The Private Equity Review

Second Edition Editor Kirk August Radke

Law Business Research

The Private Equity Review

Reproduced with permission from Law Business Research Ltd. This article was first published in The Private Equity Review, 2nd edition (published in April 2013 – editor Kirk August Radke). For further information please email

The Private Equity Review Second Edition Editor Kirk August Radke Law Business Research Ltd .

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acknowledgements The publisher acknowledges and thanks the following law firms for their learned assistance throughout the preparation of this book: A&L GOODBODY BA-HR DA CAREY Corrs Chambers Westgarth ENS (EDWARD NATHAN SONNENBERGS) GIDE LOYRETTE NOUEL AARPI HENGELER MUELLER Hergüner Bilgen Özeke Attorney Partnership Khaitan & Co KIM & CHANG KIRKLAND & ELLIS LLP LABRUNA MAZZIOTTI SEGNI – STUDIO LEGALE LENZ & STAEHELIN LEXYGEN Loyens & Loeff MACFARLANES LLP MAPLES AND CALDER NISHIMURA & ASAHI i .


Yong Seung Sun. Jorge NF Lopes Jr and Vitor Fernandes de Araujo CAYMAN ISLANDS��������������������������������������������������������������� 14 Nicholas Butcher and Iain McMurdo FRANCE���������������������������������������������������������������������������������� 23 Stéphane Puel and Julien Vandenbussche GERMANY������������������������������������������������������������������������������ 39 Felix von der Planitz and André Gloede INDIA�������������������������������������������������������������������������������������� 49 Siddharth Shah and Bijal Ajinkya JAPAN�������������������������������������������������������������������������������������� 60 Kei Ito. Sung Uk Park and Hee Jun Choi LUXEMBOURG��������������������������������������������������������������������� 79 Marc Meyers Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 iii .contents Editor’s Preface ���������������������������������������������������������������������������������������������������ix Kirk August Radke Part I Chapter 1 Fundraising�������������������������������������������������� 1–164 BRAZIL������������������������������������������������������������������������������������� 3 Enrico Bentivegna. Taku Ishizu and Akihiro Shimoda KOREA������������������������������������������������������������������������������������ 71 Young Man Huh.

Mert Oğuzülgen and Zeynep Tor UNITED KINGDOM���������������������������������������������������������� 124 Mark Mifsud UNITED STATES����������������������������������������������������������������� 137 John Ayer. Philip Kapp and James Delesclefs BELGIUM����������������������������������������������������������������������������� 179 Stefaan Deckmyn and Wim Vande Velde BRAZIL��������������������������������������������������������������������������������� 193 Álvaro Silas Uliani Martins dos Santos and Felipe Tavares Boechem CANADA������������������������������������������������������������������������������� 205 Brian M Pukier and Sean Vanderpol CHILE����������������������������������������������������������������������������������� 215 Andrés C Mena. Stephanie Tang. Jesse Sheley and David Patrick Eich Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 iv . Jan Viviers and Andrea Minnaar TURKEY�������������������������������������������������������������������������������� 113 Ümit Hergüner. Susan Eisenberg and Raj Marphatia Chapter 10 Chapter 11 Chapter 12 Chapter 13 Part II Chapter 1 investing���������������������������������������������������� 165–418 AUSTRALIA�������������������������������������������������������������������������� 167 James Rozsa. Salvador Valdés and Francisco Guzmán CHINA���������������������������������������������������������������������������������� 226 Pierre-Luc Arsenault.Contents Chapter 9 SINGAPORE��������������������������������������������������������������������������� 90 Low Kah Keong SOUTH AFRICA�������������������������������������������������������������������� 99 Johan Loubser.

Taku Ishizu and Tomokazu Hayashi Korea���������������������������������������������������������������������������������� 306 Young Man Huh. Christy Lim and Dawn Law SPAIN������������������������������������������������������������������������������������ 351 Christian Hoedl and Carlos Daroca SWITZERLAND������������������������������������������������������������������� 362 David Ledermann.Contents Chapter 7 GERMANY���������������������������������������������������������������������������� 246 Hans-Jörg Ziegenhain and Alexander G Rang India����������������������������������������������������������������������������������� 258 Vijay Sambamurthi IRELAND������������������������������������������������������������������������������ 272 David Widger ITALY������������������������������������������������������������������������������������� 287 Fabio Labruna JAPAN������������������������������������������������������������������������������������ 296 Kei Ito. Hae Kyung Sung. Olivier Stahler and Nicolas Béguin TURKEY�������������������������������������������������������������������������������� 375 Ümit Hergüner. Mert Oğuzülgen and Zeynep Tor Chapter 8 Chapter 9 Chapter 10 Chapter 11 Chapter 12 Chapter 13 Chapter 14 Chapter 15 Chapter 16 Chapter 17 Chapter 18 v . Kyle Byoungwook Park and Jaehee Lauren Choi NORWAY������������������������������������������������������������������������������ 315 Peter Hammerich and Markus Heistad Portugal�������������������������������������������������������������������������� 324 Tomás Pessanha and Manuel Liberal Jerónimo SINGAPORE������������������������������������������������������������������������� 338 Andrew Ang.

