Private Equity 2015 - Schindler Attorneys

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The International Comparative Legal Guide to:
Private Equity 2015
1st Edition
A practical cross-border insight into private equity
Published by Global Legal Group, with contributions from:
Aabø-Evensen & Co
Ali Budiardjo, Nugroho, Reksodiputro
Angola Capital Partners
Anjarwalla & Khanna
Ashurst LLP
Bär & Karrer AG
Bentsi-Enchill, Letsa & Ankomah
British Private Equity & Venture Capital Association
Chiomenti Studio Legale
Clifford Chance
Elvinger, Hoss & Prussen
Garrigues
Goltsblat BLP
Greenberg Traurig, LLP
Hajji & Associés
Houthoff Buruma
Milbank, Tweed, Hadley & McCloy LLP
Morais Leitão, Galvão Teles, Soares da Silva
& Associados
Schindler Rechtsanwälte GmbH
Schulte Roth & Zabel LLP
Shearman & Sterling LLP
Simont Braun
Skadden, Arps, Slate, Meagher & Flom (UK) LLP
Țuca Zbârcea & Asociații
Veirano Advogados
Vieira de Almeida & Associados,
Sociedade de Advogados, RL
Zhong Lun Law Firm
The International Comparative Legal Guide to: Private Equity 2015
General Chapters:
1
Vendor Due Diligence Reports: A Tale of Two Markets – Jeremy W. Dickens, Shearman & Sterling LLP
1
2
Enforcing Investors’ Rights in Latin America: The Basics – Emilio J. Alvarez-Farré & Juan Delgado,
Greenberg Traurig, LLP
7
Contributing Editor
Shaun Lascelles,
Skadden, Arps, Slate,
Meagher & Flom (UK) LLP
3
Unitranche Facilities – A Real Debt Funding Alternative for Private Equity – Paul Stewart & Ewen Scott, Ashurst LLP
12
Head of Business
Development
Dror Levy
4
The Development of EU Regulation since the Financial Crisis and the Future of the Capital Markets Union – Simon Burns, British Private Equity & Venture Capital Association
16
Sales Director
Florjan Osmani
Commercial Director
Antony Dine
Country Question and Answer Chapters:
5
Angola
Vieira de Almeida & Associados – Sociedade de Advogados, R.L. and Angola Capital Partners: Hugo Moredo Santos & Rui Madeira
20
6
Austria
Schindler Rechtsanwälte GmbH: Florian Philipp Cvak & Clemens Philipp Schindler
26
7
Belgium
Simont Braun: David Ryckaert & Koen Van Cauter
33
8
Brazil
Veirano Advogados: Ricardo C. Veirano & Gustavo Moraes Stolagli
41
9
China
Zhong Lun Law Firm: Lefan Gong & David Xu (Xu Shiduo)
47
10 Germany
Milbank, Tweed, Hadley & McCloy LLP: Dr. Peter Memminger 55
11 Ghana
Bentsi-Enchill, Letsa & Ankomah: Seth Asante & Frank Nimako Akowuah
61
12 Indonesia
Ali Budiardjo, Nugroho, Reksodiputro: Oene J. Marseille & Emir Nurmansyah
68
13 Italy
Chiomenti Studio Legale: Franco Agopyan
75
14 Kenya
Anjarwalla & Khanna: Roddy McKean & Dominic Rebelo
83
15 Luxembourg Elvinger, Hoss & Prussen: Toinon Hoss & Jean-Luc Fisch
89
16 Morocco Hajji & Associés: Amin Hajji & Houda Boudlali
97
Printed by
Ashford Colour Press Ltd
July 2015
17 Netherlands
Houthoff Buruma: Alexander J. Kaarls & Johan Kasper
102
Copyright © 2015
Global Legal Group Ltd.
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18 Norway
Aabø-Evensen & Co: Ole Kristian Aabø-Evensen & Harald Blaauw
110
19 Poland
Clifford Chance: Marcin Bartnicki & Wojciech Polz
129
20 Portugal
Morais Leitão, Galvão Teles, Soares da Silva & Associados:
Ricardo Andrade Amaro & Pedro Capitão Barbosa
137
21 Romania
Țuca Zbârcea & Asociații: Ștefan Damian & Silvana Ivan
143
22 Russia
Goltsblat BLP: Anton Sitnikov & Vera Gorbacheva
150
23 Spain
Garrigues: María Fernández-Picazo & Ferran Escayola
158
24 Switzerland
Bär & Karrer AG: Dr. Christoph Neeracher & Dr. Luca Jagmetti
165
25 United Kingdom
Skadden, Arps, Slate, Meagher & Flom (UK) LLP: Shaun Lascelles
171
26 USA
Schulte Roth & Zabel LLP: Peter Jonathan Halasz & Richard A. Presutti
179
Account Directors
Oliver Smith, Rory Smith
Senior Account Manager
Maria Lopez
Sales Support Manager
Toni Hayward
Editor
Rachel Williams
Senior Editor
Suzie Levy
Group Consulting Editor
Alan Falach
Group Publisher
Richard Firth
Published by
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ISBN 978-1-910083-53-6
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EDITORIAL
Welcome to the first edition of The International Comparative Legal Guide
to: Private Equity.
