NETHERLANDS Law and Practice Contributed by: Maarten de Boorder, Rutger Sterk, Bas Vletter and Samuel Garcia Nelen, Greenberg Traurig, LLP
4.2 Vendor Due Diligence It is common, although not strictly necessary, to pre - pare vendor due diligence (VDD) reports or a legal fact book in transactions that are structured as an auc - tion sale and geared towards the successful bidder taking out warranty and indemnity (W&I) insurance. Such VDD reports are typically divided into legal, financial, tax, commercial and, sometimes, insurance and environmental aspects of the target business, and would be prepared by the advisers retained by the seller. Reasons for preparing a VDD report include an increase in transaction speed, as a VDD report can expedite the transaction process by pre-emptively addressing potential issues and providing a potential purchaser with a comprehensive overview of the tar - get company, and improving transaction certainty by identifying and mitigating risks early. It also helps the selling PE fund to better compare bids. Typically, no reliance would be provided by sell-side legal advis - ers to W&I insurers, although reliance is sometimes provided by legal advisers on the VDD reports to the lenders providing acquisition financing. PE transactions are typically structured as the sale and purchase of all shares in the target company from the legacy shareholders to a special-purpose vehicle (SPV; bid company or “BidCo”), which is incorporat - ed by the PE fund (as part of a string of acquisition vehicles, depending on structuring). Compared to an asset deal, a share deal may be considered relatively straightforward as all assets (and liabilities) of the tar - get company change ultimate ownership through the transfer of the shares in the target company. Sellers of the target and management often (re-)invest part of their proceeds in the BidCo vehicle or one of its newly incorporated holding companies (“HoldCos”). This creates an alignment of interests, since the man - agement board is incentivised (through an envy) to achieve future value creation. 5. Structure of Transactions 5.1 Structure of the Acquisition Auction sale processes continue to be prevalent in the Dutch market to facilitate an exit for PE funds. These are almost always structured as a clean exit for the seller by aiming for a soft- or hard-stapled W&I
insurance policy that is to be taken out by the buyer. W&I is also sometimes used to facilitate one-on-one transactions (typically when these are negotiated on a non-exclusive basis). Although not as common in the Netherlands compared to the standard private acquisition structure described in the foregoing in terms of transaction volume, PE sponsors also engage in public-to-private (P2P) trans - actions, which have a vastly different structure and process. For more information on P2P transactions, see 7. Takeovers . 5.2 Structure of the Buyer In the Dutch market, several Dutch or non-Dutch pri - vate limited companies – including BidCos, HoldCos and top companies (“TopCos”) – are typically set up as SPVs by the PE sponsor. Such structures are preva - lent for a variety of reasons – including, among others, ring-fencing liability and facilitating (re-)investment by the target’s management and the sellers, as well as for financing purposes. The PE fund itself typically does not become a party to the transaction documents other than the (already-existing) shareholders’ agree - ment at the TopCo level. 5.3 Funding Structure of Private Equity Transactions A PE acquisition is usually financed with both equity and debt to create the leverage a PE fund requires as part of its business model. In auction processes, the seller will typically require a combination of debt and equity commitment letters to be provided that guarantee payment of the purchase price at closing. A seller would prefer the debt commitment letters to be provided on a fully committed financing basis, imply - ing that any conditionality included therein is under the control of the buyer, which is contractually bound to proceed with the transaction in any event. However, sellers have been forced to acknowledge that fully committed financing debt commitment letters remain challenging for bidders to obtain in 2025 due to the macro-economic environment. Buyers are therefore negotiating more flexible terms due to ongoing market volatility.
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