. 441 vi ...Contents Chapter 19 UNITED KINGDOM���������������������������������������������������������� 386 Stephen Drewitt UNITED STATES����������������������������������������������������������������� 403 Norbert B Knapke II Chapter 20 Appendix 1 Appendix 2 about the authors���������������������������������������������������� 419 Contributing Law Firms’ Contact Details.

there are more than a dozen private equity houses that have offices around the world. Such recognition. and the corollary question. Today. The following chapters help provide a description of these various regulatory regimes. has not led to a universal approach to regulating the industry. In addition to these global players. As these sponsors seek investment opportunities in every region of the world. with investment mandates matching such global capabilities. rather. and whether the world will see uniform opportunities for deals and fundraising in all regions. however. ‘how do I raise private equity money here?’. I appreciate that they have taken time from their practices to prepare these insightful and informative chapters. with opportunities in some regions and none in others. Another recent global development that this review addresses is the different regulatory schemes facing the private equity industry. I wish to thank all of the contributors for their support of this second volume of The Private Equity Review. policymakers have adopted many different schemes for the industry. This worldwide survey reflects private equity’s emerging status as a global industry. Kirk August Radke Kirkland & Ellis LLP New York March 2013 ix . each region has numerous indigenous private equity sponsors. they are turning to practitioners in each of these regions and asking two key commercial questions: ‘how do I get my private equity deals done here?’. rather. It remains to be seen how 2013 will treat private equity sponsors. spanning every region of the world. This review provides many of the answers to these questions. it is a significant part of the financial landscape in developed countries and emerging markets alike. Policymakers around the world have recognised the importance of private equity in today’s financial marketplace.Editor’s Preface This second edition of The Private Equity Review contains the views and observations of leading private equity practitioners in 24 jurisdictions. Private equity is not limited to the United States and western Europe. or rather a series of disjointed stories.

Type of transactions Due to the difficulties the Belgian venture capital sector is currently experiencing. This resulted in far fewer investments by venture capital funds. and both private equity parties and strategic. However. which is affecting the availability of bank financing. buyout activity is still impacted by the uncertain financial and economic climate. although they remained substantially below the 2007 levels. but most deals took place in the mid-market sector. In terms of buyout transactions (and general mergers and acquisitions (‘M&A’) transactions) in Belgium. there has been a sharp decrease in investment activity. Regarding venture capital. activity has been low in 2012. In some sectors. provisional figures indicate that the general trends in the Belgian market were in line with the overall European trends. 179 . their role appears to have been taken over (at least partially) by wealthy individuals (business angels) and university incubators and funds. 2012 has been another extremely difficult year. industrial buyers were involved in transaction. as is the case for overall M&A activity in Belgium.Chapter 2 BELGIUM Stefaan Deckmyn and Wim Vande Velde1 I i OVERVIEW Deal activity General transaction activity in 2012 Although no official figures have been released on Belgian private equity deal activity in 2012. Activities remained at levels comparable to those of 2011. 2012 was comparable to 2011 in the following respects: some high-profile deals took place. 1 Stefaan Deckmyn is a partner and Wim Vande Velde is a counsel at Loyens & Loeff. confirming a trend that had already been seen in previous years. but overall.

