PORTUGAL Law and Practice Contributed by: Diana Ribeiro Duarte, Pedro Capitão Barbosa and Catarina Almeida Andrade, Morais Leitão, Galvão Teles, Soares da Silva & Associados
ation in which the private equity fund is a joint and several obligor are infrequently encountered. In transactions involving businesses with volatile turnover, and in which management remains within the organisation (such as a management buyout), earn-outs are often agreed upon by the parties to the transaction. 6.2 Locked-Box Consideration Structures In locked-box structures, interest is usually charged on amounts classified as leakage, although this is not always the case. On the other hand, the practice of charging “reverse” interest on leakage during the locked-box period varies across deals and is not a standard feature. However, it is not unheard of; some - times, negotiation between the parties for the specific terms outlined in the locked-box provisions results in this feature (most notably if there is negotiation lever - age from the buy side). 6.3 Dispute Resolution for Consideration Structures Independent experts (jointly selected by the buyer and seller, and usually being in the form of an international audit/consultancy firm or investment bank) are typi - cally used to determine leakage values in locked-box models and cash/debt/change in working capital val - ues in completion account models. It is far less com - mon to resolve such disputes through arbitration or judicial court proceedings. The types of experts and mechanics of dispute resolu - tion usually depend more on the particularities of the transaction than on the type of price structure used. 6.4 Conditionality in Acquisition Documentation Although common when it comes to conditions of a regulatory nature, conditionality in acquisition docu - mentation is not prevalent, particularly in an auction sale, because it reduces the certainty that the seller will be able to complete the deal. In particular, prior to the COVID-19 pandemic, condi - tions other than those of a regulatory nature were not common, although third-party consents in key con - tracts (notably pre-existing financing arrangements or
concession agreements) and prior corporate restruc - turings are sometimes included. Making the transac - tion conditional on obtaining financing is rare (and usually “prohibited” in auction sales’ process letters). The pandemic resulted in an increase in: • the use of material adverse change/effect clauses; and • the use of conditional and deferred price structures (making the calculation of the purchase price more complex). These remnants from the COVID-19 pandemic have continued to influence deal structuring. Notably, material adverse change clauses have been refined but remain present in most private equity and M&A transactions, particularly as a hedge against exog - enous circumstances such as geopolitical volatility or interest rate-driven market disruptions. While mate - rial adverse change clauses were once rare in Por - tuguese deals, the uncertainty introduced by recent global events has made all parties more cautious, with increased attention placed on the precise definition and scope of these clauses. 6.5 “Hell or High Water” Undertakings To increase certainty in execution, sellers usually include “hell or high water” undertakings in transac - tion documents, particularly in auction sales, again to increase certainty in execution; however, these undertakings are usually successfully resisted by buyers, particularly private equity buyers who have demanding financial return objectives (which could be adversely affected if portfolio companies are divested too soon) and are often constrained by their invest - ment mandates. Although the authors have seen increasing FDI con - trols in cross-border transactions (including in the EU and USA), and even with the new EU FSR regime, there has not been a material change in Portugal in this regard (ie, the level of deal variation that the pur - chaser is required to withstand as a result of the out - come of these clearance procedures is often included as a condition, with no distinction between merger control and FDI).
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