SPAIN Law and Practice Contributed by: Ignacio Sanjurjo, Ignacio Echenagusia, Alejandro Espín and Román Cantín, Deloitte Abogados y Asesores Tributarios, S.L.U.
operating in the EU, which may distort competition and affect the integrity of the internal market. The regulation includes a requirement of prior notifica - tion and approval of certain concentrations and bids in public processes, provided that certain thresholds are met. Under these rules, transactions must be notified to the Commission if the target company, one of the merging parties or a joint venture has an EU turnover of at least EUR500 million, and if the foreign financial contribution exceeds EUR50 million. PE firms partici - pating in major deals should be ready to disclose any foreign subsidies to the European Commission. The FSR covers a wide range of economic activities – such as mergers, acquisitions and public procure - ments, making it highly relevant to PE deals – and allows the Commission to examine and investigate how foreign subsidies might affect market competi - tion. If a PE firm has benefitted from substantial for - eign subsidies, the Commission will determine wheth - er these funds create a distortion in the EU internal market, without prejudice to the delays caused by such control. Other Tightly Regulated Sectors It is important to note that other sectors, like bank - ing and finance, utilities and insurance, all of which fall under the supervision of designated regulatory authorities, are subject to strict regulatory regimes. When sovereign wealth funds participate as spon - sors or co-investors, their involvement is subject to enhanced scrutiny. Spain has implemented specific regulatory frame - works governing FDI, especially in sectors considered vital for national security, public order or public health.
Once the documentation has been requested through the “information requested list” (IRL), the target’s own - er normally uploads all the documents to a virtual data room (VDR), facilitating its analysis by the potential purchaser and its advisors. If there are any uncertain - ties after reviewing the documents, meetings may be held to clarify them. PE transactions usually require comprehensive due diligence covering several areas to confirm the absence of red flags. It is common to carry out finan - cial, legal, tax and labour due diligences. The areas and scope to be reviewed will depend on several vari - ables, such as the size and the industry of the target, the type of purchaser, etc. Due diligence processes are also carried out in VC transactions; however, given that these investments are mainly focused on start-ups, there are often cer - tain areas that may not be reviewed as thoroughly, and the scope tends to be more limited. Certain types of due diligence are increasingly being performed, including compliance, ESG, cybersecurity and reputational due diligence. Contingencies Identified in Financial, Tax and Labour Due Diligence Financial, labour, legal and tax contingencies are quantified by the different teams that prepare the due diligence reports. As a result, contingencies are covered in the SPA through the inclusion of specific indemnities, such that the seller must indemnify the purchaser for any damage caused by the contingen - cies. However, if these specific indemnities are reject - ed by the seller during negotiations, alternative agree - ments, such as pre-closing actions or even closing actions after which there should not be any tax, labour or financial contingencies, should be made. Contingencies Identified in Legal Due Diligence The treatment of the contingencies identified during the legal due diligence will vary depending on the spe - cific contingency. Nevertheless: • it is important to include a series of R&W that accurately reflect the current status of the target company;
4. Due Diligence 4.1 General Information
The due diligence process consists of the target’s owner providing the potential purchaser with all the documents requested to assess the current status of the target, such that they can decide whether or not to proceed with the investment.
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