now clearly has a leading role among Belgian private equity funds. in view of the state aid that they have received. ING Private Equity and BNP Paribas Fortis Private Equity) continued in 2012 as. A notable transaction in this respect was the 2012 sale by KBC Private Equity of a large part of its portfolio to KeBeK. and the €136 acquisition by IK Investment Partners Limited of Vemedia Pharma. a Hong Kong-based private equity group. in January 2013 Summit Partners sold Ogone. Many of the traditional players on the venture capital market are also encountering difficulties. Belgium saw some high-profile transactions during 2012 (although it should be noted that their value was lower than that of 2011’s high-profile transactions): the €680 million sale of LMS International NV by NPM Capital NV to Siemens AG. With respect to the financing of buyout transactions. to a smaller extent. but also (and increasingly) Dutch and Asian) have been active on the Belgian market. In terms of exits. For example. 2012 confirmed a trend towards financing through the public issue of high-yield bonds (e.1 billion acquisition of Taminco). 180 . to French industrial player Ingenico for €360 million. which are often exits through trade sales.. Most major buyouts are carried out by international private equity houses. This trend appears to be continuing in the first months of 2013. the public bond issue by Apollo Global Management at the start of 2012 to partially finance its €1. which is adopting an increasingly international investment strategy. Listed holding company Ackermans & van Haaren (through Sofinim) also remains an important player. a new fund sponsored by the Switzerland-based alternative investment manager LGT Capital Partners. Private equity players on the Belgian market With respect to the identity of private equity funds. as a result of Belgium’s open economy. which it only acquired in 2010. they are selling off their participations and reducing their private equity activities. Other Belgian investments funds (such as Sofindev and Verlinvest) were also internationally active in 2012. although their investments are smaller. university incubators and funds as well as business angels appear to be becoming more important. overall the 2012 deal volume was average. The difficulties faced by the Belgian capital markets are further illustrated by a number of high-profile delistings of Belgian companies during the course of 2011 and 2012. management buyouts) remain the most frequent exit transactions. Initial public offerings. the €380 million sale by Dexia Holding of its asset management services to GCS Capital. it should be noted that traditionally. on the other hand. have dried up as an exit mechanism in Belgium since 2008. The listed private equity and venture capital provider Gimv NV. The winding down of private equity activities by the largest Belgian banks (such as KBC Private Equity. 2012 confirmed trends revealed during previous years: trade sales and secondary sales (and. As mentioned previously.Investing With respect to buyouts.g. 2013 has already witnessed some notable exits. which in 2012 led to the entry onto the Belgian market of international private equity houses such as LGT Capital Partners and GCS Capital. international private equity houses (UK and US.

a buyout fund) wants to economically incentivise the directors and managers without granting them voting rights in the company.Belgium ii Operation of the market Market standard equity arrangements in Belgium In general. which are intended to motivate the management of the target company by offering them the opportunity to benefit from a future exit by the majority shareholder (buyout funds). either in the operational company itself or in the acquisition vehicle used by the buyout fund. In practice. and thus allow the separation of the ‘legal ownership’ and the ‘economic ownership’ of the securities. whereby managers often have the opportunity to acquire securities at a discount (‘envy factor’). Below is a summary of the securities most often used in this context. and a brief description of the most frequently used shareholders’ agreement and investment agreement clauses applying to directors and managers holding this type of securities. c An alternative to the use of share certificates consists of granting profit certificates to the directors or managers. Different types of securities can be used depending on the importance of the management’s investment or reinvestment in the target company (or in a newco holding shares of the target company). This is often the case in situations where many directors or managers participate in the incentive scheme.) Standard equity arrangements in Belgium: most frequently used techniques and key provisions in shareholders’ agreements The most frequently used methods for rewarding directors and management in LBO companies are equity-based incentive mechanisms (in addition to their normal salary package). A combination of different types of securities is often used to distinguish between first tier management and second tier management. Certification (usually on shares) is therefore sometimes used as an incentive mechanism in situations whereby the majority shareholder (e. The most frequently used type of securities are as follows: a Directors and managers in LBO companies often receive shares. which issues certificates on these securities to the directors and senior employees concerned. (The remuneration granted to fund managers will not be addressed in further detail in this chapter. Profit certificates are equity securities that do not 181 ..g. Share certificates entitle holders to the proceeds generated by the shares (e.g. but it usually consists of a combination of management fees and carried interest (often structured as a preferred dividend). We will focus on the second type of equity incentives. b Sometimes buyout funds prefer granting share certificates over shares. in cases of a sale of the security or in cases of a dividend distribution).. the securities themselves are then held by a special purpose vehicle (usually a STAK). and b the equity-based incentives in a leveraged buyout (‘LBO’) environment. a distinction should be made between: a the equity-based remuneration granted to the managers of a buyout or private equity fund.

Their rights and characteristics can be determined in the articles of association. They usually require less administration than share certificates.g.Investing represent the company’s corporate capital. the most frequently used technique consists of granting them a separate class of shares.g. voluntary resignation. without granting voting rights (other than some limited mandatory voting rights provided for in the Belgian Companies Code). c Clauses determining the rights of the directors and senior employees with respect to the governance of the company (e. good leaver and bad leaver clauses will only be valid to the extent the exercise price is determined in the agreement. illness. Key elements in these good leaver and bad leaver clauses are: the definition of ‘good leaver’ (e.  • the exercise price – in this respect. In such economically uncertain times. right to board representation) and the right to receive part of the dividends and proceeds in the case of an exit event – the technical implementation will depend on the type of securities granted to the directors and senior employees. and the exercise conditions (e. For example. dismissal for cause).. a right of first refusal for the buyout fund. b Good leaver and bad leaver clauses obliging the director or manager to transfer his or her participation in the case of early departure. or is at least determinable (without further negotiation between parties being required) on the basis of the contractual provisions. if they receive shares.g.. they therefore can also allow a separation between the legal and economic ownership. it should be noted that they are usually subject to an upfront tax payment due by the beneficiary at the time the option or warrant is given (which may require the beneficiary to obtain funding for these taxes). of course. In practice. Warrants (entitling holders to subscribe in the future for shares to be newly issued by the company) and options (entitling holders to acquire existing securities from the party providing the option) are also used in LBO companies (often in combination with one of the above-mentioned securities).. This upfront tax is final. this upfront taxation (which cannot be recovered or deducted) undermines the use of these plans as an incentive mechanism.. and drag-along and tag-along rights. the directors or managers) a preferred dividend or a priority right to any liquidation bonus. it should be noted that under Belgian law. For example.. 182 . they can be used as an instrument to grant their holder (e. Indeed. including certain specific rights and obligations. or both. be more favourable for a ‘good leaver’ than for a ‘bad leaver’. and no tax will be due upon exercise of the option or warrant. With respect to stock option plans and warrant plans. in view of this upfront taxation.g.g. The exit conditions will. an obligation to exercise options immediately •  upon leaving the company or the possibility to sell at a later stage). d Typical clauses in shareholders’ agreements applying to directors and managers include the following: a Restrictions on the transferability of securities held by the director or manager – these nearly always include a lock-up clause. the beneficiary risks ultimately losing money (if the options are ‘out of the money’ at the time of exercise). dismissal without cause) and ‘bad •  leaver’ (e.

