NETHERLANDS Law and Practice Contributed by: Maarten de Boorder, Rutger Sterk, Bas Vletter and Samuel Garcia Nelen, Greenberg Traurig, LLP
5.4 Multiple Investors Co-investment deals are not uncommon in the Dutch market, and their popularity has increased somewhat over the last few years. Typically, these are limited partners taking passive stakes alongside the general partner of the PE fund, granting these limited part - ners additional upside on specific investment oppor - tunities selected by the general partner. Sellers also sometimes reinvest in the target company through a combination of investing in the acquiring PE fund as a limited partner and alongside the PE fund as a co- investor. Consortium deals are not uncommon, and are sometimes also carried out for sector knowledge purposes – a certain corporate or PE sponsor may be more familiar with an industry or market compared to its co-investor. In other words, not only capital but also knowledge is pooled, which enhances competi - tiveness 6. Terms of Acquisition Documentation 6.1 Types of Consideration Mechanism The predominant form of consideration structure used for PE entries and exits in the Netherlands remains the locked-box mechanism (LBM), especially as for - eign investors have become more familiar with this concept. A strong PE sponsor may negotiate use of a completion accounts mechanism (CAM) for certain entries, especially if there are serious doubts regard - ing the (unaudited) financial accounts or if these per - tain to (complex) carve-out sales. There may also be valid reasons why a seller would press for a CAM. In a standard LBM, a buyer assumes the benefits and risks of the target company as per an “effective date”, typically the date of the last audited financial state - ments, and the enterprise-to-equity-value bridge is determined as per the selected effective date. In a CAM, the enterprise-to-equity-value bridge is deter - mined as per the closing date (or a date close to the closing date). An LBM fosters greater price certainty and is therefore the preferred mechanism for sellers, especially PE sellers who need certainty on provid - ing returns to their investors and the timing thereof. A CAM may give a buyer (a perceived) greater sense of comfort that the business was conducted in a profit - able manner in the period prior to the closing date. Earn-outs, vendor loans, deferred considerations and
reinvestment structures are a common feature of PE transactions, and are typically sought after by invest - ing PE funds. 6.2 Locked-Box Consideration Structures There are two starting points for equity ticker negotia - tions in the Netherlands: • the equity ticker should be a proxy for the cash- generating capacity of the target for the economic interim period; and/or • the equity ticker should reflect the risk-free rate (whether or not with a mark-up) to compensate the seller for the fact that it will receive the sale proceeds after transferring the target’s economic benefits. Sometimes, this is expressed as an inter - est rate on the equity value for the duration of the period between the effective date and closing. Charging interest on leakage that occurs during the period between the effective date and closing is not typical, but is also not unheard of. 6.3 Dispute Resolution for Consideration Structures It is common to include an independent expert proce - dure in the transaction documentation for both leak - age disputes arising under LBM deals and purchase- price adjustment disputes arising under CAM deals. The scope of work for such an independent expert varies accordingly. Typically, an independent firm of chartered accountants is appointed by the parties as the independent expert, and the share purchase documentation lays down the mechanics of how such independent expert will be appointed if the parties cannot mutually agree on one specific firm. If part of the consideration is in the form of an earn-out, an independent expert procedure will typically also apply to any disputes in this respect (eg, if there is a discus - sion on the achievement of certain EBITDA targets). 6.4 Conditionality in Acquisition Documentation The SPA will include conditions that are legally required to consummate the transaction, particularly regulatory clearances: merger clearance, sector-specific clear - ance or FDI approvals. Financing conditions are not typical, although these have become more sought after by buyers during the recent period of market
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