TAIWAN Law and Practice Contributed by: Lihuei Mao (Grace), Derrick Yang, Yu-Ting Su and Rose Huang, Lee and Li Attorneys-at-Law
6.2 Locked-Box Consideration Structures Fixed-price locked-box consideration structures are preferred in private equity-backed acquisitions of pub - lic companies in Taiwan. These are not uncommonly seen in private transactions where private equity funds wish to exit. In the experience of the authors, the par - ties would usually not otherwise charge (reverse) inter - est for any leakage that occurs during the locked-box period, but this can be subject to the parties’ negotia - tion in each case. 6.3 Dispute Resolution for Consideration Structures A dedicated expert (often an independent CPA firm) is essential especially when a completion account, earn-outs or a deferred consideration mechanism is adopted in the deal. If the parties fail to reach a consensus on the financials or basis of calculation, the pre-agreed third-party expert will step in and the determination thereof will be binding on both parties. If the dispute remains unresolved or either party attempts to dispute the decision from the dedicated expert process, the general dispute resolution out - lined in the transaction documents will then apply either through litigation or through arbitration. 6.4 Conditionality in Acquisition Documentation In local private equity-backed transactions, it is not uncommon to have conditions other than mandatory and suspensory regulatory conditions, such as cor - porate authorisations, financing, third-party consents, shareholder approval, satisfactory due diligence and no material adverse event (MAE). Third-party consent is usually required in the event that the transaction will trigger the change of con - trol clauses in the facility agreements with the banks or material contracts with top customers or suppli - ers, in order to avoid the risk of breach under such agreements that may compromise the target’s usual or expected business operations. An MAE clause is also considered a fairly standard inclusion in private equity transactions. Whether to adopt a qualitative or quantitative threshold will largely
The consortium can be structured by forming an SPV onshore or offshore. For example, Ørsted brought in a consortium of CDPQ and Cathay PE as co-investors in the 605.2 MW offshore wind farm Greater Chang - hua 1. In 2023, Phi Capital and Universal Scientific Industrial, a local electronics company, joined forces to acquire TE Connectivity’s Hirschmann Car Commu - nication segment. This deal combined the corporate investor’s industrial knowledge with the private equity fund’s finance and management strength, achieving synergies in various aspects. For deals with a larger number of investors, the con - sortium can also be set up through a limited part - nership or similar fund structure. Multiple LPs can be passive investors who generally defer investment decisions to the GP and the investment committee. 6. Terms of Acquisition Documentation 6.1 Types of Consideration Mechanism For private equity transactions in Taiwan, considera - tion structures may vary depending on factors such as whether the target company is publicly listed or pri - vate, the valuation gaps between the buyer and seller, and the volatility of the target’s industry, and they are often heavily negotiated by the parties. A private equity seller typically prefers considera - tion mechanisms without post-closing adjustments or contingent arrangements – eg, fixed price with or without locked box (especially in a public deal) so as to achieve a clean exit. On the contrary, a private equi - ty buyer may seek price adjustments such as comple - tion accounts, earn-outs or deferred consideration to ensure the purchase price closely reflects the underly - ing valuation/financials. Rollover is a preferred way to consolidate the target company’s shareholding structure, align the manage - ment team’s objectives with the investors’, and reduce the cash outlay or unnecessary limbs in the sharehold - ing structure. For consideration mechanisms without any setoff against post-closing price adjustment or deferred payment, protection in the transaction largely depends on warranty and indemnity insurance if pri - vate equity funds are involved.
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