financing and due diligence requirements. limited (and generally publicly available) information is sent to a fairly large group of parties that the seller (or his or her financial adviser) believes could be interested in the proposed transaction. c On the basis of the indicative offers. operational and legal information) to the selected candidates. or both. ‘ratchet’ (allowing for an increase of the participation of the directors or senior employees in the event that certain results are obtained). a number of candidates will be allowed to conduct a due diligence on the target company. Depending on the nature of the information. During this phase. each candidate will have to submit a non-binding ‘indicative’ offer. the recipients may be requested to sign a ‘light’ confidentiality agreement. 183 . Based on this information. more extensive information will be provided (usually in the form of an information memorandum containing high-level financial. the parties receiving the information will be asked to decide whether they wish to participate in the next phase of the auction process. This group will typically include both private equity funds and industrial investors. In their offer letters. Based on this information. Sometimes the shareholders’ agreement also includes provisions regarding the expectations the buyout fund has with respect to the role of the management in the event of an exit (e. They will only receive such information after having signed a more extensive confidentiality agreement (which. candidates will typically have to include not only their proposed purchase price but also. Sometimes a ‘reverse ratchet’ is also included (leading to a decrease of the participation of directors and senior employees in the event that certain results are not achieved). etc. their valuation method or methods. many important transactions that took place on the Belgian market during the past few years were organised through a private auction process. a draft purchase agreement will usually be provided to the different candidates as well..g. inter alia. management representations). although legal. in some cases. Standard sales process in Belgium Private auction process While exceptions exist. usually led by an investment bank or other financial adviser of the seller. commitment to provide representations and warranties. environmental or commercial vendor due diligence reports are sometimes provided as well. may contain non-solicitation. the following general steps will typically constitute the framework of the auction process: a Initially. While the actual organisation of such private auction will vary on a case-by-case basis. In Belgian practice.Belgium d Clauses relating to protection and further incentivising the directors and senior employees – ‘anti-dilution’. non-compete or similar undertakings). b During the next phase of the auction process. usually on the basis of information gathered by the seller and made available in a virtual data room or vendor due diligence reports. the use of vendor due diligence reports is usually limited to financial and tax due diligence reports. willingness to stay with the company if so requested by the buyer.

However.Investing d Whether (and if so. In some transactions. setting out the framework for future negotiations and possible due diligence. for example. Whether the signing and closing will occur simultaneously varies on a case-by-case basis. In recent transactions. a well-organised private auction process will lead to a transaction process that lasts between two and six months.. In the Belgian context. under Belgian law. the purchase agreement will be signed. quite a few transactions in Belgium are still organised in a less formal way. although this timing may be impacted by regulatory approval requirements. including the offered purchase price. usually including a mark-up of the share purchase agreement. etc. for a period of one or two weeks). Such letter must set out all conditions of the candidate’s offer. The nature and scope of this document will vary on a case-by-case basis. Traditional sale process In exit transactions for private equity funds. Following the submission of all binding offers.g. but the following steps are usually taken before a final purchase agreement is signed: a Letter of intent (memorandum of understanding) – in most transaction negotiations. sellers usually try to avoid (or at least control) any contact between the target’s management and the different candidates. the seller will chose one or more candidates with whom he or she will enter into final negotiations relating to the purchase agreement and other transaction documentation. could thus be considered as a binding sale and purchase agreement. but in highly competitive auctions. information on the financing of the offer (bank undertakings may be requested) and details of the management equity incentive scheme (if applicable). the above-mentioned private auction process has become the ‘standard’ sale process. shares of the target company) and on the price. Following final negotiations.g. a binding sale and purchase agreement will in principle exist as of the moment the parties have reached an agreement on the object of the sale (e. and so further letters of intent are limited to confirming the parties’ intention to continue negotiations. The way such process is run will greatly vary on the basis of the specific circumstances of a transaction. the letter of intent will already provide for the main terms of the transaction. candidates will typically ask for an exclusive negotiation right (e.. conditions precedent are often limited to obtaining regulatory approval. A letter of intent providing. e f g Generally. As a general rule. the valuation method or methods used. for a fixed price for the shares of a target company. under which conditions) management interviews will occur varies on a case-by-case basis. the seller’s position can sometimes be strong enough to refuse exclusivity and to negotiate simultaneously ‘to the finish’ with several candidates. each interested candidate will be asked to submit a ‘binding offer letter’. At the end of the due diligence phase. 184 . a letter of intent should always be carefully drafted as. parties will at some stage sign a letter of intent. In their binding offer letter.

