PORTUGAL Law and Practice Contributed by: Diana Ribeiro Duarte, Pedro Capitão Barbosa and Catarina Almeida Andrade, Morais Leitão, Galvão Teles, Soares da Silva & Associados
common concern (but are often dealt with separately from legal due diligence). 4.2 Vendor Due Diligence Vendor due diligence is often conducted in transac - tions involving private equity sellers in order to (pre- emptively) resolve or flag any legal issues the target may be experiencing prior to a sale, and/or to get buyers “up to speed” on the company and to impose “fair disclosure” exceptions on the purchase and sale agreements (pertaining to the report’s conclusion). Advisers involved in preparing the vendor’s due dili - gence reports are often asked to provide a statement of reliance to the financing banks of the buyer. It is common for the buyers’ advisers to provide such reli - ance in their own reports to banks – and to insurance companies if warranty and indemnity (W&I) insurance is obtained for the transaction. General disclosure of information to buy-side advis - ers is common, but is not accompanied by reliance (except for financing banks as previously mentioned and W&I insurance providers). In an auction sale, the seller will also typically provide bidders with presentation decks (often accompanying management presentations) that highlight the activi - ties of the business or assets being sold, as well as non-public information on certain financial, opera - tional and commercial metrics. Transaction structure and key legal matters are sometimes also addressed.
Court-approved schemes in insolvency or reorganisa - tion proceedings have also gained popularity in dis - tressed transactions, most notably debt-equity swaps in real estate assets and related businesses (hospital - ity and logistics). In terms of process, auction sales are becoming more common, most notably in larger deals; by encouraging competition between potential bidders, auction sales typically make the transaction more seller-friendly (by improving the price, as well as offering more favour - able terms in W&Is). 5.2 Structure of the Buyer A typical private equity investment structure in Portu - gal involves a private equity fund managed by a regu - lated management entity that incorporates a wholly owned special-purpose vehicle (SPV) to complete the acquisition (usually for liability ring-fencing purposes). The SPV is then funded with equity from the fund (cap - ital, quasi-equity contributions or shareholder loans) to complete the acquisition, and in larger deals bank financing is also obtained. 5.3 Funding Structure of Private Equity Transactions The typical funding structure in Portugal has not seen significant developments or changes in the past few months, with private equity transactions usually being financed through equity or quasi-equity from a private equity fund and debt (depending on the transaction size, the financing structure and the type of assets involved). To increase certainty on the seller’s side with respect to the price, equity commitment letters are often requested from the private equity buyer’s structure, either from a corporate entity higher up in the fund’s chain of control or from the fund itself – especially in auction sales. As far as ownership is concerned, the level of equity participation of a private equity fund depends on the type and circumstances of the transaction: for exam - ple, in management buyouts and “growth” transac - tions, funds typically hold a minority share of the equi -
5. Structure of Transactions 5.1 Structure of the Acquisition
Most acquisitions by private equity funds are made through private sale and purchase agreements of equity participations in the target company. Asset sales occur less often due to tax and legal structuring reasons. When companies wish to divest an unincorporated part of their business, they typically restructure the same in advance through a carve-out process.
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