In brief: Private equity transaction formalities, rules and practical considerations in Ireland

Transaction formalities, rules and practical considerations

What different types of private equity transactions occur in your jurisdiction? What structures are commonly used in private equity investments and acquisitions?

The majority of private equity transactions in the Irish market take the form of leveraged buy-outs, with private equity investors seeking to acquire majority stakes in Irish companies. The Irish private equity market has also seen a growing number of bolt-on acquisitions and growth capital transactions in recent years in addition to some partial exits by private equity investors. While continuation funds have become a prominent feature of the global secondary market, we have yet to see any widespread implementation of such structures in the Irish private equity market. Continuation vehicles may play a growing role for longer runway assets in 2026 should traditional exit routes prove challenging.

Most private equity transactions are governed by a sale and purchase agreement pursuant to which the buyer acquires the target group. The buyer is typically a newly incorporated special purpose vehicle established by the private equity fund to contract with the seller. Typically, we see a ‘stack’ of acquisition vehicles sit behind the buyer through which equity and debt financing is funded and ‘flows’ into the buyer.

Management sellers are often required to re-invest or 'roll over' a percentage of their proceeds of the sale into the new equity structure on the same or similar terms to the private equity investor, with an additional pool of management incentive shares or 'sweet equity' reserved for issuance to key management.

What are the implications of corporate governance rules for private equity transactions? Are there any advantages to going private in leveraged buyout or similar transactions? What are the effects of corporate governance rules on companies that, following a private equity transaction, remain or later become public companies?

The corporate governance requirements applicable to a private company are generally less onerous than those applicable to publicly listed companies. Governance requirements for private companies are generally dealt with in the constitutional documents (and in some cases a shareholders’ agreement) of the relevant company and the primary legislation applicable to such companies in Ireland is the Companies Act 2014 (as amended). Most decisions of a private company limited by shares are within the power of the board of directors of the company, who act collectively and who owe fiduciary duties to the company. However, shareholders can only be compelled to sell their shares in limited circumstances, described in more detail below, and must be asked to approve any variation of the rights attaching to their shares.

A small number of private equity-funded 'take private' deals have taken place in the Irish market in recent years, with the advantage of less onerous corporate governance rules. There are specific rules that must be followed by a company in the course of a takeover, which are set out in the Irish Takeover Rules and elsewhere, including common law.

Public companies in Ireland may be subject to more stringent corporate governance rules relating to, inter alia, disclosure requirements, board composition and establishment of audit committees.

What are some of the issues facing boards of directors of public companies considering entering into a going-private or other private equity transaction? What procedural safeguards, if any, may boards of directors of public companies use when considering such a transaction? What is the role of a special committee in such a transaction where senior management, members of the board or significant shareholders are participating or have an interest in the transaction?

Public company issues have been relevant to only a small number of transactions in the Irish market, when boards of directors of Irish public companies are considering entering into a 'take private' transaction or another private equity deal. In such instances, they must overcome a number of key issues and challenges. These challenges can take the form of governance, legal, financial, and shareholder-related considerations.

All directors of Irish companies are subject to statutory duties under the Companies Act 2014, including the duty to act in what they consider to be the best interests of the company and to have regard to the interests of its shareholders as a whole. This duty is owed to the company (as opposed to the shareholders). Directors of public companies must also comply with the Irish Takeover Rules, which sets out a number of disclosure, procedural and approval requirements.

One issue that is likely to arise is potential conflicts of interest if senior management have a personal financial interest in the transaction. For example, if management is also involved in the private equity buyout, it could lead to conflicts between their duty to the company and their personal interests. Under Irish law, a director of the target will generally be seen as having a conflict of interest if they are to continue in his or her role in either the bidder or target following the acquisition. In any case, a conflict would likely arise between the duties a director owes to the target and those owed to the bidder, or would arise if a director was appointed as a representative by a target shareholder that makes an offer for the target or wants to roll over into the bidder structure. Details of any conflicts of interest must be disclosed by the relevant director to the board of the target.

As well as seeking independent legal advice to ensure compliance with Irish company law, securities regulations, and the Irish Takeover Rules, the board should appoint independent financial advisers, as well as a special committee of impartial directors to review and negotiate the terms of the deal considering the interests of all shareholders, including any minority shareholders.