However. the purchaser will normally be required to sign a confidentiality agreement. as the same corporate rules apply regardless of the country where the fund or its sponsor are located. the duration of the process can vary significantly. To the extent that a transaction (either an investment or an exit) would include payments being made to or received from bank accounts in certain ‘tax haven’ jurisdictions. Since the traditional sales process is less strictly organised than a private auction process. While some transactions are negotiated and signed in a matter of weeks. it may be advisable for the fund to set up an acquisition vehicle in Belgium (or another EU country. The degree and organisation of due diligence will depend on the specific circumstances of a transaction (and the extent to which parties and their advisers are familiar with this process). mergers and demergers. since a number of important decisions to be taken by the shareholders’ meeting are subject to a majority of 75 per cent (capital increases or decreases. others tend to take several months of ‘stop and go’ negotiations. buyout funds will sometimes prefer to structure the management’s equity incentives through securities (such as profit certificates). However. the granting of discharge to directors).Belgium b Due diligence – nearly all Belgian transactions include some form of due diligence. allowing a separation between ‘legal ownership’ (including voting rights) and ‘economic ownership’ in order to maximise their control over the portfolio company. II i LEGAL FRAMEWORK Acquisition of control and minority interests A control investment by a private equity fund in a Belgian company will usually require the fund to acquire a simple majority of the shares (at least 50 per cent plus one share) of that company. a fund will typically acquire at least 75 per cent (plus one share) or 80 per cent (plus one share) of the portfolio company. subject to specific provisions in the company’s articles of association. or a country with which Belgium has entered into a tax treaty) to optimise the transaction from a tax perspective. The majority shareholder will. In the framework of the due diligence. but purchasers generally at least carry out a financial and legal due diligence (although sometimes only focusing on very highlevel issues). Whether or not the sponsor of the fund is located in Belgium will not alter the funds’ or sponsor’s rights. in order to obtain true control of the portfolio company. amendments to the articles of association) or 80 per cent (amendment of the company’s corporate purpose or of its legal form. 185 . additional formalities and money-laundering regulations may apply. As mentioned above. acquisition by the company of its own shares). be able to appoint its representatives at the level of the company’s board of directors (the appointment of directors is a simple majority decision of the shareholders’ meeting) and control the majority decisions to be taken by the shareholders’ meeting (such as approval of the annual accounts and of dividend distributions.

which may be relevant to some funds. with a view to its sole individual corporate interest. or both. is the liability of the ‘de facto director’ (or ‘shadow director’). According to this principle. Belgian law provides for a number of circumstances in which the shareholders can be held personally liable for liabilities of the company itself. a trend that is noticeable in recent case law is the imposition on shareholders of an obligation to also take the ‘corporate interest’ into account (be it to a lesser extent than the directors). All of their acts and decisions must be justifiable in view of the company’s corporate interest. this general principle does not prevent shareholders themselves from ‘voluntarily’ (in practice. and the company may not be sacrificed for the benefit of the group or of a third party. However. As such. As a consequence. One example. In this context. A company should be managed independently. if not. In terms of fiduciary duties. It will therefore not be personally liable for the debts and obligations of the company. the company should receive a direct benefit from any transaction carried out with other members of the group. Although much discussion exists regarding the specific content of the ‘corporate interest’. In addition to the ‘corporate interest’ requirement. Further liabilities of the sponsor’s fund with respect to its investment in a portfolio company Provided the portfolio company is a limited liability company. and is only to the benefit of the majority shareholders. the liability of the sponsor’s fund will normally be limited to its capital contribution to the portfolio company (or to the acquisition company set up for the acquisition). a number of specific liabilities may also apply to shareholders who. There should be a balance between the commitments of the various members of the group. The duty to take into account the ‘corporate interest’ predominantly affects the directors of the company. 186 . this transaction could be declared null and void if the beneficiary was aware of such event or should have been aware thereof. upon the request of other contract parties. Of course. the minority can claim that a certain decision taken in the shareholders’ meeting (or by the board of directors) is contrary to the company’s interest. In addition. such as banks) providing guarantees for the obligations of the company. a company can only carry out transactions that serve the company’s best interest. it should be noted that as a general principle of Belgian law. Indeed. Under Belgian law. Belgian law and case law somewhat nuance this general principle.Investing ii Fiduciary duties and liabilities The rights and obligations of a private equity fund as a shareholder or board member of a Belgian portfolio company are the same as those applicable to other shareholders and directors. In addition. in general it can be said that it includes primarily the interests of the company itself. the principle of ‘abuse of majority’ imposes restrictions on the actions taken by shareholders or directors. if a specific transaction is against the corporate interest of a company. such decisions can be declared void. its personnel and its other creditors. who abused their majority. its shareholders. they may be held liable. it is important to note that Belgian company law does not recognise the notion of group interest.

