SWITZERLAND Law and Practice Contributed by: Christoph Neeracher, Philippe Seiler and Lukas Bründler, Bär & Karrer Ltd
6. Terms of Acquisition Documentation 6.1 Types of Consideration Mechanism The two predominant forms of consideration struc - tures used in private equity transactions in Switzer - land are the locked-box mechanism and completion accounts with a net working capital/net debt adjust - ment. The locked-box mechanism is still the purchase price mechanism predominantly used in private equity transactions in Switzerland. However, the strongly influenced sellers’ market of the recent years can be seen to be slightly shifting towards a more balanced approach. Discussions that were not possible in the past few years – eg, regarding closing conditions or purchase price adjustments – have become more common again. Earn-outs and vendor loans have been seen less often recently but are not uncommon. Earn-outs especially are usually used in cases where the seller remains as an employee of the target company post-closing, in which case, however, certain restrictions from a Swiss tax-law perspective may apply. 6.2 Locked-Box Consideration Structures The predominant locked-box pricing mechanism typi - cally includes an interest payment or cash flow par - ticipation, for the period between the locked-box date and actual payment of the purchase price (ie, closing). Leakage, however, is typically not subject to interest and will be compensated on a Swiss franc to Swiss franc basis (unless considered permitted leakage). 6.3 Dispute Resolution for Consideration Structures For locked-box consideration structures, it is unu - sual to have a dispute resolution mechanism in place because, in general, a one-off payment at closing is agreed, which has the effect that any leakage since the locked-box date is considered and added to the consideration. Therefore, no additional dispute resolu - tion mechanism is necessary. Regarding completion accounts consideration struc - tures, however, dispute resolution mechanisms are indeed common. Specifically, so-called appraiser mechanisms are agreed upon. If such a mechanism
by the Swiss National Bank. In the context of a more challenging financing environment, investors increas - ingly seek alternative solutions to bridge financing gaps, such as earn-outs, vendor loans and other forms of deferred consideration. Generally, investors exhibit considerable flexibility regarding transaction financing, as Swiss corporate law imposes only limited restrictions on a company’s debt-to-equity ratio. However, from a Swiss tax-law perspective, de facto limitations exist due to thin capi - talisation rules. In the context of the security package provided in con - nection with a debt-financed transaction, it is crucial to adhere to the restrictions on upstream and cross- stream guarantees, as well as other security interests granted by the target to the parent or an affiliate (other than a subsidiary). At the time of signing, it is standard practice in Swiss transactions for the buyer to provide sufficient proof of funds, ideally in the form of a bind - ing term sheet with the finance provider. Regarding the equity portion of the purchase price, sellers typically request a customary equity com - mitment letter directly from the fund. However, such equity commitment letters are usually not to the direct benefit of the sellers but to that of the purchaser. Traditionally, most private equity deals in Switzerland have been majority investments. However, there is an increasing trend towards minority investments by pri - vate equity funds. 5.4 Multiple Investors Club deals or syndicates of several private equity funds are primarily seen in larger transactions. In the context of private transactions, the parties have vast flexibility in structuring such club deals. The relation - ship among the club participants is in most cases governed by a shareholders’ agreement. In the context of public transactions, other rules apply to such co-investments, and the club participants are most likely to be qualified as acting in concert regard - ing the mandatory takeover rules (see also 7. Takeo- vers ).
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