NEW ZEALAND Law and Practice Contributed by: Ben Paterson, Cath Shirley-Brown and David Hoare, Russell McVeagh
financing of private equity deals that are backed by quality sponsors. Further, there is a growing number of international and (to a more limited extent) domestic private credit platforms that are providing debt finance to support private equity deals in New Zealand. Private equity buyers customarily acquire some or all of the shares in a target entity, to ensure it has control of the target business post-completion. Where a non-control stake of a target is being acquired, this would typically be funded via equity only (senior lenders will be reluctant to advance funding where there is no clear control on the part of the investor, unless it is provided directly to the target business). 5.4 Multiple Investors Examples of domestic and offshore funds partner - ing together are becoming more common (by way of example, BGH Capital and SixthStreet’s acquisition of Pushpay). Consortium bids on larger transactions such as take-privates and deals in the infrastructure space (for example, CDPQ’s and Onatario Teacher’s Pension Plan acquisition of a co-controlling stake in Connexa) have also been seen. Generally, however, given the relatively small size of the New Zealand market and the comparatively small - er deal sizes, consortium bids are less common than in other jurisdictions, and it is more typical for private equity sponsors to seek sole ownership of portfolio companies. That said, it is not unusual to have co- investment from other investors alongside the private equity fund (generally in the form of a passive stake as a limited partner). 6. Terms of Acquisition Documentation 6.1 Types of Consideration Mechanism Overall, transactions tend to be undertaken by way of a completion accounts mechanism. Prior to the COV - ID-19 pandemic and subsequent economic downturn, there was increasing use of locked-box structures in SPAs and, on balance, private equity sellers would have a slight preference for using locked-box arrange - ments. In the absence of compelling reasons other - wise (see the following), this is generally accepted by
private equity buyers (particularly in a competitive bid scenario). Corporate buyers, however, have typically preferred a completion accounts mechanism. Two key factors are relevant to the consideration of appropriate consideration structures in the current climate: • if OIO or other regulatory consents are required as a condition to completion of the acquisition, the time-periods required to fulfil that condition may mean that completion is set to occur a significant time after the latest audited accounts (noting that these will customarily be the basis of the locked- box balance sheet referenced in the SPA); and • with the ongoing impact of macroeconomic factors such as inflation and geopolitical concerns, buy - ers are either demonstrating an ongoing concern around the risk of business disruption between the locked-box date and completion or unease in assuming the economic risk over that period, which would make the position at the locked-box date less reliable. Where a completion accounts mechanism is used, corporate sellers may be prepared to accept that a portion of the purchase is placed into escrow (or retained) to cover relevant adjustments. Private equity sellers will resist this, though it may be a matter for negotiation (again, in a competitive bid situation, this would impact negatively on a bid). In the current climate, where there is significant uncertainty due to potential business disruption (often resulting in significant gaps between a seller’s perceived deal value and what a buyer is prepared to pay), earn-outs and deferred consideration are increasingly being seen in SPAs. These are, by their nature, complicated arrangements, and care needs to be taken in terms of drafting to ensure any such provision properly protects the commercial position of both parties. 6.2 Locked-Box Consideration Structures It is reasonably common for locked-box consideration structures to include a requirement for the buyer to pay to the seller an additional amount from the date of the locked-box accounts being established until
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