SWEDEN Law and Practice Contributed by: Niclas Rockborn, Pär Johansson, Daniel Sveen, Arijan Kan and Erik Schwartz, Gernandt & Danielsson Advokatbyrå
5. Structure of Transactions 5.1 Structure of the Acquisition
a multi-tier structure of three or more Swedish lim - ited liability companies ( aktiebolag ). Foreign holding entities between the fund and the Swedish holding companies are not uncommon. Typically, the structure will consist of a topco, where the equity will be held by the buying private equity fund, and by re-investing sellers and management as individuals, via wholly owned companies or via a joint - ly owned management company (manco). The topco owns the midco (which would take up any junior debt financing), which in turn owns the bidco. The bidco is the acquiring entity, and also the one taking up any senior debt financing. The only transaction documentation the fund will typi - cally be a party to is, if required, an equity commitment letter, as further outlined in 5.3 Funding Structure of Private Equity Transactions . 5.3 Funding Structure of Private Equity Transactions Swedish private equity deals are typically financed by a mixture of equity funding provided by the private equity fund, using commitments from its underlying investors, and third-party debt from banks, credit funds and other alternative lenders. The ratios of sen - ior debt and equity vary from case to case, depending on, for example, deal size, market conditions and the sector where the investment is made. Historically, bank loans have been by far the most common financing method for Nordic private equity transactions, but credit funds and other alternative lenders have quickly gained prominence in recent years, for example, due to more flexible funding terms and the ability to invest in junior debt. This trend has been further cemented due to the exacerbated market conditions seen over the last few years, leading to a scarcity of traditional funding sources, further pivoting the market in favour of both domestic and overseas alternative lenders. Bond debt has become an increasingly popular fund - ing source since 2020, although the Swedish bond market effectively came to a near halt during the second half of 2022 until mid-2024 due to market uncertainties and the increasing cost of bond debt,
A private equity fund’s acquisition of a Swedish company is typically made under a private sale and purchase agreement. Share sales are most common and give the parties more flexibility than a business or asset transfer, where, for example, union consul - tation and consents from creditors or counterparties may be required. The differences between the terms of an acquisition made in a bilaterally negotiated transaction and an auction sale have been limited in Sweden in recent years, and depend more on the bargaining power of the respective parties than on the fact that the sale is a bilateral or auction process. A seller in an auction sale will typically have stronger bargaining power than a seller in a bilateral sale, depending on the number of bidders and level of interest in the auction. In line with the above, the terms in an auction sale with a private equity seller would typically include high deal certainty, with any conditionality usually restricted to merger and FDI clearance and other strictly required regulatory approvals (as applicable). Almost all pri - vate equity-backed trade sales will require the buyer to take out representation and warranty insurance, and will only offer representations and warranties to the extent that the buyer is able to insure them. To the extent that no representation and warranty insur - ance is taken out, or coverage of a certain warranty is not granted by the insurer, a private equity seller will typically have a very strict approach to the scope and limitations of representations and warranties. A selling private equity fund is usually sensitive to all types of post-closing liability and will try to limit the same to the furthest extent possible. This is inter - linked with the fact that any post-closing liability may require the private equity fund to set aside funds for claims during the claim period, which could have been
returned to investors instead. 5.2 Structure of the Buyer
A private equity buyer would typically be structured by way of the private equity fund establishing a special purpose acquisition vehicle, which would consist of
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