Technology M&A 2023 - Security

1. Market Trends

1.1 Technology M&A Market

Deal Activity Reached Record Levels in 2021

2021 was a record-breaking year in the Finnish technology M&A market, which saw record revenues reported by many law firms specialising in M&A, banking and finance and capital markets. Similarly, Nasdaq Helsinki broke the record for IPOs, with a total of nine listings in the main market and 23 listings in the First North Growth Market in 2021.

Impact of COVID-19 and the War in Ukraine

At the beginning of the COVID-19 pandemic, there was a steep decline in M&A activity and also some decline in investments in general (especially in 2020). However, the pace quickly picked up in 2021 and reached record-breaking levels. The EUR2.8 billion acquisition of food and delivery services provider Wolt Enterprises by DoorDash was the year's landmark case in Finnish technology M&A.

Given the close proximity, many Finnish companies have historically had plenty of business activity and local presence in Russia. Since the war in Ukraine and with the swift implementation of European and global sanctions against Russia, many Finnish companies doing business in Russia ? or with Russian companies ? had to quickly find ways to divest or otherwise reorganise their business activities in Russia and with their Russian business partners.

Investment Decline Partially Offset by Reorganisations in Russia

The deal activity and number of listings in Nasdaq Helsinki remained strong in the first half of 2022; however, owing to the continued uncertainty with regard to the situation in Ukraine and high inflation rates both in Finland and globally, the investor and consumer sentiment have been on the decline. The uncertainty in the M&A market has nonetheless been offset to some extent by the high number of divestments and reorganisations that many large and medium-sized Finnish companies have had to undertake in order to comply with the sanctions against Russia.

The need for such divestments and reorganisations in response to the sanctions against Russia was a major trend in Finland in 2021–22. These sanctions impacted almost all listed companies in Finland – many of which subsequently reorganised their operations in Russia or with their Russian customers and/or suppliers.

M&A activity has shown marks of minor deacceleration in 2022 (especially in the second quarter), thereby underlining the increased uncertainty. However, as IPO activity has significantly dropped during 2022, trade sale transactions have raised their profile as a route for exit for investors.

The past two years have also seen major interest and investments in new technologies and markets such as AI, robotics, and blockchain technology. These include:

investment in IQM Finland (a Finnish producer of quantum computers);
listing of Digital Workforce (an intelligent automation (IA) and robotic process automation (RPA) services provider); and
an investment round in Tesseract Group (a provider of financial services and investment management in digital assets).

2. Establishing a New Company, Early-Stage Financing and Venture Capital Financing of a New Technology Company

2.1 Establishing a New Company

Incorporation

Finnish start-up companies are typically incorporated locally as limited liability companies. On the rare occasions where this is not the case, other jurisdictions are usually chosen owing to preferred tax treatment.

Setting up a limited liability company in Finland is a quick and simple process and the registration can be done entirely electronically. Applications submitted electronically are also processed faster ? usually within three to five business days, assuming the incorporation documents are drawn up correctly.

Capital Requirements

There is no initial capital requirement for establishing a private limited liability company. A public limited liability company, however, requires a minimum share capital of EUR80,000.

2.2 Type of Entity

In Finland, almost without exception, the most suitable form of entity for the initial incorporation is the limited liability company. Setting up a limited liability company is also fast and simple, as it can be done electronically and without any initial capital or other investment by the shareholders.

2.3 Early-Stage Financing

Angel investors, governmental funding and early-stage venture capital funds are among the most commonplace sources of funds for early-stage financing. Finland has an active business angel network that connects investors and promising start-ups together. In addition, several venture funds focused on early-stage start-ups operate actively in the Finnish market. Most Finnish start-ups also apply and receive R&D funding in the form of grants and loans from Business Finland, which is a government organisation that provides funds for innovation and investment.

The documentation procedure is fairly formal even for early-stage investments and, in the case of equity investments, typically comprises an investment or purchase agreement, a shareholders' agreement and any required accessory contracts.

