranged by the private equity sponsor. It is, however, not unusual to see a consortium of investors (such as pension funds) co-invest via one bespoke private equity fund. 6. Terms of Acquisition Documentation 6.1 Types of Consideration Mechanism Forms of Consideration The most prevalent form of consideration used in Irish transactions remains cash consideration. However, other forms of consideration are permissible. Share consideration has emerged as a prevalent form of consideration, coinciding with the increase in private equity activity in Ireland. Typically, share consideration will be used in the context of manage - ment shareholders who sell their shares in the target in consideration for the issuance of shares to them in the buyer’s group – integrating the management shareholders into the private equity structure. Factors in Choice of Consideration Depending on the transaction structure, consideration can often be structured to incorporate hold-backs or earn-outs in order to provide a private equity buyer with protection against future warranty claims or dete - riorating future performance. Earn-outs, in particular, have been commonly used in recent years to bridge valuation gaps. While still a prevalent feature of pri - vate equity transactions, deferred consideration has become less attractive following the increase in popu - larity of W&I insurance, which has de-risked recovery for future claims. Tax structuring can also be an impor - tant factor in determining the form the consideration will take, particularly in the context of a management rollover. Deferred Consideration The use of deferred consideration, earn-outs and escrow arrangements is increasing as the market
rebalances following the impacts of COVID-19, inter - est rate volatility and tariff uncertainty. Locked-Box Consideration Structures Locked-box structures involve the agreement of a final purchase price using the company’s recent audited financial statements – or, where there has been a material gap, a later set of locked-box accounts – and there are no provisions for post-completion adjust - ment of the purchase price. Locked-box structures are generally preferred by private equity sellers, as they offer the distinct advantages of: • certainty in the purchase price; • greater control over financial information; Locked-box structures have increased in prevalence as the private equity M&A landscape has matured in Ireland. Completion Accounts While there has been a material increase in the num - ber of transactions utilising the locked-box considera - tion structure, completion accounts remain the most commonly used and preferred consideration mecha - nism among trade sellers. The consideration struc - ture remains the most significant difference between trade sellers and private equity sellers, with the latter typically preferring a locked-box mechanism. It is also dependent on the sector and the deal structure, as completion accounts are often particularly preferred in circumstances where there may have been a pre- sale carve-out. 6.2 Locked-Box Consideration Structures Where a fixed-price locked-box consideration struc - ture is used and a business is expected to generate excess cash profits during the period between the locked-box date and completion, some form of equi - ty ticker or interest charged on the equity price will often be included as a means of compensating the seller for the time lag between the locked-box date and completion. However, this will largely depend on the bargaining power of the parties and the nature of the underlying business. By way of example, in certain pre-revenue businesses in the technology or energy • reduced contractual liability; and • expedited distribution of capital.
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