Switzerland
Answer ... The prevailing type is cash consideration, which in some cases is converted into an interest-bearing or interest-free vendor loan (eg, in the context of family business successions). Share considerations are typical for:
- transactions where the sellers roll a portion of their stake into the acquisition structure (as minority shareholders); and
- business combinations (eg, acquisition by way of a merger of the target into the acquiring company).
Switzerland
Answer ... The key differences are:
- the economic outcome of the transaction achieved; and
- financing considerations.
Hence, there are no general advantages or disadvantages to the various types of consideration.
Switzerland
Answer ... The primary factors are:
- the economic outcome to be achieved through the transaction; and
- financing considerations.
For example, if the buyer has neither sufficient equity nor favourable conditions for debt financing, a (partial or full) consideration in cash may be preferred over offering a cash purchase price.
Switzerland
Answer ... The pricing mechanism mainly depends on the size of the deal. Locked-box structures are more common in the Swiss market than in other jurisdictions and are often used in ‘smaller’ deals (eg, standalone targets or small target groups with the Swiss Code of Obligations as accounting standard). The locked-box mechanism is also the preferred method for a ‘clean’ exit, due to the reduced risk of post-closing purchase price adjustments. In particular, if there is a long period of time between the locked-box date and closing, the parties often agree on a cash-flow participation or interest component (‘locked-box interest’).
In larger transactions, the parties usually rely on completion accounts to determine the purchase price. For example, completion accounts are commonly used in the acquisition of multinational groups, with the accounting rules for the preparation being set out in detail in the transaction agreements.
Switzerland
Answer ... Generally, the purchase price is paid in full at closing. Deferred payment arrangements are less common and are typically used to facilitate the acquisition for the seller (eg, in the context of family business successions).
Switzerland
Answer ... Specific protections for deferred payments/earnout payments are less common. In particular, guarantees by banks and other third parties are not often considered due to their costs. In some cases, the parties may agree on a pledge of the sold shares to secure the seller’s claim for the deferred payment/earnout payment. Otherwise, the seller must rely on the common instruments used to protect the purchase price claim, such as guarantees by the buyer’s parent company or shareholders.
Switzerland
Answer ... Financial assistance in private M&A transactions is primarily limited by corporate and tax law. Both corporate and tax law require the target:
- to act in its own interests and not in the interests of the shareholders or any other related parties; and
- to maintain the arm’s-length principle in dealing with related parties.
Hence, financial assistance by the target for its own sale is generally considered a deemed dividend distribution.
Under corporate law, the target’s shareholders, directors and other related parties may have personal liability vis-à-vis the company for amounts received as deemed dividend distributions. As such liability must be claimed by the company (or by a shareholder for payment to the company), the practical relevance of such liability is essentially limited to insolvency cases.
For tax purposes, the amount of such deemed dividend distribution is:
- subject to Swiss withholding tax; and
- added back to the taxable profit of the target.
Further, value-added tax (VAT) incurred in connection with the financial assistance may not be refundable as input VAT at the level of the target.
In practice, there is often some room for discussions with the tax authorities in regard to the target bearing certain transaction costs (eg, for due diligence, to the extent that it can be demonstrated that the target also benefits from such review of its operations). Also, in transactions with a large number of sellers, the target may enter into the agreements with the advisers and on-charge the adviser fees (with or without a mark-up) to the respective sellers on a pro rata basis. Due to the limitations on financial assistance, an advance tax ruling should be sought before routing transaction costs through the target.
Switzerland
Answer ... With regard to acquisition financing, the Swiss tax authorities do not usually accept a full debt pushdown to the target: some tax authorities disallow an interest deduction for up to five years from closing, while others deny it in general. Hence, a contemplated debt pushdown should be considered in the structuring (eg, through a cascaded acquisition, a debt-to-equity swap or a leveraged dividend).