2.4 Venture Capital

The Finnish venture capital system was developed in the 2010s to provide equity-based financing to promising start-ups effectively; however, it is not totally unheard-of to see foreign venture capital firms or corporate venture capital investors also joining even the early funding rounds.

Nonetheless, as a rule, domestic venture capital funds are the most common source of venture capital. Finnish state-owned investment company Tesi also participates in early funding rounds for promising start-ups on a case-by-case basis, but it is more typically seen as a co-investor to a lead private investor in later stages.

2.5 Venture Capital Documentation

The documentation of early-stage venture capital investments is fairly formalised in the Finnish market. Transaction documentation usually starts with a term sheet, which states the core terms and conditions for the investment and provides the backbone for other transaction documents. Other transaction documents normally include an investment agreement or a share purchase agreement, a shareholders' agreement (containing provisions for profit-sharing and governance), and mandatory corporate documentation.

The form and core provisions of a customary shareholders' agreement in a Finnish early start-up are usually based on the Series Seed documents, which are freely available on the internet.

2.6 Change of Corporate Form or Migration

Given that a limited liability company is practically the only appropriate corporate form, start-ups generally remain in this form until they begin to plan for an IPO ? something that generally requires them to become a public limited liability company. The transformation process from a limited liability company into a public limited liability company is relatively straightforward.

Changes in jurisdiction are similarly uncommon, but not completely unheard-of ? in particular, start-ups doing or planning to do business in the US execute so-called Delaware flips. Domestic investors are usually reluctant to procure a change of jurisdiction, however.

3. Initial Public Offering (IPO) as a Liquidity Event

3.1 IPO v Sale

Investors in start-ups generally tend to choose either a sale or an IPO at the outset, as the dual-track process is a more complex and costly option, and – based on the authors' experience ? running a sale process is the more likely scenario. The attractiveness of an IPO as an option largely depends on the prevailing market conditions and the general investor appetite.

3.2 Choice of Listing

A clear majority of Finnish companies that decide to use a listing pursue a listing on a home country exchange. There are several key reasons why, in general, listing on a home market is the preferable option for Finnish companies.

Going public abroad may involve more uncertainties concerning the listing process and regulatory requirements that a company must meet before and after an IPO under foreign legislation.
A listing abroad might require the shares of the company to be incorporated in a book-entry system in the country where the company's shares are listed. This might cause additional regulatory and administrative burden for the company and, in some cases, also require extra efforts for a Finnish investor in order to be able to invest.
Nasdaq First North Growth Market offers listing opportunities with simplified requirements for firms that cannot or do not want to be listed on the main stock market.
Investors tend to favour companies from their own country over those from other countries (a tendency commonly known as "home country bias") and it is more complex for investors to invest in IPOs in foreign countries. Therefore, it is easier to attract investors to invest in home country IPOs, as home country bias can be utilised more effectively in home country listings.

In comparison to Finnish companies' IPOs abroad, IPOs in Finland are generally well covered in the media and are therefore typically more able to attract retail investors and improve general awareness of the company, which might be lucrative – especially if the company has retail clients.

3.3 Impact of the Choice of Listing on Future M&A Transactions

If a company is listed in another country, then that country's securities regulations, legal requirements for trading venues, and possible takeover codes are applicable to said company. This should be taken into consideration when making a tender offer, as there might be special duties to consider in delisting and redemption procedures. The squeeze-out mechanism described in 6.8 Squeeze-Out Mechanisms applies to all Finnish limited liability companies, even if the shares of the company are listed in another country.

4. Sale as a Liquidity Event (Sale of a Privately Held Venture Capital-Financed Company)

4.1 Liquidity Event: Sale Process

Bilateral negotiations and the auction process are both viable options and should be assessed based on various key factors, such as the size of the company and the degree of interest towards the company. However, the most common way to conduct the sale process is to negotiate with a small number of potential buyers and proceed with the most feasible one. If the negotiations are then unsuccessful or the sale is otherwise halted, the company has the option of moving to a different prospect and to continue the sale process with them.

