NETHERLANDS Law and Practice Contributed by: Maarten de Boorder, Rutger Sterk, Bas Vletter and Samuel Garcia Nelen, Greenberg Traurig, LLP
assessments can be imposed – has lapsed in respect of a breach of the tax warranties. It is customary practice in the Dutch M&A market to make the business warranties and tax warranties subject to a general data room disclosure. Although disclosure letters are used in the Dutch M&A con - text, such letters usually serve a different purpose compared to those, for example, of the US market. In the USA, disclosure letters are often used as the sole means of disclosure, while in the Dutch market they typically serve as a means to ensure proper and undeniable disclosure is made (or in the W&I context, to qualify the warranties and tax indemnity at closing). Today, it is uncommon in the Dutch market for the management team to provide warranties separately, whether or not this occurs via a separate management warranty deed that is covered by a W&I policy. 6.10 Other Protections in Acquisition Documentation W&I insurance policies have become increasingly popular, as they provide flexibility allowing PE funds to distribute the transaction proceeds to their limit - ed partners, thereby bringing forward the return on the limited partners’ investment. The liability of the PE seller for a breach of the warranties and the tax indemnity is thereby typically limited to 1EUR (some - times with the exception of a breach of fundamental warranties). PE sellers are very reluctant to accept any specific indemnities for known risks (where specific indemnities are by nature uninsurable in principle) that circumvent the W&I policy but, depending on the cir - cumstances, may well prefer a specific indemnity over a debt item in the EV bridge. W&I insurance almost always comes in the form of a buyer policy, and as such has the characteristics of a general insurance contract as opposed to a liability insurance contract. W&I insurance is subject to a certain liability cap, typi - cally ranging from between 10% and 30% of the EV (depending on the offer in the non-binding indication report and the risk appetite of the insurers). There have been comebacks of escrow/retention arrange - ments in PE entries in respect of uninsurable claims, such as specific indemnities, any leakage claims (if a locked-box is used) or any true-up claims, when
determining the equity value post-closing (if comple - tion accounts are used). 6.11 Commonly Litigated Provisions Litigation is not a typical aspect of PE deals but dis - putes do of course occur, and these may be litigated. There has recently been an increase in disputes relat - ing to intra-group relationships between the target on the one hand and management-related companies on the other hand. Furthermore, earn-outs are his - torically considered to be prone to disputes due to the many intricacies involved in such mechanisms. Care - ful negotiation of any earn-out (including clear key performance indicators and anti-abuse provisions) is very important to mitigate any post-closing dispute in this respect. Although there is generally a larger volume of private M&A transactions than public M&A transactions, P2P deals by PE-backed bidders are quite common in the Netherlands. Given the overall challenging market dynamics for PE in recent years, there have recently been more strategic take-privates. However, as in the private M&A market, PE does typically have a large share of the market in terms of takeovers of listed targets. PE is generally dependent on target management and will therefore not normally entertain a hostile offer. Normally, a PE bidder would enter into a merger pro - tocol with the target before announcing its intention to launch a public offer. The merger protocol will include arrangements regarding the offer process and terms and conditions for the bidder to launch its offer. In addition, a practice has developed in the Netherlands whereby, if the bidder does not achieve an accept - ance rate of at least 95% of the target shares at the end of the acceptance period, the target company will co-operate with a squeeze-out of the remaining shareholders. This is the so-called pre-wired back- end structure. The common threshold at which the boards feel they have sufficient mandate to co-oper - ate with the squeeze-out is 80%, although thresholds may vary depending on the circumstances. 7. Takeovers 7.1 Public-to-Private
432 CHAMBERS.COM
Powered by FlippingBook