This guide provides the international practitioner and in-house counsel
with a comprehensive worldwide legal analysis of the laws and regulations
of private equity.
It is divided into two main sections:
Four general chapters. These are designed to provide readers with a
comprehensive overview of key private equity issues, particularly from the
perspective of a multi-jurisdictional transaction.
Country question and answer chapters. These provide a broad overview of
common issues in private equity laws and regulations in 22 jurisdictions.
All chapters are written by leading private equity lawyers and industry
specialists and we are extremely grateful for their excellent contributions.
Special thanks are reserved for the contributing editor, Shaun Lascelles
of Skadden, Arps, Slate, Meagher & Flom (UK) LLP, for his invaluable
assistance.
Global Legal Group hopes that you find this guide practical and interesting.
The International Comparative Legal Guide series is also available
online at www.iclg.co.uk.
Alan Falach LL.M.
Group Consulting Editor
Global Legal Group
[email protected]
Chapter 6
Austria
Florian Philipp Cvak
Schindler Rechtsanwälte GmbH
1Overview
1.1
What are the most common types of private equity
transactions in Austria and what is the current state of
the market for these transactions?
Austria has seen the full spectrum of private equity transactions,
from seed capital to growth capital to buyout transactions. A more
recent trend is private equity backed investments in non-performing
loan portfolios and debt for equity swap transactions.
Many of the more recent buyout transactions were distressed
transactions; often banks required borrowers to sell non-core assets,
sometimes the borrowing entity as such. In the non-distressed
space, secondary transactions and bolt-on acquisitions accounted
for most transactions in 2014. There were no notable management
buyout transactions.
1.2
What are the most significant factors or developments
encouraging or inhibiting private equity transactions
in Austria?
Private equity investors have been a lot more active in Austria than
the deal count would suggest. Expansion capital was often hard
to deploy as many of the interesting businesses generated enough
cash flow to fund expansion out of their own pockets. Proprietary
succession transactions, on the other hand, ultimately were often not
completed for lack of attractive alternative investment opportunities
for the cash proceeds generated from the sale.
Another factor for Austrian transactions is that many companies have
substantial CEE-/SEE-exposure. Some investors perceive this as an
interesting opportunity, some others do not and again others must
not invest in targets with CEE-/SEE-exposure pursuant to their LPA.
2 Structuring Matters
2.1
What are the most common acquisition structures
adopted for private equity transactions in Austria?
The typical on-shore acquisition structure involves two or three
holding companies (“HoldCos”) and an acquisition vehicle
(“BidCo”) which enters into the purchase agreement and ultimately
acquires the shares. The structure will probably change in the very
near term as a result of recent changes in tax law (see question 2.2).
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Clemens Philipp Schindler
Where the transaction is leveraged, senior lenders typically require
junior lenders to lend a level higher in the acquisition structure
to achieve not only contractual subordination (which is achieved
by entering into an inter-creditor agreement) but also structural
subordination. The difference between the agreed purchase price and
debt is financed by the fund through a combination of institutional
equity and debt. The maximum amount of institutional debt is
determined by thin cap rules. Debt to equity ratios of 3:1 to 4:1
are generally accepted by the Austrian tax authorities. Institutional
equity is passed on through the structure to the BidCo by way of
indirect grandparent capital contributions (Grossmutterzuschuss) to
avoid capital tax.
On or shortly after completion, the target accedes to the financing
documents on an exclusive lender basis (to avoid structural
subordination to incumbent borrowers) and to grant guarantees and
security interests securing acquisition debt and target company debt.
