SPAIN Law and Practice Contributed by: Ignacio Sanjurjo, Ignacio Echenagusia, Alejandro Espín and Román Cantín, Deloitte Abogados y Asesores Tributarios, S.L.U.
shares results in the indirect transfer of all its assets, rights and liabilities, in asset deals there is a need to: • precisely detail and identify every asset, right and liability that is being transferred (those not listed remain with the seller, unless expressly agreed oth - erwise) in the asset purchase agreement; and • obtain the necessary consents from the counter - parties to the agreements that are being transferred – or, where required, from the competent public authorities (depending on the legal transfer regime applicable to each specific asset, right or liability). Ancillary Documentation PE transactions typically involve the execution of an SPA. In cases where additional purchasers are involved or certain shareholders remain in the target company, it is also necessary (or at least advisable) to enter into a shareholders’ agreement (SHA). A management incentive plan (MIP) is also very com - mon in PE transactions, with the aim of increasing the value of the target company and its affiliates by provid - ing an extraordinary incentive to the target’s managers (independent and additional to their employment or mercantile relationship) in exchange for maximising the value of the company in a liquidity/exit event. The amount of extraordinary remuneration (“ratchet”) usu - ally depends on the return on investment (ROI) or the internal rate of return (IRR) of the PE fund. Likewise, it is also common to formalise different types of guarantee agreements to secure payments obligations deriving from the SPA. 5.2 Structure of the Buyer PE funds almost always acquire the target company through a Spanish SPV, typically structured as an SL company incorporated in Spain. Such companies are preferred by PE funds due to: • favourable capital requirements (EUR3,000 to incorporate SL companies, except in certain cases where incorporation can be achieved with EUR1) and more flexible regulations; • shareholders’ liability being limited to the amount of their contributions; and
• SL companies being more suitable for a limited number of shareholders with concentrated control, as they allow more flexibility and ease in limiting or regulating the transfer of ownership interests among shareholders. It is unusual for a PE fund to be a party to the trans - action documents, except for the equity commitment letter agreeing to fund the target. 5.3 Funding Structure of Private Equity Transactions Most PE transactions are financially leveraged, involv - ing a combination of both equity and debt (the propor - tions depend on the specific transaction). The funding structure typically involves a partial financ - ing of the acquisition, but it may also be intended for the refinancing of existing debt or to partially finance investments in capital expenditure (capex). Financing entities as well as alternative debt providers usually act as lenders. It is standard market practice to share the due diligence report with the lenders to aid their analysis, as a CP to the execution of the facility agree - ment, or even to require reliance letters from them. It is also worth highlighting the relevant role played by public domestic entities such as the Centre for the Development of Industrial Technology ( Centro para el Desarrollo Tecnológico e Industrial CDTI), the Spanish Company for Development Financing (Com - pañía Española de Financiación del Desarrollo, SA; COFIDES), the National Innovation Company ( Empre- sa Nacional de Innovación, SA ENISA) and the Official Credit Institute ( Instituto de Crédito Oficial ICO-AXIS), as well as European funds including next-tech funds, in supporting VC and PE activity. For many years, public-private collaboration has been a key factor enabling PE general partners to raise and close new investment vehicles. In Spanish PE transactions, providing sufficient com - fort and assurance to the purchaser regarding the debt-funded portion of the purchase price is essen - tial to ensure a seamless and successful closing. The approach to secure debt financing may vary depend - ing on the complexity of the deal, the financing struc - ture, the parties involved and the prevailing market
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