PORTUGAL Law and Practice Contributed by: Diana Ribeiro Duarte, Pedro Capitão Barbosa and Catarina Almeida Andrade, Morais Leitão, Galvão Teles, Soares da Silva & Associados
Club Deals There appears to be heightened interest in the pri - vate equity market for club deals, among both tradi - tional players and newcomers. Nonetheless, investors should be aware of the regulatory implications of tak - ing this route, as the definition of alternative invest - ment funds under European law (and the regulations resulting from that definition) may be broad enough to encompass certain club deal structures as well. 6. Terms of Acquisition Documentation 6.1 Types of Consideration Mechanism Price adjustment mechanisms in M&A transactions (involving both private equity and corporates) usu - ally have either locked-box or completion account mechanisms. Fixed-price transactions (ie, those with no adjustment whatsoever) are not common. Locked-box mechanisms are increasingly being uti - lised due to their ease of use over the “completion accounts” mechanism (which entails the preparation of target accounts as of the date of closing, a process that is usually costly and time-consuming). To protect the interests of buyers, private equity sell - ers agree not to, for instance: • engage in transactions that would cause value to “leak” from the target group (in locked-box struc - tures); • allow the buyer to dispute draft completion accounts; and/or • cause material changes to the company during the period between signing and closing (in both cases). This does not differ materially from deals where sellers are corporates. Private Equity Buyers and Volatile Turnovers Private equity buyers provide equity support/commit - ment letters as a way to provide surety to the seller that the price will be paid (as well as other eventual pecuniary obligations fulfilled). A parent company guarantee (which would in theory offer stronger pro - tection than equity support instruments) and a situ -
ty, whereas in distressed transactions, a fund retains the majority of or all the equity in the entity. In some larger transactions, private equity purchas - ers sometimes present commitment letters issued by lenders with non-binding offers or binding offers, either because certainty of funds is required by sell - ers in the auction or because they wish to strengthen their bid. Usually, the debt-funded portion of the purchase price will not be fully binding at the signing stage of the transaction. Often, the full debt financing package remains subject to finalisation after the signing, and the debt commitment is contingent on certain condi - tions such as the lenders’ due diligence and fulfilment of specific financial and legal requirements. Overall, with higher interest rates, the authors have found that financing M&A deals in general (and also private equity) has become more difficult. 5.4 Multiple Investors Consortium Deals Deals involving consortium sponsors are not common in Portugal; however, when the target size is such that private equity sponsors are required, such a consorti - um may be formed. This was the case in the purchase of an 81% stake in Brisa, Portugal’s largest highway toll operator, as well as of six hydroelectric plants in the north of Portugal previously owned by EDP, Por - tugal’s largest industry and utility company, by a con - sortium of three private equity pension fund investors. Similarly, consortia comprising a private equity fund and a corporate investor are not very common in pri - vate equity deals in Portugal. Co-Investment Business Models Some fund managers (eg, institutional asset managers and “first-tier” foreign private equity firms) are explor - ing joint-investment arrangements in large transac - tions with unit holders (the equivalent of the limited partner in the Portuguese context). In these cases, the fund will own a minority (largely passive) interest in the acquisition vehicle, which is majority-owned by one or more of its unit holders.
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