supra. III i YEAR IN REVIEW Recent deal activity As mentioned in Section I. which is often (if not always) invoked in the context of a bankruptcy. Waterland Investment. Whether such abuse exists is a factual appreciation that depends entirely on the specific circumstances of a case. private auctions relating to the sale of Belgian companies were won by international private equity groups. the industrial players ultimately succeeded in acquiring the company (e. In other transactions (such as the sales of Dexia Asset Management and Vemedia Pharma). Belgian case law has furthermore developed a judicial piercing the corporate veil doctrine. profit certificates and warrants (‘equity kickers’). Over the years. Gilde Equity Management. Such abuse has been upheld where there is evidence that the shareholders have continuously disregarded the separate existence and capacity of the company.. in one of the biggest transactions on the Belgian M&A market in 2012). which may be applied in very exceptional circumstances. and d failure to pay VAT. b specific liability towards the Social Security authorities for unpaid social security contributions. as a result of which they can be held liable for the debts and obligations of the company. HIG Capital LLC and Open Gate Capital LLC) were also active in mid-market buyouts. AAC Capital Partners. 187 .Belgium due to their active role in the management of the company.g. Typical structures often involve mezzanine investors. sanctions the abuse of legal personality by shareholders. These mainly relate to: a gross and manifest negligence having contributed to the bankruptcy of a company. c failure to pay corporate tax prepayments. In several of these transactions. 2012 saw a number of high-profile transactions involving not only private equity funds but also strategic industrial players (whether they were backed by private equity houses and acting in the framework of a ‘buy and build strategy’ or not). Non-leveraged acquisitions by private equity investors are uncommon. This doctrine. A notable transaction in this respect was the €38 million acquisition by HIG Capital LLC of the Belgian company AR Metallizing. the acquisition of LMS International (sold by its founder and NPM Capital NV) by Siemens AG. some of which were making their first Belgian acquisition. Both Belgian and international buyout funds (including Sofindev. are considered as being ‘de facto directors’ of the company. preference shares. The sanction consists of denying those shareholders the benefit of limited liability. Instruments often used to attract equity investors include subordinated convertible bond loans. ii Financing Private equity-backed vehicles in Belgium usually obtain financing through a traditional secured term loan facility.

and a contractually agreed-upon procedure whereby disputes are submitted to an independent expert for a binding decision’ and b representations and warranties and disclosure – there has been a trend towards: limited representation and warranties (limited to fundamental issues such as •  title to shares and capacity to transfer the shares) being given by the seller. 188 . or both) adjustments based on closing accounts. and that will result in the new lenders being secured in exactly the same manner as if they had been the original signatories to the loan. Since 2012. the following trends (some of which reflect the strong positions of sellers in competitive auction processes) in share purchase agreements were noticeable in 2012: a purchase price determination – in auction processes. They are usually issued on larger markets. Belgium now has a 5-to-1 debt equity ratio. In view of the above. both in the framework of secondary buyouts and trade sales. and each original lender needs in principle to be a party to the security agreement. Finance documents are usually drafted in accordance with the the Loan Market Association standard. Security can thus only be vested in favour of a creditor. subject to a notion of ‘fair disclosure’ •  to be agreed upon on a case-by-case basis. acceptance of full data room disclosure. Regarding finance structuring. the key issue is establishing a method of transfer of the loan that will not require any formalities or extra costs. it should be noted that the new debt-to-equity ratios introduced by the Belgian legislator in 2012 have had an important impact on the financing of buyout transactions. where protection for the purchaser is limited by leakage provisions and warranties. The public issuance of high-yield bonds used for acquisition financing solely on the Belgian market is not very common. As a result. iii Key terms of recent control transactions While deal terms varied substantially on a case-by-case basis. To the extent price adjustment clauses are accepted. there has been a trend towards limited (net assets or working capital.Investing Large acquisitions are increasingly financed through the issuance of high-yield bonds (often in combination with a traditional secured term loan facility. Regarding post-closing syndication. there has been a trend towards ‘locked box’ pricing.  These trends have also increased the importance of an extensive and thorough due diligence for the purchaser. In Belgium. loans are syndicated either before or after the deal is done. In this respect. which (contrary to previous debt-to-equity ratios) is now applicable to all loans provided to a company by companies related to it. it should be noted that Belgian material law does not recognise the common law concept of a security agent (except for financial instruments and cash). which may raise intercreditor issues). it is largely accepted in Belgium that multiple lenders benefit from a security through a parallel debt structure. The increased use and success of this type of debt financing (influenced by the US example) may have a positive effect on buyout activity in the course of 2013. the purchaser will have to rely on ‘specific indemnities’ covering issues discovered during its due diligence rather than on general representations and warranties.

