Co-investment schemes, such as Luxembourg special purpose vehicles, must specify the way that any sale proceeds are distributed, in order to minimize tax liabilities and legal risks. Majority shareholders usually also want to ensure that minority shareholders commit to selling their shares or the vehicle’s underlying assets at the same time. This is typically done via drag-along rights or exit clauses in the shareholders’ agreements, and these need to be carefully worded to ensure minority investors honor these obligations.

“The uncertainty about the possibility of obtaining specific performance under drag-along clauses is even greater in the context of exit clauses relating to the sale of the company’s assets,” says Pawel Hermeliński, corporate partner in Dentons’ Luxembourg office.

For the sale process itself, one question you need to address at the beginning of an auction is whether to undertake vendor due diligence (VDD). This can help identify problems early on and is a necessity if you want to take out warranty insurance.

“In my view, financial VDD is invariably prepared in an auction sale, and legal and financial VDD are almost always prepared if PE is among the bidders,” says Rob Irving, co-chair of Dentons’ global Private Equity group.

Another key decision is over the purchase price structure: whether to price the company at the date of the last accounts or at completion. “These days, most private equity sellers in an auction situation opt for a ‘locked box’, which means the buyer determines its price as of the date of the last reliable accounts of the target, and assume economic benefit and economic risk from that date,” adds Irving.

If there is likely to be a lengthy period between signing and completion because of regulatory clearances, a completion accounts mechanism may, however, allay the seller’s concern that it could leave substantial cash on the table and the buyer’s concern that there could be a substantial negative trend in cash and/or accounts receivable.

“Whether you price the company at the date of the last accounts or at completion can have significant tax implications depending on what this means as regards the moment on which the economic risk is shifted towards the buyer,” warns Frédéric Feyten, Luxembourg Managing Partner and Head of Tax.

Another way to reassure buyers traditionally was for sellers to bear liability for any breach of their representations and warranties, but the spread of warranty and indemnity insurance is now changing this. “The norm these days is definitely to cover reps and warranties with insurance policies,” says Gérard Maîtrejean, head of the Luxembourg Corporate, Mergers and Acquisitions and Private Equity practice groups. “We still occasionally see full reps and warranties from sellers, but a lot less frequently.”

Also participating in the forum were Darren Acres from Dentons’ London office and Andreea Antonescu and Sophie Arvieux (moderator) of Dentons Luxembourg, as well as William Burnand of Triton Partners and Nicholas Lunn of Willis Towers Watson.