SPA Series: How to Negotiate M&A Deals in Finland?

We'll kick off with this posting a new blog series on M&A and how to negotiate M&A deals in practice. This one will be done in collaboration with my good old friend and Oxonian colleague Mika J. Lehtimäki. What we aim to achieve is to provide an overview of all the terms of a typical share purchase agreement, the typical negotiation points and illustrate also some common compromises and tactics. So this is the outlook what is about to follow (our target is to post new material bi-weekly):

1.         PARTIES, DEFINITIONS AND INTERPRETATION
2.         SALE AND PURCHASE OF SHARES
3.         PURCHASE PRICE, EARN-OUTS AND ADJUSTMENTS
4.         COMPLETION        
5.         BUYER'S WARRANTIES
6.         SELLER'S WARRANTIES
7.         LIMITATIONS OF LIABILITY
8.         POST-COMPLETION OBLIGATIONS
9.         CONFIDENTIAL INFORMATION
10.       ASSIGNMENT PROHIBITED
11.       GUARANTEES
12.       CO-OPERATION AND COMPETITION
13.       THIRD PARTY CLAIMS
14.       VARIATION
15.       WAIVER
16.       CUMULATIVE REMEDIES
17.       COUNTERPARTS
18.       EFFECT OF COMPLETION
19.       ENTIRE AGREEMENT
20.       INVALIDITY
21.       THIRD PARTY RIGHTS      
22.       GOVERNING LAW AND DISPUTES
25.       DISCLOSURE LETTER AND SOME WORDS ON OTHER SCHEDULES
26.       SOME ADVICE ON "BOILERPLATE CLAUSES"

Some sections will be divided in subsections as it may be too difficult to fit all information on warranties, for example, to a reasonable size of one blog. Another theme that is divided to several smaller subsections will be purchase price, which is naturally needed to go through different variations from locked-box to earn-outs.

We decided to start the blog to share experiences of seasoned M&A lawyers. Both me, being very active in technology, outsourcing and intellectual property deals and Mika J. Lehtimäki, who is a very well-known figure in banking & finance, have led several domestic and cross-border transactions and during our careers we have learned most tricks and intricacies from practice. There has not been a single book or guide which could assist a young lawyer in his or her journey to the wonderful world of M&A which is an issue we wanted to fix. It is not so long ago (most likely 2001) I was doing my first seed investment to a small technology-based company and I went to the chamber of my tutor just to ask what an earth is a disclosure letter and how should I “qualify warranties”.  The small but invaluable piece of advise I received then was still valid last year when I was leading a large financing round relating to a contemplated green technology or should I say cleantech production facility, or representing a Finnish company in the divestment of their operations abroad. As for Mika, he still remembers his first M&A deal in 1999 negotiating against one of the grand-old-men of Finnish corporate law. Although not a pleasant lesson, something that put him first in the deep end of the world of M&A tactics and trickery.

We will focus in our posts also on the negotiation process as it is one of the most critical issues in any M&A deal. It is young lawyer’s typical problem that one too easily sabotages the deal while experienced negotiator may come up with excellent workarounds that still lead to win-win deal for both parties.

Main target audience of this blog series is those already having experience on M&A and perhaps have participated negotiations already. Legal education is not necessary so we also think that our thoughts could be useful for financial advisors, CFOs and management in general involved in these kinds of cases.

Finally before we start it is important to note that contract language used in this blog is mainly intended to illustrate the point in question so we have not tried to formulate bullet-proof language in that respect. It should be noted that precise drafting is one of the most important issues in particular in cross-border deals where contractual interpretation is not necessarily based on “intention of the parties”.

Any questions and comments are warmly welcome and if you wish to submit particular comments to any specific topic or you have been wondering some point raised in a previous case, let us know and hopefully we are able to provide guidance on those as well.

Should I Use HoldCo or Directly Own my Joint Venture?

I was presented this question some time ago, i.e., when it is beneficial for the owner to use a holding company "as a middle company" in joint venture context. Just to illustrate this idea I drafted a slide on both of these structures in connection with one of my forthcoming M&A lectures and I thought that I could share this with you as well.

Those "circles" on top illustrate owners and their share ownership in the company participating in the JV. Then the key issue is whether the JV partners directly own the target or whether there is a holding company in the middle which then owns the target. Taxation is naturally one crucial driver behind these corporate structures including debt push-down considerations and similar, but from the corporate governance point of view what the main questions for a lawyer or CFO responsible for the planning of this new venture would be?

• As a starting point, one should take into account what is the relevant jurisdiction and what is the maturity of its company and contract law regime?
• How can you generally enforce the agreements, e.g., can you use specific performance?
• Is it possible to limit directors' liability?
• Is 100% foreign ownership even possible under the applicable law?
• Have you considered investment control regulations, authorizations and permits?
• Finally, can a company operating in a target's jurisdiction own foreign HoldCo?

While joint ventures are somewhat more popular nowadays, e.g., as in many cases one needs local partnerships not only to meet local legal requirements but perhaps to establish the very business case in the target's jurisdiction or to secure funding. At the same time, these structures are also becoming much more complex in many fields, e.g., due to convergence. This is also very much true in IP-rich joint venture exercises where after the deal is done the licensing matrix is typically a map full of different arrows from one direction to another with an aim to ensure for all parties their own space or freedom to operate if you want to call it that, and at the same time, providing a commercially rational scope for the JV itself. While IP rights are not the core consideration in many JV exercises, it should also be noted that if there are disagreements between the owners or one of the parties wishes to create an exit, then the discussion often turns to ownership of intellectual assets and their valuation (of which the parties may at that point have very different views).

Hopefully this helps in your JV efforts and until next time!