To the extent guarantees and security interests secure acquisition
debt, capital maintenance and, where a joint stock company (“JSC”)
is involved, financial assistance rules, are a concern. Transactions
violating capital maintenance rules are null and void as between the
parties as well as any involved third party (e.g. the financing bank)
if that third party knew or should have known of the violation. In
addition, the members of the management and supervisory board
who approved such transaction may be subject to liability for
damages. Transactions violating financial assistance rules are not
void but may result in liability of the members of the management
and supervisory board who approved the transaction. This issue
is typically addressed in the financing documents by “limitation
language” which limits the obligations of Austrian obligors to an
amount and terms compliant with capital maintenance and financial
assistance rules.
2.2
What are the main drivers for these acquisition
structures?
The availability of goodwill amortisation on share deals and capital
tax considerations (see question 2.1) are/were the main drivers for
the on-shore structure described under question 2.1 above.
Since recently, goodwill amortisation on share deals is no longer
available (only for acquisitions made until 28 February 2014) and
capital tax on direct parent capital contributions will be abolished
effective 1 January 2016. We expect that these changes will mean
that most of the acquisition structure described in question 2.1 will
migrate offshore.
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How is the equity commonly structured in private
equity transactions in Austria (including institutional,
management and carried interests)?
Institutional equity is usually given off-shore and passed through
the Austrian structure by way of indirect grandparent capital
contributions.
3.3
Are there any limitations on the effectiveness of veto
arrangements: (i) at the shareholder level; and (ii)
at the director nominee level? If so, how are these
typically addressed?
See question 2.3.
Veto arrangements requiring the affirmative vote of a particular
shareholder or director can only be agreed in the shareholders’
agreement. Increased majority requirements can also be agreed in
the articles of association (and/or by-laws for the supervisory board).
If agreed in the articles of association (and/or by-laws), resolutions
violating the majority requirement can be challenged (anfechten).
In contrast, if a veto right (or voting requirement) set forth in the
shareholders’ agreement is violated, only an action for damages is
available. However, it should be noted that the Austrian Supreme
Court in one decision granted a right to challenge a shareholders’
resolution because of a breach of a voting requirement set forth in a
shareholders’ agreement, where all shareholders were a party to the
shareholders’ agreement.
2.5
3.4
Management equity is often given in the form of actual shares in the
target (or the entity in which the exit is expected to occur). From
a tax perspective, shares (and certain other equity interests) may
have benefits relative to phantom stock and other contractual bonus
scheme arrangements, as gains realised upon an exit may be eligible
for capital gains taxation if appropriately structured.
2.4
What are the main drivers for these equity structures?
In relation to management equity, what are the typical
vesting and compulsory acquisition provisions?
Management equity is typically subject to vesting over a period of
approximately five years. Compulsory transfer provisions apply
upon termination of the manager, with the consideration depending
on the reason for termination (“good” or “bad” leaver). In addition,
the private equity fund will typically require a right to drag upon
an exit.
3 Governance Matters
3.1
What are the typical governance arrangements for
private equity portfolio companies?
The governance documents typically include a shareholders’
agreement, new articles of association as well as by-laws for the
management board and supervisory board (if any). The main
areas of concern in the governance documents are the fund’s
rights to appoint sponsor representatives (and/or observers) to the
supervisory board, sponsor representative liability, veto rights of the
fund (and/or the sponsor representative), dilution protection for the
fund, a liquidation preference for the fund, restrictions on dealings
with shares (typically including a right of first refusal, tag-along and
drag-along rights), exit rights for the fund (via a trade sale or an
IPO) as well as reporting, information and access rights.
In most cases the fund will also insist that senior management signs
up to a management participation scheme (see question 2.3) and that
all of management (and sometimes also certain other key personnel)
enters into new employment agreements agreed with the fund.
3.2
Do private equity investors and/or their director
nominees typically enjoy significant veto rights over
major corporate actions (such as acquisitions and
disposals, litigation, indebtedness, changing the
nature of the business, business plans and strategy,
etc.)?
Austria
2.3
Austria
Are there any duties owed by a private equity investor
to minority shareholders such as management
shareholders (or vice versa)? If so, how are these
typically addressed?
Austrian courts have consistently held that shareholders owe a duty
of loyalty (Treuepflicht) towards one another requiring them to
consider the interests of their fellow shareholders in good faith (Treu
und Glauben) and in line with bonos mores (gute Sitten). That duty
is more pronounced for closely held companies than for widely held
companies and differs from shareholder to shareholder depending
on the ability of the relevant shareholder to cause a certain action
to be taken or not to be taken. A majority shareholder may, for
instance, be exposed to liability for failure to appear and vote on a
matter in circumstances where a minority shareholder is not.
A violation of the duty of loyalty may result in claims for damages,
cease and desist orders or a challenge (Anfechtung) of shareholder
resolutions in violation.