4.2 Liquidity Event: Transaction Structure

A typical transaction structure for the sale of a privately held technology company varies, as the targets and buyers have different needs and circumstances. However, current trends lean towards selling the entire company or materially the whole company with possible reinvestments by, for example, key personnel. Generally, it is unusual for previous venture capital funds to stay on as shareholders in the company after a liquidity event.

4.3 Liquidity Event: Form of Consideration

As a rule, the vast majority of private M&A transactions in Finland are structured as share acquisitions for cash consideration, typically consisting of both debt and equity. However, Finland's biggest acquisition in 2021 – the takeover of Wolt by DoorDash, which was structured as an all-stock deal – proved that stock transactions are not unprecedented in the Finnish market. Stock transactions are usually seen as an option when the buyer and target operate in the same line of business.

4.4 Liquidity Event: Certain Transaction Terms

In the Finnish market, founders are usually expected to provide both fundamental and business representations and warranties, whereas venture capital investors are generally required to provide fundamental warranties only. As purchase price is normally paid in full at closing, the warrantors typically indemnify the buyer (subject to certain limitations of liability). The claim periods can be agreed between the parties without restrictions and tend to range from 12 to 24 months. However, warranty and indemnity insurances have become more common during recent years, especially in larger transactions; consequently, escrow or holdback arrangements have become slightly less popular.

5. Spin-Offs

5.1 Trends: Spin-Offs

Spin-offs have become more popular in the Finnish start-up scene, especially in technology and university-based start-ups. A tax-free spin-off is another viable option, especially if the founders cease to have common view on the company's direction or where investors are interested only in some parts of a start-up company.

5.2 Tax Consequences

Spin-offs can be structured as tax-free transactions at both the corporate and shareholder level. Demergers and business transfers are tax-neutral transactions if certain conditions are met – most notably, the transferring or demerging part of the original company must be an independent business entity that is transferred as is. In other words, assets cannot be transferred on an individual basis and at least one independent business unit must remain in the demerging company.

5.3 Spin-Off Followed by a Business Combination

There are no specific regulations, in general, that would prevent spin-offs from immediately participating in a business combination in Finland. However, there must be solid business reasons for the consecutive transactions. Finnish tax legislation contains a general anti-abuse rule that allows the tax authorities to bypass artificial actions and its applicability should be analysed on a case-by-case basis.

5.4 Timing and Tax Authority Ruling

Finnish tax authorities provide advance rulings upon request, and it is highly recommended that a binding advance ruling from the tax authorities is obtained when planning a tax-neutral transaction. It currently takes approximately eight weeks to obtain a ruling. Following recent developments in legislation, it is also possible to arrange a pre-emptive discussion with the tax authority in order to confirm the tax treatment of the transaction in simple cases where there is an already established tax-assessment practice.

6. Acquisitions of Public (Exchange-Listed) Technology Companies

6.1 Stakebuilding

Acquiring a Stake in a Public Company

It is not exceptional to acquire a stake in the target company before making an offer; however, it is not a particularly common approach, as buying a "toehold" may lead to speculations regarding the target company and cause its share price to increase as a result.

Reporting Thresholds and Obligations

A shareholder must notify the target company and the Financial Supervisory Authority (FIN-FSA) of its holding and proportion of voting rights (ie, notification of major shareholding) when the proportion reaches or exceeds or falls below 5%, 10%, 15%, 20%, 25%, 30%, 50% or 90% or two-thirds of the voting rights or the number of shares in the target company.

The notification of major shareholding must be submitted without undue delay and no later than the trading day after the shareholder learned (or should have learned) of:

the acquisition or disposal;
the possibility of exercising voting rights; or
a transaction (as a result of which their holding or proportion of voting rights have changed or will change when the transaction takes effect).

The shareholder is deemed to have been informed of said transaction no later than two days after the actual transaction took place.

No Obligation to State the Purpose of the Acquisition

With the notification of major shareholding, there is no obligation to state the purpose of the acquisition or the buyer's plans or intentions (excluding the mandatory offer thresholds of 30% and 50% (see 6.2 Mandatory Offer).

