NETHERLANDS Law and Practice Contributed by: Herald Jongen, Maarten de Boorder, Samuel Garcia Nelen and Jelmer Kalisvaart, Greenberg Traurig, LLP
4.3 Liquidity Event: Form of Consideration Consideration for transactions involving privately held VC-financed companies is often a mix of cash and stock. The stock can be equity in the capital of an acquisition entity (in case of a private equity buyer) or in the parent (in case of a strategic buyer. That being said, this very much depends on the deal dynamics and strategic plans of the buyer, and full cash (often) and full stock (less often) deals are also seen. 4.4 Liquidity Event: Certain Transaction Terms Founders and VC investors are typically expected to provide warranties, a tax indemnity and – sometimes – specific indemnities, depending on the due diligence findings and the leverage position between parties. As in many industries, a continuous rise in the use of warranty and indemnity (W&I) policies for VC-backed transactions can be seen. Sellers usually provide a customary set of warranties (categorised as business, fundamental and tax war- ranties) and a tax indemnity, in some cases insured via a W&I insurance policy with no or limited residual lia- bility for the seller. A distinction is often made between founders and VC investors in respect of the residual liability. It is relatively uncommon in the current Dutch market for the management team to provide warran- ties separately, either through a separate management warranty deed or otherwise, even when such warran- ties could be covered by a W&I insurance policy. Spin-offs are customary in the Netherlands, especially within the technology sector. They are a strategic tool used by both large corporations and tech start-ups to enhance focus, drive innovation and unlock value. The key drivers for considering a spin-off in the Dutch tech industry include the following. • Focus on core competencies: Companies often spin off non-core or underperforming divisions to concentrate on their primary business. This is particularly common in tech firms, where inno- vation and specialisation are crucial for staying competitive. Spin-offs allow management to focus 5. Spin-Offs 5.1 Trends: Spin-Offs
sure, and some well-known tech companies (eg, Ady- en) are listed on Euronext Amsterdam. 3.3 Impact of the Choice of Listing on Future M&A Transactions If a Dutch company chooses to list on a foreign exchange, it does in principle not affect the feasibility of a future sale. Besides, on a foreign stock exchange, similar corporate governance rules generally apply to the company, and Dutch statutory minority squeeze- out rules also apply equally. 4. Sale as a Liquidity Event (Sale of a Privately Held Venture Capital- Financed Company) 4.1 Liquidity Event: Sale Process Typically, the sale of a privately held VC-backed tech company is conducted through bilateral negotiation, often on an exclusive basis with a selected candi- date, rather than through an auction process. Specific strategic buyers who possess the necessary expertise and can unlock future value are preferred over a range of bidders in an auction. Bilateral negotiations facili- tate speed and efficiency and allow for more bespoke transaction structures compared to an auction-based disposal. 4.2 Liquidity Event: Transaction Structure The sale of privately held technology companies that have a number of VC investors is typically structured as a sale of shares in the top-holding company. It is the current trend to sell a controlling interest, while the VC funds stay on as minority investors. However, full acquisitions are also not uncommon, and the choice between a full and partial exit often depends on: • the strategic goals of the buyer; • the preference of the existing shareholders; and • the macroeconomic environment at large. VC investors may prefer structures that allow them to stay on as shareholders if they see significant upside potential. Continued access to the VC’s networks and expertise can also play a role.
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