3.5
Are there any limitations or restrictions on the
contents or enforceability of shareholder agreements
(including governing law and jurisdiction)?
Shareholders’ agreements are typically governed by Austrian law
and the competent courts at the seat of the company typically have
jurisdiction. This is mainly because disputes related to shareholders’
agreements are usually supported by arguments based on corporate
law and such disputes must be brought before the competent courts
at the seat of the company. Where Austrian court judgments are
not enforceable in the jurisdiction of a shareholder, arbitration is
usually chosen.
In addition, where a shareholders’ agreement provides for transfer
provisions related to shares in a limited liability company, it must be
drawn up in the form of an Austrian notarial deed (note: a German
notarial deed is considered equivalent).
The governance documents typically provide for veto rights for the
private equity investor and/or their director nominees over major
corporate actions. This is typically a main area for negotiations,
particularly in seed and growth capital transactions.
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27
Schindler Rechtsanwälte GmbH
Austria
3.6
Are there any legal restrictions or other requirements
that a private equity investor should be aware of
in appointing its nominees to boards of portfolio
companies? What are the key potential risks and
liabilities for (i) directors nominated by private equity
investors to portfolio company boards, and (ii) private
equity investors that nominate directors to boards of
portfolio companies?
General
Austria has a two-tier board structure. The management board is
responsible for day-to-day management of the company while the
supervisory board is responsible for monitoring and resolving on
the matters brought before the supervisory board for a vote (which
is a matter for the governing documents). Sponsors usually request
rights to nominate one (or more) members of the supervisory board
(Aufsichtsrat) or observers to the supervisory board, but hardly ever
get involved in management. For that reason, the answers under
questions 3.6 and 3.7 will focus on supervisory board nominees.
Restrictions
Restrictions with respect to the aggregate number of supervisory
board positions and provisions aimed to prevent conflicts of interest
exist: supervisory board members must not be managing directors
of the portfolio company or of a subsidiary, or employees of the
portfolio company (employee representatives are exempt from that
restriction). They must not hold more than ten (eight for a listed
JSC) supervisory board positions (with presidency counting double
and exemptions for group positions), be appointed a managing
director of a subsidiary or of another company to whose supervisory
board a member of the management board of the portfolio company
is appointed (unless that company belongs to a group (Konzern)).
Requirements
The law does not require a particular qualification or experience for
supervisory board members. Such requirements can be introduced
in the articles of association. As a general matter, however, every
supervisory board member must ensure that it can meet its duty of
care (Sorgfaltspflicht) requiring the relevant member to exercise the
level of care of a proper and diligent supervisory board member,
which in turn will generally require a supervisory board member to
at least have a basic understanding of the business brought before
the supervisory board, an understanding of annual accounts, to be
able to assess when expert opinions are required and to devote
sufficient time.
Risks and liability
Like all other members of the supervisory board, sponsor nominees
owe to the portfolio company (and not to the private equity investor
appointing them or to any other constituents):
■
■
■
a duty of care (Sorgfaltspflicht) (see above – which includes
an obligation to be reasonably informed and articulate any
concerns there may be);
a duty of loyalty (Treuepflicht) (requiring the relevant member
to act in the best interest of the company and its shareholders
and not in his own interest); and
a duty of confidentiality,
and can be held liable for damages as a result of any breach.
A private equity investor is generally not liable for an action or a
failure to act of a sponsor nominee. A private equity investor could,
however, become liable based on an argument that he breached
his duty of loyalty (Treuepflicht), e.g. by seeking to instruct or
otherwise influence members of the supervisory or management
28
Austria
board to the disadvantage of the company (e.g. not to pursue
a business opportunity so that it remains available for another
portfolio company).
In addition, the law specifically prohibits undue influence on
members of the management board or supervisory board of a JSC to
benefit oneself or another (e.g. causing a member of the supervisory
board to approve payment of investor expenses or the payment of
excessive management fees).
3.7
How do directors nominated by private equity
investors deal with actual and potential conflicts of
interest arising from (i) their relationship with the
party nominating them, and (ii) positions as directors
of other portfolio companies?
Where a sponsor nominee has a conflict of interest which arises
from its relationship with the sponsor or a position as director of
another portfolio company, he has to notify the supervisory board
accordingly; the sponsor nominee should not be permitted to vote
with respect to the matter or to participate in associated meetings.
4 Transaction Terms: General
4.1
What are the major issues impacting the timetable
for transactions in Austria, including competition and
other regulatory approval requirements, disclosure
obligations and financing issues?