6.2 Mandatory Offer

A shareholder (or one or more shareholders "acting in concert"), whose portion of voting rights increases to more than 30% or to more than 50% of the voting rights carried by the shares of the target company after the shares have been admitted to trading on a regulated market, is/are obligated to launch a mandatory bid for:

all other shares issued by the target company; and
all the securities giving title to shares.

However, there are certain exceptions to the general obligation to make a mandatory bid.

6.3 Transaction Structures

Generally, the typical transaction structure for an acquisition of a public company in Finland is a pure cash offer. Different stock arrangements and merger structures are also possible, but they are not used so often.

6.4 Consideration; Minimum Price

Consideration

Cash is permissible in a merger and can generally constitute up to 10% of the total consideration. A merger consideration may consist of shares, cash, other assets and future undertakings. The shareholder of a merging company can also demand that their shares are redeemed by a cash consideration. This demand must be made in the general meeting of the merging company that decides on the merger. Usually, cash is used with shares and the merger consideration is formed mostly of shares. In a mandatory takeover bid, the consideration must be in the form of securities or a combination of securities and cash.

Bid Requirements

There is no regulatory minimum bid for voluntary offers, but the offeror launching a takeover bid has to afford equivalent treatment to all holders of securities. In a mandatory takeover bid, the consideration offered must be equitable. The starting point for determining the equitable price is the highest price for the shares subject to a bid paid during the six months prior to the obligation to launch a bid. Such price may be derogated from in special circumstances.

6.5 Common Conditions for a Takeover Offer/Tender Offer

Mandatory Takeovers

A mandatory takeover bid may only be conditional upon approval from the necessary authorities.

Voluntary Takeovers

In voluntary takeover offers, regulators do not restrict offer conditions. Voluntary takeover offers usually include multiple conditions for completion, and some of the most common conditions for completion in voluntary takeover offers typically include at least:

a condition that all necessary regulatory approvals, permits, clearances and consents have been received;
a condition that the tender offer has been validly accepted with regard to the shares representing more than 90% of the shares and voting rights in the target company;
a condition that no material adverse change has occurred on or after the signing date of the combination agreement;
conditions regarding the accuracy and completeness of the information that offeror has received;
a condition that the board of directors has issued a recommendation that the shareholders accept the tender offer;
a condition that no material adverse change occurs during the tender offer period;
a condition that no legislation or other regulation prevents the completion of the tender offer; and
a condition that the combination agreement has not been terminated and remains in full force and effect.

Takeover Code Recommendations

The recommendations of the Helsinki Takeover Code should be followed in public tender offers if the target company is listed either on the main market in Nasdaq Helsinki or on the Nasdaq First North Growth Market Finland.

6.6 Deal Documentation

It is customary that the offeror and the target company enter into a combination agreement in connection with the takeover offer. In the combination agreement, the target company can undertake several obligations, including the following.

The target company must use its best efforts to complete the tender offer. The target company's board of directors may, for example:
- refrain from actively seeking or soliciting competing bids or alternative transactions; or
- commit that the company will not, under any circumstances, discuss potential competing transactions with other parties.
The target company must conduct its business in the ordinary course consistent with past practice and refrain from:
- making or implementing any material agreements, transactions, commitments or changes in its business or corporate structure;
- making any decision or proposal concerning the distribution of funds; or
- making any change in the number of shares or share capital.

In the combination agreement, the target company often gives the usual representations and warranties concerning the target company and its business operations. However, insignificant or non-essential breach of such representations and warranties is not usually considered a factor that would entitle the offeror to withdraw from the bid owing to a potential termination or expiry of the combination or transaction agreement.

6.7 Minimum Acceptance Conditions

As explained further in 6.8 Squeeze-Out Mechanisms, the squeeze-out mechanism threshold is 90% of all shares and votes. In addition to this, the only relevant control threshold in connection with tender offers is 10%, thereby allowing the use of minority rights.

