ITALY Law and Practice Contributed by: Alessandro Corno, Luca Magrini, Pasquale Mosella and Rocco Pugliese, Alma LED
4. Due Diligence 4.1 General Information
comfort and to facilitate their own financing and due diligence process. More often, VDD is used as a disclosure against the warranties.
In Italian PE transactions, the scope of legal due dili - gence (DD) is usually extensive and heavily focused on risk identification and mitigation. The buyer typi - cally appoints its legal counsel to handle this process, which frequently involves a multidisciplinary team of tax, financial and technical advisers. The target company’s size and complexity will deter - mine the legal DD’s scope, but it usually entails a thor - ough examination of all key legal areas, such as: • corporate and governance; • material contracts; • employment matters; The DD’s output is usually a red-flag legal report that highlights key risks, summarises findings and sug - gests risk-mitigation tactics like particular indemnities or price adjustments. 4.2 Vendor Due Diligence In Italy, sellers in PE transactions frequently provide for a vendor due diligence report (VDD) covering the same topics as a buyer’s DD, especially in an auc - tion sale process. The VDD’s goals are to expedite the sales process, give prospective purchasers a uniform set of information, and enable the seller proactively to handle possible issues before bidders bring them up. Alternatively, a “legal fact-book” is frequently sup - plied. This is a high-level summary of the target’s legal matters and, unlike a buyer’s legal due diligence report, it generally provides for an objective represen - tation of what is being examined, without emphasising critical issues or proposing solutions. Sellers’ advisers usually do not provide reliance on the VDD reports to all prospective bidders. More recently, the winning bidder and their financing banks are requiring the potential to rely on the VDD report. This is intended to give the buyer contractual • real estate and environmental matters; • litigation and regulatory compliance; • intellectual property; and • golden power.
5. Structure of Transactions 5.1 Structure of the Acquisition
In Italy, PE funds use private treaty sale and purchase agreements (SPAs) for the great majority of their acquisitions. This legal procedure is the norm, whilst court-approved schemes are used in restructuring transactions. An auction sale and purchase agreement and the SPA for privately negotiated transaction may differ signifi - cantly. The parties have more time and flexibility to discuss each aspect of the SPA in a privately negoti - ated transaction where buyer and seller negotiation powers are more balanced. An auction sale SPA, on the other hand, is a more uniform and seller-friendly procedure (intended to limit negotiations to a few essential points). The auction SPA draft is prepared beforehand by the seller and made available to each bidder, requiring comments and final mark-up along with the submis - The PE buyer in Italian PE transactions is nearly always newly incorporated as a special purpose vehicle (SPV) known as “BidCo” (either an Italian joint-stock com - pany or an Italian limited liability company) owned by the PE fund or a parent company owned by the PE fund for a number of reasons. BidCo is a clean legal entity created for housing the target company following the acquisition and keeping the fund’s other investments apart and segregated. Financing the PE transaction requires use of the tar - get’s assets as collateral for debt raised at the BidCo level and this is normally achieved with a “debt push- sion of the final binding offer. 5.2 Structure of the Buyer
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