The following clearance requirements are typically a factor for the
timetable:
■
antitrust clearance (which takes up to four weeks if cleared
in phase 1 and up to five months if cleared in phase 2 in
Austria);
■
regulatory clearance (e.g. the acquisition of a qualified or
a controlling interest in the banking, insurance, utilities,
gambling, telecoms or aviation sector is subject to advance
notification or approval);
■
real estate clearance (the acquisition of title and certain other
interests in real estate by non-EEA nationals, or control
over companies holding such interests, is subject to advance
notification or approval); and
■ clearance pursuant to the Foreign Trade Act
(Außenwirtschaftsgesetz) (the acquisition of 25% or more
or of a controlling interest in an Austrian business involved
in protected industries (e.g. defence, security services,
hospitals, emergency and rescue services, energy and water
supply, telecoms, traffic or universities) by a non-EEA or
Swiss national is subject to advance approval by the Austrian
Minister of Economic Affairs).
With regard to timing aspects related to public-to-private
transactions, see question 5.1.
4.2
Have there been any discernible trends in transaction
terms over recent years?
Vendor due diligence is becoming more and more common in
auctions for bigger targets. Similarly, warranty and indemnity
insurance is more frequently discussed in private equity exits.
Stapled financing did not play a role to our knowledge on Austriaonly deals.
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5.1
What particular features and/or challenges apply to
private equity investors involved in public-to-private
transactions (and their financing) and how are these
commonly dealt with?
A typical going-private transaction involves a voluntary takeover
bid aimed at control (freiwilliges Angebot zur Kontrollerlangung),
conditional upon the acceptance of 90% of the outstanding share
capital followed by a squeeze out pursuant to the Act on the
Exclusion of Shareholders (Gesellschafterausschluss-Gesetz), which
then ultimately results in the de-listing.
Also, a private equity investor must make sure that it has the
necessary funds secured prior to announcing the bid and to get that
confirmed by the expert in accordance with the Austrian Takeover
Code (Übernahmegesetz). The expert will typically require a
copy of the executed equity commitment letter from the fund and
copies of the definitive finance agreements together with documents
evidencing that all conditions precedent (other than those within the
private equity investor’s sole control) have been satisfied, to satisfy
itself that the necessary funds requirement has been met.
In terms of timing, the takeover procedure takes around six months
from the beginning of the internal preparatory steps and usually three
to four months from the first contact with the Austrian Takeover
Penal (Übernahmekommission).
5.2
There is little guidance, but whether a break-up fee is valid should
primarily depend on two factors: (i) the amount of the fee (a breakup fee in an amount that will keep management from considering
competing bids or deter others from considering a competing bid
will probably not be valid); and (ii) the circumstances in which the
fee is triggered (a break-up fee that is solely triggered upon active
solicitation of competing bids should be valid, whereas a breakup fee triggered because a bid is not supported for good reason or
because a better competing bid is supported is probably not).
6 Transaction Terms: Private Acquisitions
6.3
What is the typical scope of other covenants,
undertakings and indemnities provided by a private
equity seller and its management team to a buyer?
Experienced private equity sellers will try to limit post-completion
covenants to access records and sometimes assistance in relation to
pre-completion affairs.
Usually buyers will insist on non-compete and non-solicitation
covenants (which private equity sellers will try to resist). Other post
completion covenants will depend on the particular case and may
include de-branding, migration, transitional services and dealings
regarding group security interests and group guarantees.
6.4
Is warranty and indemnity insurance used to “bridge
the gap” where only limited warranties are given by
the private equity seller and is it common for this to
be offered by private equity sellers as part of the sales
process?
On bigger transactions warranty and indemnity insurance is
sometimes used to “bridge the gap”, in particular where experienced
private equity sellers are involved. Where that route is pursued
insurance is often already discussed in the bid instruction letter
(including an indication of anticipated cost and the proposed costsharing).
6.5
What limitations will typically apply to the liability of
a private equity seller and management team under
warranties, covenants, indemnities and undertakings?
Limitations on warranties
Common limitations on warranties include:
■
Time limitation for bringing claims:
■ title and capacity warranties usually survive ten years at
the minimum;
What consideration structures are typically preferred
by private equity investors in Austria?
Private equity investors tend to prefer locked box structures,
particularly when on the sell-side. Where the gap between signing
and the anticipated date of closing is long (e.g. for antitrust reasons)
closing adjustments are the norm. Which parameters are included
in a closing adjustment depends on the target business with the
most common combination being net debt, working capital and
(sometimes) capex.
