PORTUGAL Trends and Developments Contributed by: Duarte Schmidt Lino, Tomás Almeida Ribeiro and Maria Almeida Pulido, PLMJ
Although Portugal represents a relatively small share of this global activity, it is beginning to reflect these broader trends. As exit windows remain narrow and traditional realisation strategies become more con - strained, continuation funds offer a pragmatic solution for preserving value, maintaining investor flexibility and ensuring portfolio stability. Structural Economic Transition Reflected in Market Behaviour The transition of Portugal’s economy from restructur - ing-focused to growth-oriented is not just evident in macroeconomic statistics – it is also manifest in cor - porate behaviour. Key indicators such as the reduc - tion in non-performing loans, now at a decade-low of 3.5%, and declining corporate insolvency rates reflect a broader trend towards normalisation and entrepre - neurial revival. This shift is also visible in the rising number of new business formations, which suggests a renewed confidence among domestic entrepreneurs. Portugal is now seen not only as a market for recovery plays but also as a strategic platform for innovation- led investment. Legal Structuring Trends in Private Equity Transactions On the legal side, a number of structural trends have been visible in the Portuguese private equity market. These reflect a heightened sensitivity to economic volatility and a growing emphasis on aligning the inter - ests of parties in a transaction. One increasingly common approach is the use of phased acquisitions. In such transactions, an initial sale and purchase agreement is supplemented by put and call options, often tied to mid- to long-term post- closing performance indicators. This structure allows buyers to mitigate risk and incen - tivises sellers – often founders or key executives – to remain engaged in the execution of the business plan and benefit from the company’s future performance. Earn-out mechanisms are also prominent. These allow part of the purchase price to be deferred and made contingent on the achievement of specific financial or operational milestones. By linking payment to meas -
urable outcomes, earn-outs help to bridge valuation gaps and balance expectations between buyers and sellers. This is particularly important in volatile mar - kets, where parties may hold diverging views on future business performance. Such arrangements often go hand-in-hand with key- person clauses, which require the continued involve - ment of the seller and/or management in a transitional or operational capacity. These are typically reinforced by non-compete and non-solicitation provisions, and exclusivity provisions, aimed at preserving business value post-closing. However, competition law is increasingly placing constraints on the enforceability of these clauses, especially in terms of duration and geographic scope. This calls for careful drafting to ensure compliance with antitrust standards. Another development is the growing reliance on war - ranty and indemnity (W&I) and contingent risk insur - ance, in particular in cross-border transactions (ie, transactions in which the buyer and/or seller are for - eign entities). These policies offer a commercially bal - anced mechanism for addressing potential breaches of the sale and purchase agreement and help avoid disputes that might otherwise arise in post-closing scenarios. W&I insurance has proven particularly useful in trans - actions where the seller’s ability or willingness to pro - vide long-term indemnification is limited. Addressing Risks in End-of-Fund Scenarios A specific challenge in the current market arises when the seller is a private equity fund nearing the end of its life. In such cases, the fund may be approaching liquidation even before the expiry of the standard indemnification period under the sale and purchase agreement. This presents risks for buyers, as it may be difficult to enforce representations and warranties if the fund is no longer operational. To mitigate this risk, buyers are increasingly relying on retention mechanisms such as escrow arrangements, where a portion of the purchase price is held back for a defined period. Alternatively, W&I insurance can serve as an effective tool for transferring this risk to a
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