Structure and process, legal regulation and consents

Structure

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?

M&A transactions involving privately owned companies, businesses or assets are in general characterised by a significant degree of contractual freedom. Sales of companies structured as share sales are generally more common and give the parties more flexibility than a business or asset transfer where, for example, union consultation and consent from creditors or counterparties may be required. The involved parties typically enter into a written transfer agreement concerning the relevant target company, business or assets: either a share purchase agreement (SPA) or, as applicable, a business or asset transfer agreement, which can vary quite significantly in length, complexity and ‘style’ depending on the transaction and the parties.

Statutory mergers and demergers under the Swedish Companies Act (CA) are rarely used as instruments in private M&A transactions as they give the parties less flexibility in terms of process, transaction timetable and confidentiality.

A sales process where multiple potential bidders are approached would typically be structured as a controlled auction and include the following steps:

  • a teaser with a brief overview of the target company’s operations, financials and the contemplated transaction is distributed to a number of potentially interested parties;
  • interested parties enter into a written non-disclosure agreement (NDA) before further information is disseminated;
  • during ‘phase 1’ of the process, potential bidders are provided with an information memorandum on the target, its operations and financials and the contemplated transaction, and are requested to submit indicative non-binding bids within a four- to six-week period;
  • selected bidders are invited to ‘phase 2’ and given the opportunity during a four- to six-week period to conduct an extended due diligence, primarily by way of a virtual data room (including a question and answer forum), management presentations, expert sessions and site visits;
  • the bidders then submit their final and binding bids, including a mark up of the transaction agreement or agreements and documentation evidencing financing availability, etc; and
  • negotiations are conducted with the preferred bidder (or bidders) before a final and binding SPA is executed, which often take place within 24 to 48 hours after final bids or up to two weeks thereafter.

A bilateral process will often be based on a (largely) non-binding letter of intent (or equivalent document) setting out some of the key terms of the contemplated transaction (including indicative valuation) and an outline of the process. Bilateral processes often take longer than controlled auctions.

Legal regulation

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 Swedish Sales of Goods Act (SGA) is applicable to (non-consumer) sales of goods and movables (ie, all assets other than real property), including shares. The SGA is, however, non-mandatory, and can hence be set aside by the parties (wholly or partially), which is customary in private M&A transactions, and particularly in share sales. The CA contains provisions regarding transfers of shares in limited liability companies.

A range of additional acts, regulations and legal principles apply to transfers of employees and certain assets, such as contracts, personal data, real property and certain intellectual property.

The parties may choose foreign law as the governing law of a transfer contract, but would still need to observe mandatory Swedish law to the extent applicable for the transfer of certain assets and liabilities (eg, to perfect a share transfer). In practice, however, Swedish transactions are almost exclusively governed by Swedish law - even where one or several parties are non-Swedish - mainly as a result of the significant contractual freedom, a mature and active M&A market, a favourable litigation regime, internationally recognised enforceability and the absence (by large) of formal requirements.

Legal title

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?

Legal title is generally prescribed by law, that is, the parties cannot freely agree on different levels of title (although the parties can of course agree on contractual assurances concerning title).

Legal title is usually not transferred by operation of law but by taking all steps required under Swedish law to perfect transfer of title to certain assets. Transfer of title to shares is, in short, perfected by way of delivery to the buyer of a share certificate representing the unencumbered shares duly endorsed to the buyer (if such certificate has been issued) and by the buyer being recorded as the owner of such shares in the share register of the company.

Swedish law does not distinguish between legal and beneficial title.

Multiple sellers

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?

A sale of all shares in a company requires that all shareholders agree thereon. A buyer who acquires more than 90 per cent of all shares can, however, initiate a mandatory squeeze-out process under the CA whereby the remaining minority’s shares would be acquired. Further, shareholders’ agreements often contain drag-along clauses pursuant to which the minority may be required to sell their shares if certain conditions are met.

Exclusion of assets or liabilities

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 parties are, in general, free to agree on how to structure the transfer of a business, including which assets and liabilities to include and exclude. However, certain exemptions exist.

For example, in a business transfer, employees of the transferred business are entitled to have their employment agreements transferred to the acquiring entity on unaltered conditions (see question 33). Further, a buyer of a business may by operation of law assume environmental rights and liabilities of the transferred operation, including liabilities for contamination caused by previous operators.

As a general rule, unencumbered (wholly owned) assets can normally be transferred without any consents or information requirements, but a transfer of liabilities and certain assets (such as contracts) normally requires consent from the relevant counterparties (see question 7).

Consents

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?

In general, there are no restrictions on or governmental registrations or consents required for the transfer of shares, whether to foreign investors or otherwise. Exceptions exists for investments in businesses that are critical from a public perspective (such as the defence, aviation and nuclear sectors) where special consents may be required and restrictions on foreign ownership of the capital or voting rights, or both, may apply. Approval from authorities may further be required in relation to, for example, certain transactions in the financial services sector or if the transaction is subject to the merger control regime (see below). Acquisitions of, inter alia, certain environmental hazardous operations may need to be informed to the supervisory authority.

Concentrations, that is operations that bring about a lasting change in the control of an undertaking, are subject to the merger control regime set out in the Swedish Competition Act (unless notification is required under the EU Merger Regulation), pursuant to which the Swedish Competition Authority investigates transactions that satisfy the following jurisdictional thresholds: the combined aggregate turnover in Sweden of all undertakings concerned in the preceding financial year exceeded 1 billion Swedish kronor; and each of at least two of the undertakings concerned had a turnover in Sweden in the preceding financial year that exceeded 200 million Swedish kronor.

There is no general legislation whereby the government could intervene in a transaction in any sector on public or national interest grounds.

Are any other third-party consents commonly required?

Business and asset transfers typically require a number of third-party consents, including from counterparties to agreements included in the transfer, landlords, finance providers and holders of security in the relevant assets. Share deals may require consent from external parties, but the number of consents is usually limited to providers of financing to the relevant company and any landlords, customers, suppliers, partners or other parties who may have included a change of control provision in their respective agreements with the target company.

Shareholder approvals would typically not be required for the acquisition or divestment of a private company, business or asset, unless the size and nature of the transaction results in a fundamental change of the nature of the company’s business.

Regulatory filings

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?

In general, the acquisition of shares in a company does not require any regulatory filings; nor does the acquisition of a business or assets. Some exceptions exist (see question 6), which may involve application fees. Further, transfers of real property are subject to a stamp duty. A company acquisition may entail corporate changes, such as replacing the board or changing the articles of association, which involves regulatory filings and (minor) registration fees. Further, perfection of a transfer of title to or pledge of certain assets may require registration in public registers or notifications to authorities, or both, and involve fees.