At a glance: M&A structures and regulation in Spain

Structure and process, legal regulation and consents

How are acquisitions and disposals of privately owned companies, businesses or assets structured in your jurisdiction? What might a typical transaction process involve and how long does it usually take?

Acquisitions and disposals of privately owned companies, businesses or assets are usually structured either as:

• a share deal: acquiring a company that has assets instead of just the assets (ie, acquiring the box with everything in it and not just the contents of the box); or
• an asset deal: acquiring assets (and liabilities) instead of a company that has assets (ie, acquiring the contents of the box but not the box itself).

The most recent practice shows that share deals continue to be more common than asset deals since they are usually less complex to implement than asset deals, among other reasons; however, the choice of one or the other must be thoroughly analysed on a case-by-case basis (eg, asset deals may be of special interest in specific scenarios, such as when the buyer has a choice of assets to acquire (ie, cherry-picking)).

The private M&A process and its duration depends on many factors and on how complex it is (number of parties and jurisdictions involved, size of the deal, whether the transaction is subject to administrative authorisations, etc) and on whether it is an auction process with different bidders or a proprietary deal. The process is usually less prolonged in comparison with past practice, but most processes still extend beyond six months.

Larger transactions are usually structured through an auction process with the aim of generating competitive tension between the potential bidders to obtain the best price. An auction process is normally divided into two or three phases.

During the first phase, potential buyers receive an information memorandum and are required to submit an indicative non-binding offer. In the second phase, a shortlist of potential buyers that have been selected by the seller are given access to a data room and other due diligence information (which may include a vendor’s due diligence report) and are allowed to conduct due diligence over the target business. In addition, bidders are asked to submit a binding offer. After the submission, there may be a third phase during which the seller and the potential buyer enter into bilateral negotiations, which may be exclusive.

The different stages of proprietary deals in Spain are similar to those applicable in most European jurisdictions. The initial steps of the transaction include the submission of an indicative offer and the execution of a letter of intent or a memorandum of understanding. Afterwards, it is common to have a due diligence phase, and the parties may also enter into an exclusivity agreement for a minimum period of negotiation (which may range between one and three months), which, if successful, will lead to the signature of the purchase agreement. Proprietary deals may still result in multiple bidders.

In addition to the above, acquisitions and disposals of privately owned companies, businesses or assets can also be implemented by means of corporate transactions falling within the scope of Law 3/2009 (eg, mergers and spin-offs) or other alternatives permitted under Spanish law (eg, share capital increases). Those mechanisms will not be analysed in this chapter.

Which laws regulate private acquisitions and disposals in your jurisdiction? Must the acquisition of shares in a company, a business or assets be governed by local law?

The Civil Code and the Commercial Code set forth certain provisions applicable to the sale and purchase of assets, including shares, and addressing the rights and remedies of the parties in respect thereof; however, this legal regime is usually altered by the parties, and they generally negotiate a specific and bespoke regime in the purchase agreement that supersedes (totally or partially) the provisions applicable under those laws.

This contractual freedom also comprises the ability of the parties to agree on the governing law, provided that it is not contrary to any mandatory Spanish legal provisions and that there is still compliance with the applicable Spanish legal formalities. In this regard, the purchase agreement may be subject to a foreign (ie, non-Spanish) law, although the usual practice is that Spanish law applies to the purchase agreement because submission to a foreign law may be difficult to implement in practice, among other reasons.

What legal title to shares in a company, a business or assets does a buyer acquire? Is this legal title prescribed by law or can the level of assurance be negotiated by a buyer? Does legal title to shares in a company, a business or assets transfer automatically by operation of law? Is there a difference between legal and beneficial title?

The acquisition of legal title to shares in a Spanish company implies the acquisition of the ownership over the shares together with all the rights attached to them (rights to dispose of the shares, information, voting and economic rights as shareholder, etc). Similarly, the acquisition of legal title to assets means that the buyer acquires ownership over the relevant asset and is entitled to exercise the rights attached to it (eg, the right to dispose of the asset or to encumber it). In both cases, the seller must transfer ownership and deliver the shares or assets to the buyer, who, in turn, will acquire and receive the shares or assets from the seller.

The Civil Code lays down certain provisions protecting the legal and uncontested possession of the shares or assets by the buyer, as well as protecting the buyer in the event of dispossession of title or the existence of hidden defects; however, the provisions prescribed by law are usually deemed insufficient under standard market practice, and the buyer normally seeks a reinforced level of protection and negotiates it with the seller (usually requesting the seller to provide specific representations and warranties in this regard). From the buyer’s perspective, it is important to ensure that it will become the sole legal owner of the relevant shares or assets, with good and full title and free of encumbrances.

