LUXEMBOURG Law and Practice Contributed by: Johan Terblanche, Baptiste Aubry and Michelle Barry, Maples Group
5.2 Structure of the Buyer The private equity fund itself is generally not a direct party to the acquisition documentation. Instead, Lux - embourg BidCos or other acquisition vehicles, typi - cally in the form of private limited liability companies (SARLs or SAs), are used to enter into and execute the transaction documents. These vehicles may be wholly owned or co-owned with other co-investors or fund affiliates, depending on the transaction structure. 5.3 Funding Structure of Private Equity Transactions Private equity deals are mainly funded through a mix of equity and debt. An equity commitment letter pro - viding contractual certainty of funds is required in the majority of deals. In most transactions in Luxembourg, the private equity fund (together with its co-investors, if applicable) will seek to acquire a majority interest – or, even better, a 100% interest – as opposed to a minority stake, as sponsors tend to value control over the destiny of their investment and the certainty that a majority or outright shareholding can bring. In many deals, debt funds will commit at signing but, in instances where debt funds are not yet confirmed, bridge funding is often provided by the equity share - holders. High interest rates and tightening credit conditions in 2024 and early 2025 have placed some pressure on financing timelines and terms; however, the fun - damental approach to financing has not undergone significant changes. 5.4 Multiple Investors Although some transactions will involve a consortium of private equity sponsors, the majority of deals are still concluded by a single sponsor. In the recent past, there has been a steady increase in co-investments, either between more than one sponsor or with spon - sors and their limited partners. Deals involving co-investments by other investors alongside the private equity fund’s investment con - stitute an increasing proportion of the total trans - actions. In Luxembourg, both are in evidence, with co-investments between more than one sponsor and co-investments between a sponsor and its own inves -
tors increasing year-on-year both in number and as a proportion of the whole. Consortia that include both private equity funds and corporate investors are also present in the market, although they are not the norm. 6. Terms of Acquisition Documentation 6.1 Types of Consideration Mechanism In Luxembourg, there is no predominant form of con - sideration structure used in private equity transac - tions, as the consideration mechanism will depend very much on the general strategy adopted by each sponsor and the specific requirements of the transac - tion. It follows that both locked-box and completion accounts mechanisms are seen on a regular basis in transactions involving Luxembourg holding and pool - ing vehicles. In addition, earn-outs are commonly included where one or more of the founders remain either as minority shareholders or as part of the man - agement group of the target. The involvement of a private equity fund (whether as seller or as buyer) can affect the type of considera - tion mechanism used, in that, depending upon the circumstances of the transaction and, in particular, the size of the sponsor and the deal itself, the type of consideration mechanism might be imposed upon the seller rather than driven by the seller. A private equity seller will generally provide the same types of protection in relation to the various consid - eration mechanisms as would be offered by a corpo - rate seller. Similarly, a private equity buyer will generally provide the same types of protection in relation to the various consideration mechanisms as would be offered by a corporate buyer. 6.2 Locked-Box Consideration Structures Locked-box consideration structures are less com - mon in Luxembourg, with closing accounts still being the preferred option, as they are typically seen as being “fairer” to both parties. If a locked-box consid - eration mechanism is used, then it would not be com - mon practice for interest to be charged on leakage.
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