What is the typical package of warranties/indemnities
offered by a private equity seller and its management
team to a buyer?
Experienced private equity sellers will try to avoid business
warranties and indemnities and instead just provide warranties on
title and capacity. A purchaser will often be asked to rely on its due
diligence and management warranties (if management is willing to
give them) and to accept limited recourse (e.g. to an amount paid
into escrow or the amount recoverable from warranty and indemnity
insurance).
Are break-up fees available in Austria in relation to
public acquisitions? If not, what other arrangements
are available, e.g. to cover aborted deal costs?
Break-up fees obligating the target company to pay a fee to the
bidder if the bid fails are available in relation to public acquisitions,
but they are not very common.
6.1
6.2
Austria
5 Transaction Terms: Public Acquisitions
Austria
■business warranties between twelve and twenty-four
months;
■ tax warranties typically around seven years; and
■ environmental warranties five to ten years.
■
Financial limits, including:
■ a cap on the total liability (where there are multiple sellers,
each may seek to limit its liability pro rata);
■ a minimum aggregate claims threshold (“basket”); and
■ an exclusion of de minimis claims.
■
Limitation to direct loss (as opposed to indirect and
consequential loss).
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Schindler Rechtsanwälte GmbH
■
Exclusion of claims to the extent caused by:
■ agreed matters;
■ acts of purchaser (outside of the ordinary course of
business);
Austria
■ change of law or interpretation of law; or
■ change of tax or accounting policies.
■
No liability for contingent liabilities.
■
No liability if purchaser knew or could have known.
■
No liability for mere timing differences (e.g. if tax authorities
request longer tax depreciation periods).
■
Obligation to mitigate loss.
■
No double recovery under warranties, indemnities and
insurance policies.
■
A conduct of claims provision.
Qualifying warranties by disclosure
Warranties are usually qualified by matters that have been disclosed
(in a certain manner) or are deemed disclosed by operation of the
provisions of the acquisition agreement or the disclosure letter
(e.g. information which can be obtained from publicly accessible
registers). The seller will always push for general disclosure (i.e.
everything disclosed to the purchaser and its advisors at whatever
occasion qualifies all warranties) while the purchaser will push for
specific disclosure (i.e. separate disclosure for each warranty) and
try to introduce a disclosure threshold requiring that a matter must
be “fully and fairly” disclosed. This is usually heavily negotiated.
Limitations on indemnities
Indemnities are generally not qualified by disclosure or knowledge.
The tax indemnity is usually only subject to a specific tax conduct
provision, a direct loss limitation and the overall cap. Other
limitations are a matter of negotiation. If other indemnities (e.g.
for contamination and environmental compliance or specific due
diligence findings) are accepted, the applicable limitations are
usually heavily negotiated indemnity-by-indemnity.
6.6
How do private equity buyers typically provide
comfort as to the availability of equity finance and
what rights of enforcement do sellers typically obtain
if commitments are provided by SPVs?
Private equity buyers will usually agree to sign an equity
commitment letter at the time of the signing of the acquisition
agreement which in turn will usually back that up with a respective
warranty on sufficient funding being available at closing of the SPV.
6.7
Are reverse break fees prevalent in private equity
transactions to limit private equity buyers’ exposure?
If so, what terms are typical?
Reverse break fees as a means to limit a private equity buyer’s
exposure are not common.
7 Transaction Terms: IPOs
7.1
What particular features and/or challenges should a
private equity seller be aware of in considering an IPO
exit?
An IPO exit will typically require that the articles of association
and bylaws are adjusted, a due diligence is performed and a
prospectus is prepared. In addition, the company will have to enter
30
Austria
into an underwriting agreement and do road shows. For all of that
the cooperation of the company is required and (at least) where
no new shares are issued, the management will typically ask the
private equity firm to bear most of the associated costs (based on an
argument related to capital maintenance rules).
Where new shares are issued, this will naturally limit the number of
shares the private equity seller can sell into the IPO. In addition, the
underwriting agreement will usually provide for lock-up restrictions
(see question 7.2) which limit the private equity seller’s ability to
sell any shares retained following the IPO.
Finally, the private equity seller will usually be asked to give
warranties in the underwriting agreement. In most cases the private
equity seller will be able to limit those warranties to matters relating
to itself and the shares sold into the IPO. Sometimes director
nominees are also required to give warranties.
7.2
What customary lock-ups would be imposed on
private equity sellers on an IPO exit?