The legal title over shares will be transferred upon executing a valid agreement transferring share ownership, provided that the share transfer formalities established under Spanish law are fulfilled: the transfer of shares in a private liability company must be formalised in a public deed before a public notary. This is also the case for the transfer of bearer shares in limited liability companies or shares in limited liability companies that have not been issued physically.

As for other types of assets, transferring full legal title to them may be subject to further requirements. For example, the transfer of the ownership over real estate assets and intellectual property must be formalised in a public deed that must be subsequently registered with the applicable public registry to be effective against third parties.

Beneficial and legal ownership are not distinct under Spanish law, but the owner of a share or other asset may transfer some interest to third parties to benefit from them (eg, assigning any voting or economic rights thereto).

Specifically in relation to the acquisition or disposal of shares in a company, where there are multiple sellers, must everyone agree to sell for the buyer to acquire all shares? If not, how can minority sellers that refuse to sell be squeezed out or dragged along by a buyer?

In the absence of any contractual regulations or specific provisions in the company’s articles of association, it will be necessary that all sellers agree to sell for the buyer to acquire the entire share capital (ie, 100 per cent) of a company; otherwise, drag-along or equivalent provisions must be activated, to the extent available, to force the non-selling parties to transfer their shares in favour of the buyer. Mechanisms that can facilitate the transfer of all shares to the buyer (eg, drag-along clauses and call options) are usually agreed under shareholders’ agreements and, to the extent possible, the company’s articles of association.

Spanish law provides for the squeeze-out of minority shareholders only for publicly listed companies; therefore, it is not legally available for private M&A deals. In the case of publicly listed companies, the squeeze-out of minority shareholders is available if, as a consequence of a tender offer over all the securities of the public company, the offeror owns 90 per cent or more of the target company’s voting rights, and the offer is accepted by 90 per cent or more of its addressees.

Specifically in relation to the acquisition or disposal of a business, are there any assets or liabilities that cannot be excluded from the transaction by agreement between the parties? Are there any consents commonly required to be obtained or notifications to be made in order to effect the transfer of assets or liabilities in a business transfer?

The general rule for an asset deal is that the assets and liabilities to be transferred are those identified in the asset purchase agreement. This principle offers the advantage of allowing the parties to choose – and, accordingly, to exclude – the assets and liabilities subject to the transaction.

However, by application of specific sectorial regulations, the buyer will assume the tax, labour and social security and environmental liabilities associated with the business acquired, regardless of whether those are specified in the asset purchase agreement. The seller will not be released from the liabilities that may arise in connection with tax, labour and social security and environmental contingencies; rather, both the seller and the buyer will remain jointly and severally liable with the seller for the applicable statutory limitation period.

The buyer of a business will be deemed as the successor of the business and, hence, will be jointly and severally liable with the seller for any tax liabilities (including penalties) linked to the business that accrued prior to the date of the transaction. This liability does not apply to buyers of isolated elements unless those acquisitions allow the buyer to continue the same business activity.

Prior to the completion of the transaction, the buyer is entitled to request, with the seller’s prior consent, a certificate of the tax debts, penalties and liabilities related to the business from the Spanish tax authorities with the aim of ring-fencing this risk. This certificate purports to limit the buyer’s joint tax liability with the seller to the amount of the tax debts, penalties and liabilities set out in the certificate. If the Spanish tax authorities do not issue the tax certificate within the three months following its request, the buyer will not be deemed jointly and severally liable with the seller for any tax liability linked to the business.

When a change of control of a business, workplace or autonomous production unit takes place – and provided that the business, workplace or autonomous production constitutes a business unit for employment law purposes – the buyer will subrogate to the contractual position of the seller in respect of the employees, including labour and social security rights and obligations (salaries, pension plans, length of services, etc). The buyer and the seller will be jointly and severally liable for a period of three years for those labour contingencies arising in connection with the acquired business that were outstanding before the completion of the transaction.

The buyer may also have subsidiary liability in respect of the seller for the legal environmental liabilities laid down under the Environmental Law 26/2007 (expressly provided for in article 13(2)(c)).

In asset deals, the general rule is that the consent of third parties is required for the transfer of certain types of assets. For example, the assignment of contacts is subject to the counterparty’s consent, and the transfer of debt is also subject to the relevant creditor’s prior consent.

Likewise, authorisations, licences and permits are generally assignable, but specific communications or prior authorisations may be required for assignment.

