NETHERLANDS Law and Practice Contributed by: Maarten de Boorder, Rutger Sterk, Bas Vletter and Samuel Garcia Nelen, Greenberg Traurig, LLP
uncertainty, high interest rates and geopolitical ten - sions. In certain instances where there is a significant interim period between signing and closing (resulting from regulatory approvals), material adverse change (MAC)/material adverse effect (MAE)-like conditions may be required by PE buyers. Third-party consents are usually not accepted as conditions to closing, although the termination by third parties of (material) supplier or customer agreements sometimes results in a discount of the purchase price or a breach of cov - enants. Although third-party consents as a condition to closing remain unlikely, the authors did observe an increase over the last year, especially in respect of key customers and minority shareholders at the target level. These mechanisms are bespoke and tailored on a case-by-case basis. 6.5 “Hell or High Water” Undertakings “Hell or high water” undertakings continue to feature in Dutch PE transactions, albeit that these are rarely accepted if the regulatory analysis shows that obtain - ing approvals may prove difficult. Typically, PE buy - ers would refrain from accepting these obligations, although competitive processes may force their hand, particularly for acquisitions in sensitive sectors or those likely to trigger an FDI review. 6.6 Break Fees A break fee payable by the buyer to the seller (or vice versa) if the transaction does not close is not typical in the Netherlands for private deals, although break fees are sometimes linked to the buyer not obtaining regulatory approvals. In public deals, a break fee of around 1% of the equity value is common, but this can be higher in specific circumstances. 6.7 Termination Rights in Acquisition Documentation Deal certainty is crucial for all the parties involved in the transaction. To foster deal certainty, parties typically try to contractually limit the termination possibilities as much as permitted under Dutch law (eg, by having a claim for damages and specific performance be the sole remedy in case of a breach, thereby excluding the right to rescind the transaction documentation) other than for non-satisfaction of closing conditions or failure to meet specific obligations at closing. The sale and purchase agreement (SPA) contains tailored
termination mechanics in this respect. The long-stop date is typically linked to the estimated timeframe to obtain regulatory approvals, plus a buffer to cater for eventualities. 6.8 Allocation of Risk PE-backed sellers are typically more determined to achieve a clean exit than corporate sellers. This desire for a clean exit is mainly sought after by PE funds to facilitate the free distribution of the sale proceeds to limited partners without any contingent liabilities. To foster a clean exit, W&I policies are typically used more often in PE-initiated sales processes than those initiated by corporates, although W&I has become a common tool for corporates as well (especially in auc - tions). 6.9 Warranty and Indemnity Protection Typically, PE sellers are willing to provide a customary set of warranties (categorised into business, funda - mental and tax warranties) and a tax indemnity, pro - vided that these are insured via a W&I insurance policy with no residual liability for the seller (first and exclu - sive recourse), although PE sellers are sometimes will - ing to accept an exception for fundamental warranties for which the PE sellers remain (partially) liable. Depending on the deal size and type of business con - ducted by the target, the following monetary limita - tions in respect of business warranties and tax war - ranties are typically seen: a de minimis threshold of approximately 0.1% of the enterprise value (EV), a tipping basket of approximately 1% of the EV and a liability cap ranging anywhere between 10% and 40% of the EV in respect of the business warranties, and between 10% and 50% of the EV in respect of the tax warranties. Fundamental warranties are typi - cally excluded from any limitation-of-liability provi - sions, other than a general cap of 100% of the pur - chase price. Business warranties are typically limited in duration to anywhere between 12 and 24 months after closing, with parties often ultimately agreeing on a period of 18 months. Fundamental warranties are provided from anywhere between three to ten years after closing, while tax warranties have a duration of seven years after closing or such later date, being six months after the statutory limitation period for such claims – including the term during which additional
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