Are there heightened disclosure issues in connection with going-private transactions or other private equity transactions?

There are rules regarding confidentiality in respect of any going-private offer in addition to the timing of and responsibility for any announcement of a going-private transaction.

Disclosure issues in connection with private equity transactions involving private entities are typically similar to non-private equity transactions and less onerous than 'take private' deals.

Several events trigger mandatory filing requirements with the Companies Registration Office or other public bodies, such as an issuance of shares, change of directors, adopting a new constitution. This is a publicly available record.

Transactions must be disclosed to the Competition and Consumer Protection Commission (CCPC) in circumstances where the parties to the transaction meet certain thresholds. Details of any notifications of proposed mergers or acquisitions to the CCPC are made publicly available online.

The commenced Screening of Third Country Transactions Act 2023 (Third Country Transactions Act) established a foreign direct investment (FDI) screening regime in Ireland and enables government bodies to review certain transactions involving foreign investors for potential risks to the security or public order of the State. If a private equity transaction meets certain criteria, then the transaction must be disclosed to, and approved by, the Department of Tourism and Employment (the Department) before completion can occur.

In addition, the European Union (Alternative Investment Fund Managers) Regulations 2013, as amended, set out disclosure measures in respect of alternative investment fund managers managing alternative investment funds which acquire interests in companies or issuers having their registered office inside the EU.

What are the timing considerations for negotiating and completing a going-private or other private equity transaction?

For going-private transactions, acquisition timelines are dictated by restrictions prohibiting a person from acquiring certain portions of voting rights within specific timelines.

The target board is prohibited from taking certain actions (except pursuant to an existing contract) without shareholder or Panel consent, or both, in the course of an offer, or if the target board has reason to believe that a bona fide offer may be imminent. Following the identity of the bidder being made public, the Irish Takeover Rules apply a mandatory 42-day period within which the bidder must either announce a firm intention to make an offer or announce that it does not intend to do so (a ‘put-up or shut-up’ direction).

Target shareholders must be given sufficient time and information to reach a properly informed decision on an offer, so the timing of communications with shareholders should be carefully considered. There are also restrictions on the timing of the seeking of irrevocable commitments from the directors of the target company, so these should be considered if the bidder wishes to obtain such commitments.

There are several additional timing issues to be taken into account with take-privates, depending on the complexity of the deal, regulatory hurdles, and shareholder approval processes.

In contrast, the acquisition and sale of private limited companies in Ireland is not regulated in general (although certain sectoral regulatory requirements may apply), so there is more flexibility around the timing and conduct of the process, subject to any mandatory merger control, FDI clearance or other conditions that may be required to be fulfilled prior to completion.

If a transaction is notifiable to the CCPC, under merger control regulations, and does not raise any anti-competitive issues, then the CCPC will issue a clearance notice within 30 working days (Phase I). This period can be reset if the CCPC sends a formal request for information (RFI) during Phase I, the 30 working day period starting once the RFI is fully responded to. This period can be extended to 45 working days where commitments are submitted to address any competition concerns identified by the CCPC.

If the CCPC is not in a position to determine whether or not the transaction would result in a substantial lessening of competition in the relevant market during Phase I, then a further time period of 120 working days will be allotted to it to conclude its investigation (Phase II). Phase II again may be extended where the parties submit commitments (to 135 working days) or by a formal RFI, which suspends the time period until fully responded to.

In terms of FDI clearance, the Third Country Transactions Act imposes a 90-calendar-day period, from the date the Department issues a Screening Notice, within which clearance must be granted. This period is extendable to 135 days in more complex cases.

What rights do shareholders of a target have to dissent or object to a going-private transaction? How do acquirers address the risks associated with shareholder dissent?

The ability of a shareholder to block a going-private transaction will depend on the size of its shareholding. If an entity is listed on a regulated market in the EEA and the terms of an offer to acquire more than 50 per cent of its shares have been accepted by the holders of not less than 90 per cent of the voting rights, the bidder may 'squeeze out' the remaining shareholders. Dissenting shareholders have the right to apply to the High Court of Ireland for relief to challenge the fairness of the price offered.

