PORTUGAL Law and Practice Contributed by: Diana Ribeiro Duarte, Pedro Capitão Barbosa and Catarina Almeida Andrade, Morais Leitão, Galvão Teles, Soares da Silva & Associados
For foreign investment control, a review is triggered if the potential purchaser is ultimately owned by an entity outside the European Economic Area, or if the target assets are deemed “strategic assets” for the country (meaning that the main infrastructure and assets are assigned to national security or defence, or to the rendering of essential services in the areas of energy, transportation and communications). As for foreign subsidies, under Regulation (EU) 2022/2560 (the “Foreign Subsidies Regulation”; FSR), the European Commission was endowed with exten - sive investigative and sanctioning powers. Thus, the notification and compliance obligations for EU com - panies envisaging M&A transactions and entering into public procurement procedures that are triggered by the FSR (ie, if there is deemed to be a foreign subsidy, meaning if a “third country provides, directly or indi - rectly, a financial contribution that confers a benefit on an undertaking engaging in an economic activity in the internal market and which is limited, in law or in fact, to one or more undertakings or industries”) are being closely monitored by legal advisers when considering potential M&A transactions, or participation in a public procurement procedure. For M&A, the thresholds for the application of the FSR are: • one of the businesses involved having turnover in the EU of at least EUR500 million; and • subsidies from third countries of more than EUR50 million have been granted by the acquiring com - pany or one of the merging companies in the last three years. Nevertheless, even below-threshold transactions can be “called in” by the European Commission if distortions are suspected. With regard to antitrust, private equity-backed com - panies are subject to merger control rules, essentially in the same manner as corporates. Total turnover and other relevant metrics are normally assessed at the level of the management entity (ie, taking into account the aggregate funds managed by the management entity). If the buyer or co-investor is a sovereign wealth fund, in the authors’ experience this does not lead to enhanced foreign direct investment (FDI) scrutiny relative to other third-country buyers; however, the
authors also note that there can be practical difficul - ties for such entities when going through KYC and onboarding procedures with banks and co-investors. In relation to sanctions, anecdotal evidence indicates awareness that the conflict in Ukraine, and the ensu - ing sanctions against some individuals and companies in the Russian Federation, are making it increasingly difficult for Russian citizens and companies (including those not subject to sanctions) to open and operate bank accounts and use financial systems (in Portugal and the rest of the EU). However, the authors have found no significant evidence that these sanctions have materially disrupted private equity activity in Portugal. As outlined in 2.1 Impact of Legal Developments on Funds and Transactions , rules concerning anti-brib - ery and ESG compliance have been approved and are being implemented by supervisory entities throughout Europe. As a mark of the importance of these issues in respect of regulatory policy, it is worth emphasising that the CMVM has published a guide on sustainability for supervised entities, with the aim of facilitating and encouraging the adoption of policies and procedures in line with both supervisory expectations and the recommendations of the CMVM and ESMA regarding compliance with the standards on sustainable finance. The practice of legal due diligence is common in pri - vate equity-driven transactions in Portugal, especially when private equity sponsors are involved. The due diligence process is usually conducted on a “by-exception” or “red flag” basis (except when there are key contracts or other legal instruments underly - ing the target business, in which case the main legal terms are described). Key areas of focus include material agreements, licences and the regulatory environment, corporate and intragroup relationships (services agreements, cash pooling, etc), and financing. Taxes are also a 4. Due Diligence 4.1 General Information
492 CHAMBERS.COM
Powered by FlippingBook