In the majority of cases, minimum acceptance conditions include that the offeror gains control of more than 90% of the shares and votes in the company during the offer period. However, there have been tender offers in Finland in which the offeror has waived the requirement for the fulfilment of this condition if it has gained more than two-thirds of the shares and votes (ie, qualified majority) in the target. This is because gaining qualified majority may advance offerors' efforts to gain more than 90% of the shares once the offer period has expired, as the qualified majority gives an offeror a significant controlling power. Among other things (and subject to the principle of equal treatment of shareholders), after the offerer gains qualified majority of the shares and votes in the target it has the right to:

vote for and elect members of target's board of directors;
amend the articles of association of the target; and
decide on directed share issues and directed acquisition of the target's own shares.

Other usual minimum acceptance conditions include that all the necessary approvals from the competition and regulatory authorities have been received.

6.8 Squeeze-Out Mechanisms

A shareholder with more than 90% of all shares and votes in the company has the right to redeem the shares of the other shareholders at a fair price. The minority shareholders also have the corresponding right to demand that their shares be redeemed. The squeeze-out/sell-out right only concerns the shares in the target company and not other securities issued by the target company.

6.9 Requirement to Have Certain Funds/Financing to Launch a Takeover Offer

The offeror has the responsibility to:

ensure that it can fulfil any cash considerations in full, if such consideration is offered; and
take all reasonable measures to secure the implementation of any other type of consideration.

However, as there are no formal requirements to prove that the financing is in place and in practice, there have been situations where the financing is – to some extent – conditional (within certain specified limitations). In Finland, the buyer itself makes the offer.

6.10 Types of Deal Protection Measures

In a takeover situation, the board of a target company should not agree to any contractual arrangements that limit the company's and the board's power to act. If the board does agree to such arrangements, the commitment must be in the interest of the shareholders. The board has to state the grounds for these types of arrangements. Non-solicitation provisions might be justified in some cases, but those should be for a limited duration only and in the interest of the shareholders.

In practice, exclusivity provisions are common and widely used.

6.11 Additional Governance Rights

The Finnish Companies Act is based on the principle of equal treatment. All the shares carry the same rights in the company, unless otherwise provided in the Articles of Association. However, the Companies Act guarantees certain rights to shareholders with holdings of at least 10%, including the right to:

demand a general meeting be convened;
bring an action for damages on behalf of the company;
demand distribution of so-called minority dividends; and
demand a special audit.

If a bidder achieves more than 50%, it has the opportunity to make most corporate resolutions – given that proposals supported by more than half the votes cast constitute the decisions at the general meeting. A bidder can generally resolve nearly all matters if it achieves two-thirds of the shares and votes, as long as the resolution does not:

contravene the principle of equal treatment; or
provide an undue benefit to a shareholder or another person at the expense of the company.

6.12 Irrevocable Commitments

It is common to obtain irrevocable commitments from principal shareholders. However, it is customary that these irrevocable undertakings may be terminated in certain situations, such as:

in the event that the offeror withdraws the tender offer; or
in the event that a competing offer ? in which the consideration exceeds some pre-agreed threshold – is announced by a third party and the offeror does not match or exceed the consideration within a certain period of time.

6.13 Securities Regulator's or Stock Exchange Process

Approving a Public Offer

The offer document may only be disclosed after the FIN-FSA has approved it. The review takes five banking days. The offer document shall be approved by the FIN-FSA if it contains essential and sufficient information for deciding on the merits of the bid.

Approval Timeline

According to the Securities Markets Act, the time allowed for the acceptance of a takeover bid may not be less than three or more than ten weeks. The time allowed for the acceptance of a takeover bid may be more than ten weeks in special circumstances, provided that the business operations of the offeree company are not hindered for longer than is reasonable. If a competing bid is disclosed during the offer period, the first offeror may extend its bid to match the competing bid.

6.14 Timing of the Takeover Offer

In voluntary takeovers, the offeror usually reserves the right to extend the offer period in order to satisfy the conditions for completion of the tender offer, including – among others – the receipt of all necessary regulatory approvals, permits, clearances and consents.