The most commonly used structure is a public limited liability company directly owning the portfolio investments. b a partnership limited by shares (‘Comm. sellers insist heavily on ‘hell or high water’ clauses. whereby the purchaser undertakes to accept any condition or remedy to which the approval is subject without a termination right or the right to renegotiate part of the transaction. among others. or c a public limited liability company (‘NV/SA’). material adverse change clauses going beyond specific events and covering. are exceptional. nearly all structured as trade sales or secondary buyouts. when the concentration of the control in the hand of the founders or the fund’s managers is an important issue. to which specific requirements or features are added. they are usually structured as: a a silent partnership (‘Comm.VA/SCA’). However. which is a closed-ended vehicle that enjoys a specific tax treatment 189 . This sale was part of the winding down of KBC Private Equity’s activities in the framework of the state aid previously granted to its parent company. To the extent that a regulatory approval is required. and as such are ‘unregulated’. The above vehicles are only subject to the provisions of the Belgian Companies Code. and there has been a trend towards company-specific ‘material adverse change clauses’. Condition precedents relating to financing are exceptional. many private equity houses operate through foreign law entities (often Luxembourg or Dutch entities). Belgian private equity fund Sofinim) of AR Metallizing to HIG Capital LLC. IV i REGULATORY DEVELOPMENTS Fund structures in Belgium In Belgium. the government has set up regulated vehicles specifically aimed at facilitating investment in private companies. as they allow replication of the often-used distinction between ‘general’ and ‘limited’ partners. sponsored by LGT Capital Partners.Belgium c conditionality – there has been a trend towards accepting only limited conditions precedent. such as regulatory approval. d iv Exits As mentioned previously.V/SCS’). In order to further and attract private investment activities in Belgium. A rather atypical but notable 2012 exit transaction was KBC Private Equity’s sale of a substantial part of its portfolio to a new fund. the sale of Accent Jobs for People by Gimv NV to Naxicap Partners. a number of private equity exit transactions took place in 2012. a silent partnership or partnership limited by shares can be valuable alternatives. and the sale (by. KBC Group NV. These ‘regulated’ vehicles are generally derived from any of the three aforementioned forms of companies. general economic events or acts of god. for example. Notable exit transactions include the sale of LMS International NV by NPM Capital NV to Siemens AG. One of these vehicles is the private PRICAF (private close-ended undertaking for collective investment). To the extent private equity houses use Belgian vehicles. Such ‘portfolio sales’ remain exceptional in the Belgian market.

or both. In respect of the management of these unregulated funds. no registration. Belgium must to 190 .000. the investment fund’s managers must be authorised by the Belgian Financial Services Market Authority (‘the FSMA’) before they can start attracting investments in the regulated vehicles (a similar requirement exists for self-managed regulated funds). or no more than 100 institutional or professional investors). This will. In respect of fundraising. Safe harbours are mainly provided for in the Prospectus Directive. fundraising is not subject to scrutiny when it: a is not made public (no general advertisement or promotion). For regulated funds. change following the implementation of Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 (‘the AIFM Directive’) (see below). licence or authorisation of the management vehicle is required. and are only subject to the rules of the Belgian Companies Code. the applicable legislation usually imposes the use of a public limited liability company with a set share capital (which is higher than the minimum provided for in the Belgian Companies Code).000. most players ensure that they do not fall into the ‘public’ field by relying on the easily available safe harbours provided by Belgian legislation (which is based on the EU directives regarding financial markets and financial instruments). In addition. Generally. Due to the burden (although limited) resulting from its regulated status. they do not have to issue a prospectus approved by the FSMA when attracting funds (although the market practice is to circulate to targeted investors an offering memorandum or similar circular. it is not widely used. ii Belgian regulatory environment Most currently existing Belgian funds are ‘unregulated’. b is limited to qualified investors and institutional or professional investors (or is offered to no more than 100 non-qualified investors per EU Member State.Investing akin to a ‘look through’ for the investors. however. As a result. The use of other intermediaries (providing investment advice services or related investment services) to attract public investments is subject to the general applicable Belgian and European financial regulations (which require such intermediaries to be licensed before becoming active on the Belgian market or to provide services on the basis of their European passport). private equity funds can thus be freely marketed and operated in Belgium. and c requires a participation with a nominal value of at least €50. and with the exception of the above-mentioned limited number of regulated funds. the content of which is broadly the same as what would be found in a prospectus). iii Impact of the AIFM Directive and other regulatory initiatives The regulatory regime applicable to Belgian private equity funds will be significantly impacted by the AIFM Directive. Hence. Like the other Member States. or a consideration payable per investor of at least €50. No specific approvals or other requirements are therefore required for exit transactions carried out by private equity funds as compared to other parties (such as industrial buyers).

