TAIWAN Law and Practice Contributed by: Lihuei Mao (Grace), Derrick Yang, Yu-Ting Su and Rose Huang, Lee and Li Attorneys-at-Law
ignated thresholds to filter the collected information/ documentation. The work product could be a red-flag or full-blown report. For private equity deals, liability exposure in material contracts, financial and regula - tory compliance are usually the primary focus. 4.2 Vendor Due Diligence Vendor legal due diligence is quite often seen in the auction process, presented in the form of a high-level legal due diligence report, fact-book or similar docu - ments to be provided to the bidders on a non-reliance basis so as to fast-track the due diligence conducted by the bidders and narrow down the potential issues. For example, the coverage of a vendor legal due dili - gence report in local energy deals is usually limited to corporate, licences, material contracts and real properties. Private equity acquisitions may involve minority stake investment, 50:50 joint venture structure, controlling stake and equity buyout. The acquisition of a minor - ity stake can be made through a sale and purchase agreement. Mergers, share swaps, share exchanges and tender offers are often seen in takeover or equity buyout deals. Court approval is not required in the deal structures mentioned above, but foreign or China investors must obtain approval from the DIR. Private equity funds tend to tailor their acquisition strategies and condi - tions based on the deal size, the industry and the tar - get company’s ownership structure. 5. Structure of Transactions 5.1 Structure of the Acquisition In auctions, the seller will lead the process and will have more bargaining power on the transaction terms and conditions. On the other hand, privately nego - tiated transactions require more flexibility in dealing with multiple stakeholders, such as the seller(s), man - agement team and key employees, usually leading to a longer time frame and additional costs. 5.2 Structure of the Buyer Private equity funds usually make their investments in Taiwan through multiple layers of entities, such as
an offshore joint venture/consortium or special pur - pose vehicle (SPV), in order to mobilise funds, manage portfolios, minimise liability exposure and facilitate a clean exit. In the event that the transaction is conducted through a bidco or SPV, the private equity fund is typically not included as a party to the transaction; nonetheless, the fund will issue a letter of intent, parent guarantee or equity commitment letter to satisfy different needs when consummating the transaction. 5.3 Funding Structure of Private Equity Transactions Subject to the deal size, investor appetite and target industry, private equity deals can be financed in the following ways: • Project finance, where a project company seeks medium- or long-term loans from banks, relying on the expected returns of the specific project. This is often seen in infrastructure investments such as offshore wind farms in Taiwan. • Leveraged buyout, where the private equity-based buyers obtain funds from bank loans secured by the target’s assets/shares or expected returns. • Management buyout, where the target’s manage - ment team acquires the company from the share - holders with the management team’s own funds, debt financing from banks and/or financing from private equity funds. An equity commitment letter from the shareholders of the buyer SPV is sometimes required to show that the SPV has sufficient funds to complete the deal. If the funds will come from loans, the transaction docu - ments may include an agreed form for the finance documents and/or a request for relevant representa - tions on the execution of these documents. In such cases, the financial close (including the fulfilment of all conditions under the finance documents) will often be a condition to closing the deal to ensure a seamless
closing on the equity side. 5.4 Multiple Investors
In Taiwan, it is not uncommon for investors (such as institutional or strategic investors) to form a consor - tium with private equity funds to sponsor the deals.
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