Owing to those circumstances, the implementation of an asset deal is often more cumbersome than a share deal, which is normally more straightforward.

Are there any legal, regulatory or governmental restrictions on the transfer of shares in a company, a business or assets in your jurisdiction? Do transactions in particular industries require consent from specific regulators or a governmental body? Are transactions commonly subject to any public or national interest considerations?

Pre-emptive rights for transfers of shares in private liability companies are the most common legal restrictions on transfers of shares. Transferring shares in limited liability companies is not restricted by law, although the company’s articles of association may establish transfer limitations that must be observed.

In respect of foreign investments, the government has amended the screening mechanism for certain foreign direct investments (FDIs). FDIs that are subject to the screening mechanism are not forbidden but require prior administrative authorisation from the Council of Ministers. As a general rule, the legal term for issuing a decision is six months, although, as an exception, there is a fast-track 30-day procedure for investments below €5 million.

FDIs that are subject to the screening mechanism include investments that may result in a foreign investor (ie, non-EU and non-EFTA residents, as well as EU or EFTA residents of which the beneficial owner is a non-EU and non-EFTA resident) reaching a stake of 10 per cent or more of the share capital of a Spanish company or if the foreign investor otherwise acquires control over the Spanish company (for these purposes, ‘control’ is deemed in accordance with merger control criteria). The transaction value of the Spanish part of the transaction must be above €1 million.

An FDI will be subject to the Spanish screening mechanism if the investment is carried out in one of the critical sectors set out in article 7-bis(2) of Law 19/2003 or by foreign investors that meet certain subjective criteria (eg, investors controlled by a non-EU or non-EFTA government) independently of the sector in which the foreign investment is made.

Likewise, non-Spanish EU or EFTA residents will also be considered foreign investors if they invest in Spanish publicly listed companies or in Spanish private companies (provided that the value of the investment exceeds €500 million) and the investment is carried out in one of the critical sectors foreseen in article 7-bis(2) of Law 19/2003.

Transactions in some Spanish regulated sectors (eg, banking, finance and insurance) may be subject to the prior approval of specific regulators or government bodies (eg, the Bank of Spain, the National Securities Market Commission or the General Insurance and Pension Funds Directorate).

Transactions in the Spanish market may also be subject to merger control clearance pursuant to the EU Merger Regulation (and hence subject to the clearance of the European Commission) or Spanish competition law (and hence subject to the clearance of the National Markets and Competition Commission (CNMC)). If a transaction is subject to clearance by the European Commission, no additional clearance will be required from the Spanish competition authority.

Under Spanish competition law, the following transactions require authorisation from the CNMC:

• transactions that will result in the acquisition or increase of over a 30 per cent market share of the combined business in any relevant market in Spain (except where the target’s turnover in Spain in the previous year does not exceeded €10 million, and none of the parties involved has a market share, jointly or individually, of 50 per cent or more in any of the affected markets); and
• transactions where the joint turnover of the parties involved generated in Spain during the preceding year exceeds €240 million, provided that at least two of the parties each had a turnover of €60 million in Spain in the preceding year.

Are any other third-party consents commonly required?

The general shareholders’ meetings of Spanish companies must authorise the acquisition, transfer or contribution of essential assets from or to another company. Assets are deemed to be essential when the amount of the transaction exceeds 25 per cent of the value of the assets recorded in the last approved balance sheet.

To the extent applicable, the market practice in this regard is that the general shareholders’ meeting approves the relevant corporate transaction before its completion. If the relevant transaction is completed before a public notary, the public notary will usually request proof of the approval by the general shareholders’ meeting.

Additional consents from third parties may be required depending on each transaction in both share deals and asset deals. For example, if a share deal triggers eventual change of control clauses, the parties may agree to request the applicable waiver or consent from the relevant counterparties.

Likewise, an asset deal requires third party consents to be obtained depending on the type of asse. For example, if an asset is subject to any pre-emptive rights in favour of a third party, the prior consent of the third party should be obtained before the transfer.

Must regulatory filings be made or registration (or other official) fees paid to acquire shares in a company, a business or assets in your jurisdiction?

Transactions in some Spanish-regulated sectors (eg, banking, finance or insurance) may be subject to the prior approval of specific regulators or government bodies (eg, the Bank of Spain, the National Securities Market Commission or the General Insurance and Pension Funds Directorate). To this end, regulatory filings must be made.

In addition, a transaction may be subject to the merger control clearance or the Spanish screening mechanism for FDIs.