DENMARK Law and Practice Contributed by: Simon Milthers, Thomas Bøgedal Kristiansen, Mikkel Friis Rossa and Emil Steenberg, Bech-Bruun
This is often preferred by strategic acquirers or private equity firms seeking complete control. Another structure is the sale of a controlling interest, where the buyer acquires a majority stake while some existing shareholders (includ- ing venture capital investors) retain a minor- ity interest. This allows venture capital inves- tors to stay involved and benefit from future growth, and buyers may prefer this to leverage the expertise and network of existing investors and management. Venture capital investors may seek secondary sales or liquidity options, allowing them to sell their shares to the buyer or other investors, providing an exit opportunity while the company continues with new owner- ship. In some cases, the management team may partner with a financial sponsor to buy out the company from existing shareholders (including venture capital investors), providing continuity and stability while allowing the management team to take a more significant ownership stake. The current trend in Denmark favours flexibility in transaction structures so as to accommodate the interests both of buyers and sellers. While full sales are common, there is also growing inter- est in structures that allow venture capital inves- tors to retain a stake, especially if they believe in the company’s long-term growth potential. The choice of transaction structure depends on the specific circumstances, the goals of the share- holders, and the strategic objectives of the buy- ers. 4.3 Liquidity Event: Form of Consideration The standard approach for transactions involving privately held technology companies has been to complete the sale entirely for cash. However, there is a growing trend towards structuring deals that include stock-for-stock exchanges or
a combination of stock and cash. This flexible transaction structure allows the involved par- ties to consider various strategic options, such as enabling venture capital investors to remain shareholders if they believe in the company’s future growth potential. 4.4 Liquidity Event: Certain Transaction Terms Founders and venture capital investors are gen- erally expected to stand behind representations and warranties and certain liabilities (eg, tax, employee benefits, and environmental issues) after closing. This is typically done through indemnification or other mechanisms. The use of representations and warranties is customary in the Danish market, particularly for both large- cap and mid-market transactions. Holdback and escrow arrangements are not customary in Denmark but are becoming more common lately. These arrangements are often seen in terms of purchase price adjustments. In some transactions, the management of the tar- get company may provide business representa- tions and warranties backed by W&I, while the sellers only provide fundamental warranties. This trend towards W&I insurance-backed manage- ment warranties is expected to continue.
5. Spin-Offs 5.1 Trends: Spin-Offs
Spin-offs are not widely used in technology transactions. Generally, spin-offs are considered a taxable event, resulting in taxation. However, they can be executed as a tax-free event (such as a tax-exempt demerger), provided certain requirements are met.
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