The underwriting banks will usually expect part of the shares
retained by the private equity firm to be locked-up for around 180
days. Different lock-up requirements may already be contained in
the shareholders’ agreement, but this is rather the exception.
7.3
To what extent can rights in pre-existing shareholders’
agreements survive post-IPO?
An IPO does not invalidate rights in a shareholders’ agreement.
However, the underwriters usually push private equity sellers to
give up or renegotiate such rights prior to the IPO.
8Financing
8.1
Please outline the most common sources of debt
finance used to fund private equity transactions in
Austria and provide an overview of the current state
of the finance market in Austria for such debt.
Sources of debt finance for private equity transactions differ
substantially for domestic private equity buyers, who typically
seek debt finance from domestic or German banks and international
private equity buyers, who are able to tap international markets.
Leverage levels for large cap transactions are currently around five
times EBITDA and relative debt to equity ratios are around 40 to
50%. Mid- and small-cap transactions are sometimes financed
equity only. Leverage levels and debt to equity ratios for mid- and
small cap transactions generally tend to be lower than for large cap
deals. On small and mid-cap transactions there is usually just senior
and institutional debt as mezzanine tends to add another layer of
complexity and costs which is often not supported by the limited
transaction size. On large cap transactions the use of mezzanine
is a matter of pricing. High-yield is usually only considered for
post completion refinancing as the time and cost involved tends to
be disproportional to the gains on pricing. We have so far not seen
stapled financings on Austria-only transactions.
8.2
Are there any relevant legal requirements or
restrictions impacting the nature or structure of
the debt financing (or any particular type of debt
financing) of private equity transactions? See question 2.1.
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9.1
What are the key tax considerations for private equity
investors and transactions in Austria?
Since recently, goodwill amortisation on share deals (up to 50% of
the purchase price over a period of fifteen years) is not available
anymore (only for acquisitions made until 28 February 2014).
Foreign private equity investors will usually seek a structure that
allows a tax-free exit. As there is no tax exemption for capital gains
realised from the sale of shares in an Austrian company (as opposed
to shares in a foreign company), foreign private equity investors
will now probably more often choose a BidCo incorporated in a
jurisdiction which has a double tax treaty with Austria providing
that only the offshore jurisdiction may tax capital gains. One thing
that still speaks for an Austrian BidCo is that a tax group can be
established between BidCo and the target, which then allows
BidCo to off-set interest expense on the acquisition debt from the
operational profits of the target.
Furthermore, foreign private equity investors will usually try to find
structures that avoid or minimise withholding taxes. Apart from
dividends, withholding tax is relevant in particular for interest on
shareholder loans. While in the past withholding tax on interest on
loans was the exception (e.g. where a loan was secured by Austrian
real estate), a new regime now provides for withholding tax if the
interest is not taxed at the level of the recipient at an effective tax
rate of 10% or more.
9.2
Have there been any significant changes in tax
legislation or the practices of tax authorities
(including in relation to tax rulings or clearances)
impacting private equity investors or transactions and
are any anticipated?
Apart from the recent developments described in question 9.1
above, we note that tax audits are becoming more and more intense.
In particular, transfer pricing issues are becoming more and more
scrutinised, e.g. in relation to interest on shareholder loans or certain
fees paid to the management company. As a result it has become
more common to seek advance tax rulings to mitigate associates
risks.
Currently a tax reform is underway which should not have a major
impact on private equity. Past reforms, although not targeted at
transactions as such, often had indirect consequences (e.g. the new
tax regime for investment income required substantial adaptations
to existing management incentive schemes).
10 Legal and Regulatory Matters
10.1 What are the key laws and regulations affecting
private equity investors and transactions in
Austria, including those that impact private equity
transactions differently to other types of transaction?
With regard to recent legislation affecting managers of private equity
funds, please see question 10.2 below. With regard to transactions,
private equity investors should be aware of the general clearance
requirements for Austrian transactions (see question 4.1).
10.2 Have there been any significant legal and/or
regulatory developments over recent years impacting
private equity investors or transactions and are any
anticipated?
The most significant development was the implementation of the
AIFMD (EU Directive 2011/61/EU) by the Austrian Alternative
Investment Manager Act (Alternatives Investmentfonds ManagerGesetz). Private equity funds typically qualify as alternative
investment funds (AIF). As such, they require a licence from the
Austrian Financial Market Authority (Finanzmarktaufsichtsbehörde)
(FMA), unless they qualify for the de minimis exception (which
applies to managers of small AIFs with assets of less than EUR100
million (where leverage is used) or less than EUR500 million (where
no leverage is used)), in which case they only need to register.