A scheme of arrangement requires the approval of shareholders of each class, representing not less than 75 per cent of the shares of each class together with the sanction of the High Court of Ireland. Dissenting shareholders can apply to the High Court to challenge the terms of the scheme. However, the court is unlikely to decline to sanction the scheme unless it forms the view that the shareholders who voted on the scheme did not fairly represent all the holders of the shares that are subject to the scheme.

The due diligence carried out by a bidder on the target to assess the fairness of the offer price can help to avoid dissent from minority shareholders. In most cases the bidder will also approach the board of the target before announcing its offer, and the board of the target will then recommend its shareholders to accept the offer. This early engagement and communications with shareholders to explain the rationale of the transaction can allow for shareholder concerns to be addressed at an early stage, which is important particularly if the dissenters could pose a risk to achieving the necessary threshold for completion.

What notable purchase agreement provisions are specific to private equity transactions?

The key agreements in a private equity transaction are typically similar to those used in other share acquisition transactions.

Private equity acquirers seek customary business warranties from sellers. However, on secondary buyouts, selling private equity funds are reluctant to provide operational business warranties and typically will only provide title and capacity warranties. Often, the management team is required to provide business warranties as they have better knowledge of day-to-day running of the business.

We have seen increased reliance on warranty and indemnity insurance policies (W&I policies) in the Irish market in recent years and such policies are now commonplace in private equity transactions. W&I policies typically bridge the gap between the desired level of warranty coverage from a private equity fund’s perspective and the level of exposure the seller is willing to assume in respect of potential warranty claims. The W&I policy will cover any liability for breach up to an insured cap.

In terms of pricing mechanics, sale and purchase agreements in private equity transactions typically rely on locked box accounts as opposed to completion accounts which are more common in trade acquisitions. Using a locked box pricing mechanism affords a private equity fund greater certainty as to purchase price and reduces the risk for potential disputes over completion accounts adjustments. In practical terms, the value of the target company will be fixed on the locked box date. Any value leakage, other than permitted leakage, will be recovered by the buyer from the seller by way of a euro-for-euro indemnity. We have seen an increase in ‘profit tickers’ or ‘equity tickers’ whereby the sellers can regain the economic benefit of any value add between agreeing the locked box accounts and completing the transaction. This mechanism has the added benefit for the buyer of ensuring the sellers remain motivated throughout the deal process.

How can management of the target company participate in a going-private transaction? What are the principal executive compensation issues? Are there timing considerations for when a private equity acquirer should discuss management participation following the completion of a going-private transaction?

Often managers will also be sellers in a transaction and will be asked by the private equity acquirer to re-invest or 'roll over' some of their sale proceeds into the new equity structure. Further, private equity acquirers usually seek to incentivise management on a successful exit and achieve this by implementing a management incentive plan. A management incentive plan involves management subscribing for ordinary shares in the buyer’s holding company, often referred to as ‘sweet equity’, typically comprising 5 per cent to 15 per cent of the share capital. Management shareholding is often subject to a ‘ratchet’ mechanism whereby the economic benefits of management shares increase once the portfolio company has achieved certain performance targets or exit metrics.

As further incentivisation, a management incentive plan will typically be subject to leaver provisions, encouraging management to remain with the business, by introducing a forced sale of management sweet equity in circumstances where a relevant member of management leaves the business before an exit. The investment documentation will dictate the price at which the manager will be forced to sell his or her shares, depending on whether the manager is a good leaver or bad leaver.

Management will typically enter into new employment or service agreements. These agreements will set out restrictive covenants including non-compete, non-solicitation and confidentiality obligations as well as garden leave and notice provisions.

A private equity acquirer and majority shareholder of the target portfolio company should seek to engage management in the transaction process as soon as possible. This has the two-fold benefit of improving transaction efficiencies and encouraging a positive relationship between management and the private equity fund.

What are some of the basic tax issues involved in private equity transactions? Give details regarding the tax status of a target, deductibility of interest based on the form of financing and tax issues related to executive compensation. Can share acquisitions be classified as asset acquisitions for tax purposes?