the use of high-yield bonds (either publicly issued or placed with institutional investors through private placements) as a means to partially finance acquisitions is likely to continue and may become even more important. A strong revival of venture capital in 2013 appears unlikely. information regarding investment strategies. c with respect to financing. Based on the general principles of the AIFM Directive. b new rules on disclosure of information relating to strategy. the impact of such rules on Belgian private equity funds should be very limited. During the course of 2012. the identity of shareholders with qualifying amounts (10 per cent). developments in the Belgian private equity market in 2013 are hard to predict. Furthermore..g. leveraging. it is however clear that there will be important changes for Belgian private equity funds.g. The AIFM Directive also provides for rules on asset stripping. V OUTLOOK In view of the uncertain economic and financial climate. financing. leverage policy. the following trends may be expected: a with respect to venture capital. b since Belgium is a country with a high number of small and medium-sized (often family owned) companies. risk profiles). smaller buyout funds are likely to become more active in this market segment. whereby information will have to be provided regarding both the manager (e. and 191 . a European Venture Capital Funds Regulation has been prepared and is expected to be approved in February 2013. information on remuneration policies (e. Based on the current situation. This may lead to an increase in smaller management buyout transactions with deal values not exceeding €10 million. In December 2012. However. and c notification obligations for certain transactions.. as similar (if not more stringent) rules already exist in Belgium as a result of the extensive implementation by Belgium of previous EU directives on capital protection. it may have a positive impact on buyout activity. etc. also taking into account the succession problems arising in many of these companies (causing current owners to sell their company).Belgium implement the AIFM Directive by 22 July 2013. including: a mandatory registration with the FSMA for managers of funds managing or marketing private equity funds (subject to de minimis thresholds). The exact changes to the regulatory regime can thus not yet be determined (especially taking into account that the AIFM Directive expressly allows Member States to impose stricter requirements and rules than those included in the AIFM Directive).g. the European Commission adopted a Delegated Regulation supplementing the AIFM Directive. If this trends continues. At the time of writing. incentives. however. risk versus control)) and the fund (e.. the role of business angels and university funds and incubators may well become more important given the difficulties with which many of the traditional venture capital funds are currently facing.. further regulatory initiatives were taken at the level of the EU. no implementing legislation has been approved by the Belgian Parliament.

will lead to several changes in the Belgian regulatory environment. the private equity sector is awaiting the Belgian implementation measures of the AIFM Directive. their impact on Belgian private equity funds cannot yet be assessed. The same is true for other.Investing d on the regulatory level. as mentioned above. 192 . supra). which. more recent regulatory initiatives taken at EU level (see Section IV. Since these measures are as not yet unknown.

He has extensive experience in national and international M&A transactions. investments funds as well as national and international corporations. He has considerable experience in corporate transactions (for both listed and nonlisted companies) as well as in general corporate (restructuring) matters. He also advises on general corporate law matters and deals with corporate restructurings and reorganisations. and private equity and venture capital investments. Wim Vande Velde Loyens & Loeff Wim Vande Velde is a counsel in Loyens & Loeff’s corporate and M&A practice group in Brussels. private equity and buyout funds. and has written various articles on these subjects and on corporate governance matters. He is a member of the Brussels bar. Wim has acted as a speaker at conferences on corporate and M&A topics. He is member of the International Bar Association and the International Association of Young Lawyers. 419 . the International Bar Association and the International Association of Young Lawyers. He serves on the board of Voka Comité Brussels (the Flemish employers’ organisation in Brussels). His clients include buyout funds. which are active in a wide variety of economic sectors. include listed and nonlisted corporations and companies. He is also a member of the private equity team. He has particular experience in the private equity sector. His clients. corporate finance.Appendix 1 about the authors Stefaan Deckmyn Loyens & Loeff Stefaan Deckmyn is a partner in Loyens & Loeff’s corporate and M&A practice group in Brussels. Stefaan is a frequent speaker on corporate law topics at various conferences and seminars and is a member of the Brussels Bar. joint ventures.

About the Authors Loyens & Loeff Neerveldstraat 101–103 1200 Brussels Belgium Tel: +32 2 743 43 43 Fax: +32 2 772 69 55 420 www.

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