Based on the authors' experience, it is common for the parties to obtain regulatory approvals after announcing but prior to launching an offer.

7. Overview of Regulatory Requirements

7.1 Regulations Applicable to a Technology Company

Specific regulations in Finland apply to certain telecommunications operations and such operations are subject to either a licence or prior notification.

Operations Subject to a Notification

A telecommunications operator must, in general, notify the Finnish Transport and Communications Agency (Traficom) before commencing operation if it engages in:

general telecommunications;
other than television broadcasting subject to a licence, provided that the service provider is established in Finland;
video-on-demand audiovisual services, provided that the service provider is established in Finland;
linear pay-television services in terrestrial digital mass communications network using a protection decoding system; or
video-sharing platform services, provided that the service provider is established in Finland.

Operations Subject to a Licence

A licence is generally required for:

a network service that uses radio frequencies in a digital terrestrial mass communications network or in a mobile network practicing public telecommunications (network licence);
television and radio broadcasting in a digital or analogue terrestrial mass communications network (television and radio broadcasting licence); and
the possession and use of radio transmitters (radio licence).

Regulatory Bodies and Duration of Approval Process

The licences are granted either by Traficom or by the Finnish government. Network licences and radio licences are granted within a time period of approximately six weeks to ten months. Licences for television and radio broadcasting in a digital network shall be granted within a time period of approximately six months to ten months.

7.2 Primary Securities Market Regulators

Operations in the Finnish securities market are mainly governed by the FIN-FSA and, as in all other EU member states, the European Securities and Markets Authority (ESMA).

7.3 Restrictions on Foreign Investments

Restrictions on Foreign Investment

Under the Act on the Screening of Foreign Corporate Acquisitions (172/2012), the Ministry of Economic Affairs and Employment may screen and, should a key national interest so require, restrict the transfer of influence to foreign nationals and foreign organisations and foundations where companies are subject to such screening.

Foreign Direct Investment (FDI) Filing in Finland

Corporate acquisitions in the field of defence and national security

A foreign owner shall apply for advance confirmation from the Ministry of Economic Affairs and Employment if the acquisition concerns either a defence industry enterprise or a company that produces or supplies critical products or services related to the statutory duties of Finnish authorities that are essential to national security. The Ministry of Economic Affairs and Employment may set a deadline for submitting the application.

The Ministry of Economic Affairs and Employment will confirm a corporate acquisition unless it could endanger a key national interest. If the acquisition could endanger a key national interest, the Ministry of Economic Affairs and Employment will refer the matter to a government plenary session for consideration.

Other corporate acquisitions

In other instances, a foreign owner may submit a notification concerning a corporate acquisition for confirmation by the Ministry of Economic Affairs and Employment.

The corporate acquisition will be considered confirmed if the Ministry of Economic Affairs and Employment does not:

decide to undertake a further examination of the matter within six weeks; or
propose that the matter be referred to a government plenary session for its consideration within three months of receiving the information necessary to consider the matter.

Refusing a Foreign Investment

The Finnish government may refuse to confirm a corporate acquisition only if necessary due to a key national interest.

7.4 National Security Review/Export Control

National Security Review

As mentioned in 7.3 Restrictions on Foreign Interests, the Finnish Ministry of Economic Affairs and Employment is authorised to screen and restrict the transfer of influence to foreign national and foreign organisations and foundations where companies are subject to screening under the Act on the Screening of Foreign Corporate Acquisitions (172/2012).

Specific Considerations

In general, the Finnish government views foreign ownership positively and Finland has not introduced legislation imposing specific restrictions on foreign investors (eg, Chinese telecommunications companies) based on ownership, domicile or other similar criteria. In practice, however, a foreign investor who is of Chinese or Russian origin would likely be scrutinised more closely than a European or a North American investor – given the current geopolitical situation.