One of the main tax issues to consider in respect of an Irish private equity investment is whether tax arises on the disposal of share investments and, if so, at what rate. The headline capital gains tax rate applicable to the disposal of shares held as an investment is 33 per cent. Most private equity investments into Ireland are made though an Irish corporate which facilitates tax efficient financing of the acquisition (discussed below) and allows the investor to benefit from Ireland’s favourable holding company regime which includes a participation exemption for capital gains on the disposal of certain share investments. To avail of this exemption, the Irish holding company must hold directly or indirectly a minimum 5 per cent shareholding and a 12-month holding period applies. Shares in companies deriving the greater part of their value from Irish real estate are excluded from the exemption. Ireland also has an attractive tax regime for Irish venture capital fund managers which treats the return (carried interest) received by fund managers from investment in certain (principally R&D-focused) companies as capital gains at a special 15 per cent rate for individuals or partnerships and at 12.5 per cent for companies.

Transfer taxes and transaction costs also require consideration in Irish private equity transactions. Irish stamp duty is generally applicable to the consideration for the acquisition of shares in an Irish incorporated company and is payable by the purchaser. In structuring private equity transactions, care needs to be taken where debt is being assumed as part of the target structure, in particular how that debt is procured to be repaid, to mitigate the risk of additional stamp duty becoming payable. The stamp duty rate applicable to shares is 1 per cent but in the case of the acquisition of shares deriving the greater part of their value from Irish commercial real estate, the rate of stamp duty applicable may, in limited circumstances, be a higher rate of 7.5 per cent. In addition, where the company holds residential property a higher rate of 15 per cent may apply to part of the consideration. Transaction costs are unlikely to be tax-deductible but should form part of the capital gains tax base cost of the shares acquired, thereby reducing the capital gain which would otherwise arising upon exit. Value added tax will also generally be payable in respect of transaction costs, although this may be recoverable in limited cases.

Shareholders exiting on a private equity investment may also benefit from one of a range of measures to reduce capital gains tax including an entrepreneur’s relief which reduces the rate to 10 per cent and an angel investor relief providing for a rate of 16 per cent (18 per cent in the case of shares held via a partnership). Both reliefs are subject to conditions and limits. In addition, where the exiting shareholders held their shares through an Irish tax resident company the capital gains tax participation exemption (discussed above) may apply. Structuring a shareholder rollover into the private equity holding vehicle requires careful consideration to ensure that any latent gains can be rolled over.

Given the importance of debt financing to private equity structures, detailed consideration of Ireland’s interest deductibility and other relevant rules is needed. An Irish tax resident holding company can be financed tax efficiently by means of debt and while Ireland does not have a concept of fiscal unity for tax purposes, surplus losses and interest may be surrendered between members of an Irish corporate tax group. The conditions applicable to Ireland’s interest relief for holding companies requires careful consideration as the rules are complex. However, it is likely that these will be simplified following completion of an ongoing public consultation. Interest deductions are subject to an interest limitation rule which caps the quantum of net interest expense which is tax deductible in a year to a fixed ratio of 30 per cent of earnings before interest, taxes, depreciation and amortisation and an anti-hybrid mismatch rule, both of which were introduced in accordance with the EU Anti-Tax Avoidance Directive. Transfer pricing rules in line with OECD guidelines are also applicable.

Subject to the availability of group relief for losses or interest (as discussed above), each company in the target group is subject to tax on its income as an individual entity. The standard rate of corporation tax for an Irish tax resident company is 12.5 per cent which applies in respect of profits of a trade carried on in Ireland. Ireland has adopted the OECD Two Pillar II global minimum effective rate of 15 per cent for in-scope entities. This applies by means of a top-up tax which is added to corporation tax charged under domestic rules to reach the 15 per cent effective rate. Passive income (such as rental and investment income), income from certain ‘excepted trades’ and foreign income are subject to a higher 25 per cent rate of corporation tax.

In addition to the participation exemption from certain capital gains, Ireland’s holding company regime has also recently been enhanced by the introduction of an inbound dividend participation exemption which complements the existing wide-ranging domestic exemptions from withholding taxes on outbound dividends, interest and royalties and an extensive double tax treaty network. Except where the group derives the greater part of its value from Irish real estate, the disposal by a non-Irish resident of shares in the Irish holding company is not subject to Irish capital gains tax.

It is not possible for share acquisitions be classified as asset purchases for Irish tax purposes.