ROMANIA Law and Practice Contributed by: Ileana Glodeanu, Andreea Cărare, George Ghitu and Delia Dumitrescu, Wolf Theiss
atory or “top-up” due diligence, focusing on areas of particular concern or addressing any gaps in the ven - dor due diligence report.
on the financing needs or structural complexity, with the acquiring entity (new company or NewCo) typically established as a Romanian limited liability company ( societate cu răspundere limitată SRL). 5.3 Funding Structure of Private Equity Transactions Private equity transactions in Romania are typically financed using a combination of equity contributions from private equity sponsors and external debt, with the precise structure depending on the size of the deal, due diligence findings, risk profile and the stand - ing of the relevant private equity fund on the market. Regional private equity funds typically pursue fully equity-financed deals, particularly in the small and mid-cap segment. In contrast, international private equity funds commonly structure deals with a mix of equity and debt financing, in the form of senior debt, mezzanine debt or institutional debt. Commonly, small and mid-sized private equity deals are financed by senior and institutional debt, and large-cap transactions are financed by mezzanine debt. Sellers typically seek comfort from private equity funds by requiring the fund, or another entity owned by the fund with financial means, to become the guar - antor of an equity commitment letter, or to provide other guarantees. In the past year, amid more chal - lenging financing conditions, there has been a notable shift towards stronger equity backing and the use of private credit providers, as traditional lenders have become more selective. This has been accompanied by increased seller scrutiny of financing arrangements during negotiations. 5.4 Multiple Investors The variety and combinations of parties coming together in consortia is no longer limited to traditional club deals, strategic joint ventures or passive co- investment structures. Financial investors are increas - ingly flexible in assuming various roles within a deal structure, ranging from lead investor through to co- investor, underwriter or passive co-investor, depend - ing on the nature of the transaction, their available resources and their sector expertise. Nevertheless, given the size of most deals in Romania, consortia are
5. Structure of Transactions 5.1 Structure of the Acquisition
Small and mid-cap deals remain the norm in Roma - nia; therefore, most acquisitions by private equity funds are carried out through private sale and pur - chase agreements. This deal format provides more flexibility with respect to tailoring the terms and con - ditions of the transaction. Tender offers via capital markets are substantially less frequent because the Romanian capital market is not that well established, and also because of the relatively limited number of listed companies suited to private equity investments. Meanwhile, court-approved schemes are essentially non-existent in Romania. Auction sale processes are increasingly being used, particularly in transactions where the seller is a pri - vate equity fund or institutional investor seeking to maximise exit value. Sellers are free to determine the specific rules and procedures of the auction depend - ing on the circumstances of the transaction, such as the transaction size, the number of bidders and the size of the stake in the target offered for sale. Com - petitive sale processes are usually co-ordinated for private equity funds by corporate finance or transac - tion advisory firms. 5.2 Structure of the Buyer In Romania, as in most European jurisdictions, acqui - sitions by private equity funds are structured through new special-purpose vehicles (SPVs). These vehicles are used to ring-fence liabilities, facilitate financing and implement tax-efficient holding structures. Pri - vate equity funds or their add-ons commonly adopt a multi-tiered holding structure whereby a top company (TopCo) is, in most cases, incorporated in tax-friendly jurisdictions, but also in jurisdictions able to comply with financing requirements or that offer sophisticated protection for relevant liabilities, co-investments or exit possibilities (eg, Luxembourg or the Netherlands). Below the TopCo, a holding company (HoldCo) or mid - dle company (MidCo) may be interposed depending
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