Export Control Regulations

The Finnish export control regulations are largely based on the Act on the Control of Exports of Dual-Use Goods (1996/562) implementing the Council Regulation (EC) No 428/2009 of 5 May 2009 setting up a Community regime for the control of exports, transfer, brokering and transit of dual-use items. Export of dual-use goods is subject to authorisation by the European Community or the Ministry of Trade and Industry. Dual-use items are software or technology that can be used for both civil and military purposes.

More recently, Finland has also adopted the sanctions against Russia that were instituted by the EU and the US.

7.5 Antitrust Regulations

Following an amendment of the Competition Act on 1 January 2023, transactions are subject to merger control filing if:

the combined turnover of the parties to the transaction resulting from Finland exceeds EUR100 million; and
the turnover of each of at least two of the parties resulting from Finland exceeds EUR10 million.

Following the amendment, the turnover threshold for the combined turnover will be determined solely on the basis of turnover resulting from Finland, and the worldwide turnover will no longer be relevant for the assessment. The second turnover threshold, which concerns the turnover of at least two of the parties resulting from Finland has been lowered from the previous EUR20 million to EUR10 million. The new turnover thresholds apply to transactions where the agreement was made, control has been acquired or a public tender offer was published on 1 January 2023 or after that.

As a result of the amendment, Finnish merger control has been extended to more transactions and smaller companies than before. Following the amendment, it has been estimated that an additional 30–40 transactions will fall under the scope of the obligation to notify each year hereby doubling the previous number of notifications.

7.6 Labour Law Regulations

In Finland, the position of employees is mainly protected by the Employment Contracts Act. The employment relationship will remain in force if the business (or part of it) remains similar following the transfer of business. The regulation concerns all forms of acquisitions, including share and business acquisitions. In addition, if the seller or the buyer have 20 or more employees in Finland, the seller or the buyer have an obligation to inform employees or their representatives.

Finnish labour law is mostly binding, and any agreements that reduce the rights and benefits owed to employees will be declared null and void. Finnish legislation does not recognise works council or similar structures, as workplace representation in Finland is essentially provided through the trade unions.

7.7 Currency Control/Central Bank Approval

There are no exchange control or currency control regulations in Finland.

8. Recent Legal Developments

8.1 Significant Court Decisions or Legal Developments

Given that most transaction-related disputes in Finland are settled by arbitration and therefore not public, the legal framework has not been significantly developed through court decisions. Also, as Finnish M&A market is not very regulated, there has not been any recent legislation that materially changes the deal structures or processes.

9. Due Diligence/Data Privacy

9.1 Technology Company Due Diligence

Public Company Due Diligence

The European Market Abuse Regulation (596/2014) (MAR) sets the boundaries for the due diligence of Finnish and other European publicly listed companies. As the MAR prohibits insider dealing and unlawful disclosure of insider information, and given that the tender offer may not be based on or influenced by insider information, no such information should be provided to potential bidders. Further restrictions may arise from competition law prohibiting competitors from sharing certain confidential commercial and other data between each other. Such data may, however, be shared in a clean team environment with the bidder's professional advisors.

Information to be Provided to the Bidders

There is no requirement for the company to provide the same information to all bidders and it is, in fact, customary to provide a more limited set of information to a bidder that is a competitor than to a strategic investor. In some instances, the company may even be prohibited by competition law from sharing certain information with a bidder that is a competitor. However, if the board of the target company has allowed the first offeror to conduct a due diligence review, then the board should (as a rule) allow an essentially similar due diligence review for the competing offeror upon their request– provided that this is in the interests of the shareholders and the circumstances surrounding the competing bids and the offerors are otherwise comparable.

Acceptable Level of Technology Due Diligence

Given competition law and business considerations, technology due diligence should be limited more to bidders who are competitors of the company in most cases.

9.2 Data Privacy

The due diligence of technology companies will usually be conducted on the same level as it is for other sectors and there are no data privacy restrictions that apply specifically to technology companies.

It should be noted, however, that the Finnish Data Protection Officer has concluded that all personal information pertaining to employees of the company should be redacted and not disclosed to a potential acquirer before completing the transaction.

