SOUTH KOREA Law and Practice Contributed by: Kyu Seok Park, Dahye Cho and Justin Kim, Lee & Ko
more common to find a consortium of private equity funds to make a joint investment. In Korea, direct and/or indirect co-investment by stra - tegic/corporate investors that seek to acquire con - trol over the target in the future and to make financial gain, alongside private equity funds, is commonplace. Under the FISCMA, investment by such strategic investors in the IPC is also permitted. The articles of incorporation of private equity funds under the FISCMA often include provisions on grant - ing priority rights to the limited partners to make joint investments with the fund, when it is difficult for these funds to unilaterally make investments given the size of the investment opportunity, and large institutional investors (eg, the National Pension Service) actively take advantage of these joint investment opportuni - ties. 6. Terms of Acquisition Documentation 6.1 Types of Consideration Mechanism Fixed prices with or without a locked-box structure and completion accounts are all used as mecha - nisms for consideration in M&A transactions, but the predominant form is fixed price without a locked- box mechanism. In cross-border deals, completion accounts are also in wide use, but the domestic M&A market is also seeing more deals with completion accounts as well. Rollover structures are common in transactions involving individual founders of the target who hold considerable equity stakes (eg, the largest sharehold - er) where their shares in the target, along with man - agement and control rights, are transferred to private equity funds. Following this, the founders acquire a minority stake in the fund’s capital (eg, 20% to 30% of sale proceeds). While there are deals involving earn-outs, it is not a common feature of private equity transactions. For example, an earn-out is rarely used where a private equity fund is the seller, since such funds (especially funds incorporated for the purpose of investing in a single target investment company) are focused on
completing distribution and liquidation shortly there - after. Apart from this, there are no notable differences between private equity funds and corporate investors or sellers in determining the consideration mechanism and level of protection in relation thereto. 6.2 Locked-Box Consideration Structures As mentioned in 6.1 Types of Consideration Mecha- nism , locked-box consideration structures are not commonly used in private equity transactions but, when used, there have been both instances of inter - est charged on leakage and not charged on leakage. Reverse interest on leakage is not common. 6.3 Dispute Resolution for Consideration Structures Dispute resolution mechanisms featuring a dedicated expert are commonly found in locked-box or comple - tion accounts consideration structures, and typically the parties to private equity transactions are obliged to adhere to the decision of these dedicated experts. It is common for a designated independent account - ing firm to act as the dedicated expert on disputes for locked-box and completion accounts considera - tion structures. Consideration structures that take into account the outcome of certain contingent events or investigations (eg, environmental studies of real prop - erty) may involve a dedicated expert in the relevant The typical level of conditionality in private equity transactions is mainly as follows and does not differ from general M&A transactions: • representations and warranties of the parties shall be true and correct (in all material respects). Furthermore, it is not uncommon for transactions involving private equity sellers to stipulate a mate - rial adverse effect to bring down the standard for business representations and warranties; • parties shall have performed (in all material respects) the covenants required to be performed prior to closing; field (eg, environmental consultants). 6.4 Conditionality in Acquisition Documentation • mandatory and suspensory regulatory conditions, in particular, business combination approval by the KFTC;
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