Austria
9 Tax Matters
Austria
10.3 Has anti-bribery or anti-corruption legislation
impacted private equity investment and/or investors’
approach to private equity transactions (e.g.
diligence, contractual protection, etc.)?
Anti-bribery and anti-corruption legislation had a significant impact
on private equity transactions in Austria. Since their enactment,
more emphasis is placed on those areas in the due diligence of
target companies; also, anti-corruption provisions are now often
included in the warranties of the acquisition agreement as well as
in the governance documents, employment agreements and internal
guidelines of the portfolio companies.
10.4 Are there any circumstances in which: (i) a private
equity investor may be held liable for the liabilities
of the underlying portfolio companies; and (ii) one
portfolio company may be held liable for the liabilities
of another portfolio company)?
In principle, a private equity investor will not be liable for liabilities
of an underlying portfolio company. Exceptions apply (i) where
the private equity investor factually manages, or substantially
controls the management board of, the portfolio company (faktische
Geschäftsführung), (ii) where there is undercapitalisation (only
where there is an obvious unbalance between the risks of the
business and the equity which is likely to result in a default), (iii)
where based on the accounting records, the assets of the company
cannot be separated from the assets of the private equity investor
(Sphärenvermischung), and (iv) in case of shareholder action
putting the portfolio company at risk (existenzvernichtender
Eingriff) (where the investor takes action resulting in insolvency
(Insolvenzverursachung) (e.g. acceleration of loans).
In addition, a private equity investor may become liable to a
creditor up to the amount secured where he granted a guarantee or
security interest securing a loan of a portfolio company in crisis (as
defined in the Company Reorganisation Act (URG)). In that case
the portfolio company can request the creditor to claim against the
private equity investor first (in which case the recourse claim of
the private equity investor is suspended until the crisis is over); if
the portfolio company pays the creditor, the portfolio company can
request reimbursement from the private equity investor.
The above principles apply mutatis mutandis in relation to the
potential liability of a portfolio company for the liabilities of another
portfolio company.
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31
Schindler Rechtsanwälte GmbH
Austria
Austria
11 Other Useful Facts
11.1 What other factors commonly give rise to concerns
for private equity investors in Austria or should such
investors otherwise be aware of in considering an
investment in Austria?
Foreign private equity investors frequently find it difficult to access
Austrian businesses, in particular family owned businesses. For
that reason they often find it useful to team up with a local partner or
initiate the contact through trusted advisors.
Florian Philipp Cvak
Clemens Philipp Schindler
Schindler Rechtsanwälte GmbH
Tuchlauben 13
1010 Vienna
Austria
Schindler Rechtsanwälte GmbH
Tuchlauben 13
1010 Vienna
Austria
Tel: +43 1 512 2613
Email: [email protected]
URL:www.schindlerandpartners.com
Tel: +43 1 512 2613
Email: [email protected]
URL:www.schindlerandpartners.com
Florian’s practice is focused on corporate and finance, in particular for
private equity clients. Florian is admitted to the Austrian, New York and
Polish Bars. Florian received the following awards and is ranked in:
Clemens’ transactional practice is focused on corporate and tax. He is
admitted both as a lawyer and a certified public tax advisor in Austria.
Clemens is ranked in:
■■ Chambers Europe.
■■ Chambers Europe.
■■ Chambers Global.
■■ Chambers Global.
■■ Private Equity Lawyer of the year – Austria (ACQ) – 2013.
■■ Legal 500.
■■ Private Equity Lawyer of the year – Austria (ACQ) – 2014.
■■ IFLR1000.
■■ Private Equity Lawyer of the year – Austria (ACQ) – 2015.
■■ The International Who’s Who of Corporate/M&A Lawyers.
■■ IFLR1000.
■■ The International Who’s Who of Corporate Tax Lawyers.
■■ Best Lawyers in Austria – (Best Lawyers) – 2014.
■■ JUVE (as one of the top 20 Corporate/M&A lawyers in Austria).
■■ Format (as one of the top 10 CEE lawyers in Austria).
■■ Format (as one of the top 10 capital markets lawyers in Austria).
The focus of the firm’s practice is structuring and transaction work, with a particular focus on financial sponsor work. The partners
of the firm have significant experience and gathered an impressive track record with regard to private equity matters in Austria and
CEE. They have an excellent understanding of the particular needs of financial sponsors and in-depth knowledge of the related
legal issues. The integrated legal and tax practice is a key differentiator to other law firms on the market.
32
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