SWEDEN Law and Practice Contributed by: Niclas Rockborn, Pär Johansson, Daniel Sveen, Arijan Kan and Erik Schwartz, Gernandt & Danielsson Advokatbyrå
locked-box date) and closing, and is similar to the protection offered by a corporate seller. In locked- box mechanisms, the additional customary protection consists of an undertaking structured as an indemnity to compensate the buyer for leakage. The protection offered by a private equity buyer in relation to consideration mechanisms is typically lim - ited. Escrow solutions are not the norm in Swedish transactions, and depend on the bargaining power of the parties. Ring-fencing protection regarding earn-out mecha - nisms is customary. Private equity buyers rarely accept limitations on the conduct of the target’s busi - ness operations, but may instead sometimes be will - ing to agree to adjust the earn-out calculation to cor - respond to what it would have been if the breach of the ring-fencing provision had not occurred. 6.2 Locked-Box Consideration Structures As discussed in 6.1 Types of Consideration Mecha- nism , locked-box is the most common consideration mechanism in Swedish private equity transactions. In a Swedish locked-box transaction the purchase price generally includes an interest component where inter - est accrues on the equity value. 6.3 Dispute Resolution for Consideration Structures In a locked-box deal the dispute resolution mecha - nism for the entire agreement, which is typically arbi - tration under the rules of the Stockholm Chamber of Commerce, would also apply to disputes regard - ing the locked-box consideration. In a completion accounts deal it is common to have a specific expert determination procedure for disagreements regarding
ties are common, but only on a covenant bases – ie, not on a conditionality basis. 6.5 “Hell or High Water” Undertakings A private equity seller will, in accordance with the prin - ciple of minimising transaction risk, expect a buyer to assume extensive merger control obligations. A pri - vate equity buyer is typically willing to accept fairly extensive merger control obligations in a competitive auction provided that the merger filing analysis does not identify material overlaps. However, it is impor - tant to limit obligations to the buying entity, and as a general rule not accept obligations in relation to other portfolio companies, or standstill provisions, which could both constitute breaches of the fund’s fiduciary obligations towards its investors. Private equity funds are typically reluctant to accept hell or high water undertakings with respect to EU FSR as the regime is relatively new and still unpredict - able (refer to 3.1 Primary Regulators and Regulatory Issues ). However, sellers tend to get comfortable if the private equity funds’ counsel confirm that they have not identified any “most likely distortive” subsidies within the meaning of the EU FSR. 6.6 Break Fees Break fees, including reverse break fees, are rare on the Swedish market in general, including in private equity transactions. In competitive processes, they are, however, more common if there is a merger filing condition. 6.7 Termination Rights in Acquisition Documentation As deal certainty is a central component in most pri - vate equity transactions, termination rights are typi - cally limited and heavily resisted by both parties. The acquisition agreement can typically only be terminat - ed if conditions precedent are unfulfilled at the long- stop date commonly falling six months after signing, or if a party does not fulfil its obligations at closing, in which case closing would typically be rescheduled once before the agreement would be terminated. 6.8 Allocation of Risk Sellers in private equity transactions typically want to achieve a clean exit, as any residual liability would
the completion accounts consideration. 6.4 Conditionality in Acquisition Documentation
Deal certainty is fundamental for private equity sellers and Swedish private equity transactions tend to have minimal conditionality, usually limited to mandatory filing obligations such as merger clearance and FDI. Material adverse change clauses are not common. Covenant undertakings from the seller to try to obtain third-party consents from key contractual counterpar -
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