SPAIN Law and Practice Contributed by: Ignacio Sanjurjo, Ignacio Echenagusia, Alejandro Espín and Román Cantín, Deloitte Abogados y Asesores Tributarios, S.L.U.
it entails the acquisition, transfer or contribution of essential assets to another company, being an action to be completed upon closing rather than a CP. 6.5 “Hell or High Water” Undertakings Although PE funds, due to their inherent nature and investment strategy, typically adopt a highly aggres - sive negotiating position and are usually reluctant to accept any “hell or high water” undertakings, there is an emerging trend of sellers attempting to transfer execution risk to the purchaser by introducing certain clauses in negotiations. These undertakings usually apply to regulatory approvals. CPs linked to regula - tory authorisations often require the parties to accept the conditions imposed by the authorities, unless they are overly burdensome or exceed certain limits, and could require the purchaser to adopt the required measures – including divestments – in order to close the transaction. 6.6 Break Fees In Spain, the use of break fees and reverse break fees has typically been rare in PE transactions. Sellers are generally reluctant to accept any walk-out rights beyond the CPs negotiated and agreed in the SPA. These penalties are typically structured as a percent - age of the purchase price, and the applicable rate depends on the characteristics of each transaction. In certain cases, the fee may represent a significant amount (up to 10% or 15% of the purchase price), although sometimes it is merely a symbolic amount like 1%. 6.7 Termination Rights in Acquisition Documentation As a general rule, SPAs exclude the application of Spanish statutory law and are governed by contractu - ally agreed terms. Accordingly, an SPA cannot be ter - minated for legal reasons other than those expressly set out in the agreement, except in the event of wilful misconduct, which cannot be contractually excluded. The most common provisions of termination of a SPA typically include the following. • Lack of fulfilment of the CPs set out in the SPA prior to the long-stop date: In practice, it is unusual for the parties to terminate a signed SPA on this
basis, and they will usually seek an amicable solu - tion to close the transaction. As an exception, in energy (greenfield) sale-and-purchase PE deals, if the ready-to-build status CP is not met prior to the relevant long-stop date, the parties would normally walk away from the agreement as a standard mar - ket practice, given the critical nature of this condi - tion for the execution of the transaction. • MAC clauses (which are not widely used in Spain): PE sellers are very reluctant to accept any MAC clauses, as these significantly reduce deal cer - tainty. However, “soft” MAC clauses (which refer to macroeconomic situations that are unlikely to materialise) were introduced in some SPAs as a consequence of the impact of the current geopoliti - cal uncertainty. 6.8 Allocation of Risk In PE transactions in Spain, there is no general rule governing risk allocation, thus necessitating assess - ment on a case-by-case basis according to the spe - cific terms of each transaction (but generally favouring the seller). This seller-favourable approach is particularly evident in competitive auction processes, especially where a PE seller is involved. In competitive processes, SPAs are seller-balanced, resulting in a more limited scope of the R&W, broad qualitative limitations and lower quantitative liability caps. When a PE fund is the pur - chaser, sellers usually grant business and tax R&W; alternatively, R&W insurance is agreed to cover such risks. When the seller is a PE fund, R&W insurance typically focuses on fundamental matters such as capacity, good title to the transferred shares and the absence of liens or encumbrances over those shares. It is com - mon for the management team to grant the R&W, which can be dealt with in a separate document known as the “management warranty deed”. When the seller is an industrial or trade party, the R&W usu - ally covers a broader range of topics (including com - plete operational and business-related R&W). 6.9 Warranty and Indemnity Protection R&W under an SPA can be assigned to the following two main categories.
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