SPAIN Law and Practice Contributed by: Ignacio Sanjurjo, Ignacio Echenagusia, Alejandro Espín and Román Cantín, Deloitte Abogados y Asesores Tributarios, S.L.U.
defined investment period; therefore, they frequently use mechanisms such as earn-outs or deferred con - sideration, especially when it is necessary to bridge valuation gaps or incentivise the target in terms of future performance, helping to align expectations accordingly. These instruments allow the parties to make part of the purchase price conditional on the future perfor - mance of the target company’s business, which is particularly relevant in periods of market uncertainty, as well as to incentivise sellers to remain involved in the business after closing – and to contribute to value creation. The deferred consideration is typically linked to the achievement of certain performance milestones based on specific financial objectives (most earn-outs are linked to EBITDA, sales or company benefits). In PE transactions involving the acquisition of a major - ity shareholding, it is common to implement a roll-over structure, whereby the seller (or part thereof) reinvests in the acquiring company, usually through a capital increase. 6.2 Locked-Box Consideration Structures When locked-box structures are used, the seller usu - ally seeks to charge interest on the price after the date on which the locked-box account is opened (com - monly referred as the “ticking fee”). The introduction of a ticking fee clause will depend on each negotia - tion. Concerning interest on leakages, the standard market practice is to reduce the purchase price on a euro-for- euro basis for any leakages that occur before clos - ing; charging interest on leakages arising post-closure remains uncommon in Spanish PE transactions. Including equity tickers and applying interest to leak - age amounts is increasingly gaining traction in the Spanish PE market, so both structures may become more prevalent in the near future. 6.3 Dispute Resolution for Consideration Structures In Spain, the two most commonly used pricing struc - tures (locked-box and completion accounts) typically establish a dispute-resolution mechanism.
The most common mechanism provides that the parties shall first engage in good faith negotiations, within a specific period of time, to reach a mutually acceptable resolution. In the absence of agreement, an independent expert (usually an international audit firm appointed in accordance with the provisions set out in the SPA for this purpose) makes a decision that is typically binding for the parties and excludes the possibility of submitting the dispute to a court or arbi - tration, except in cases of wilful misconduct or gross negligence. 6.4 Conditionality in Acquisition Documentation The most typical regulatory condition in PE transac - tions is the obligation to obtain regulatory approvals, the most relevant being antitrust clearance and FDI. It is standard practice to conduct a preliminary analy - sis to assess whether such approvals are necessary for most deals, particularly cross-border deals. Addi - tionally, as indicated in 3.1 Primary Regulators and Regulatory Issues , in some cases prior authorisation shall be obtained from the European Commission, which should be included in an SPA as an additional regulatory CP. Apart from the regulatory approvals mentioned in the foregoing, other common CPs in PE transactions may include: • the buyer’s obtaining financing to carry out the acquisition; • obtaining third parties’ consent for significant agreements containing change-of-control provi - sions for the target; • fulfilling pre-closing covenants, such as carve-outs or reorganisations before closing the transaction or executing, terminating, maintaining or executing certain key agreements; and • the absence of any material adverse change (MAC). This CP is included in order to protect the purchaser against adverse changes affecting the target company during a specific period (typically between signing and closing). Approval of the transaction by the general sharehold - ers’ meeting of the seller or the purchaser is likely to be a requirement to execute the transaction when
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