10. Disclosure

10.1 Making a Bid Public

The decision on a takeover bid must be made public without delay following the decision. The information should be made public in a manner that ensures fast and non-discriminatory access to the information. This is generally made using a stock exchange release.

The information should generally be given in Finnish or in Swedish and the offeror must also:

publish the information on their website;
deliver the information to key media;
file the regulated information using a mechanism officially appointed by the Ministry of Finance, the Financial Supervisory Authority and the operator of the market; and
notify the target company.

In addition, the offeror must make the offer document public. This shall be done before the bid enters into force and after the FIN-FSA has approved the document. The document shall be available to the public throughout the offer period.

10.2 Prospectus Requirements

Any person offering securities to the public or seeking admission to trade on a regulated market must publish a prospectus concerning the securities. The publication of the prospectus is regulated by the Finnish Prospectus Regulation. There are several exceptions to the obligation to publish a prospectus. The fact that the consideration is paid in full with shares does not in itself constitute an exception.

In certain situations, the Prospectus Regulation allows for the publication of an exemption document instead of the prospectus. The reporting obligations are lighter for an exemption document and the minimum information requirements are governed by an EU Commission regulation.

10.3 Producing Financial Statements

For companies whose shares are listed on the Nasdaq Helsinki main market, the IFRS form is required when preparing the annual financial statements. This is not required for the companies listed on the Nasdaq First North Growth Market.

10.4 Disclosure of Transaction Documents

Under EU legislation, the obligation to publish a prospectus applies to both equity and non-equity securities offered to the public or admitted to trading on regulated markets in order to ensure investor protection.

Additionally, before the entry into force of a takeover bid, the offeror must publish an offer document containing essential and adequate information in order to assess the favourability of the bid. The offer document may only be disclosed after the FIN-FSA has approved it, as further explained in 6.13 Securities Regulator's or Stock Exchange Process. The offer document must:

remain available to the public throughout the offer period; and
be submitted to the target company and the relevant operator of trading on a regulated market.

Besides the above-mentioned obligation to publish a prospectus, there are generally no obligations to file or publish copies of the transaction documents.

11. Duties of Directors

11.1 Principal Directors' Duties

The directors play an integral role in ensuring smooth processes in a transaction. These duties usually include – but are not limited to ? co-ordinating, negotiating and communicating with the shareholders. Due diligence is normally co-ordinated by the directors, as directors normally have the best knowledge of the company and can ensure that all essential material is gathered from within the company.

According to the Finnish Companies Act, the board of directors has a general duty to promote the interests of the company – therefore, their duties are mainly to the company's shareholders.

11.2 Special or Ad Hoc Committees

Committees are not very common in the Finnish regime; however, they are not completely unheard-of. Committees are sometimes established in listed companies if the ownership structure is formed of several major shareholders. However, most private companies do not set up committees when considering or executing a transaction.

The Finnish Companies Act dictates that members of the board of directors are disqualified in certain situations where there is a conflict of interest. Therefore, a committee is generally not necessary, as the conflicted member must simply recuse themselves.

11.3 Board's Role

As a rule, the board is expected to actively take part in the negotiations. However, this depends on the size and nature of the venture to some degree. In the authors' experience, there are seldom situations where the board would only recommend for or against the proposed transaction. This would usually only happen if the shareholders, as the ultimate decision-making body, have decided to execute a transaction without the board being involved in the talks.

In private companies, the board and the main shareholders usually have ongoing discussions relating to any major M&A transactions. Further, it is quite common for a shareholders' agreement with drag-along provisions to be put in place to ensure a smooth exit. Therefore, it would be highly unlikely that the shareholders would challenge the board's recommendation if the board views it as beneficial ? given that the board of directors usually includes a member from most of the major shareholders. In some cases, the minority shareholders might challenge the recommendation, but this has not usually been fatal for the execution of the transaction. Based on the authors' experience, the risk of shareholders voting against a transaction is greater in public companies.

To remove any risk of the shareholders challenging the board's recommendation, the buyer should ensure that the target company's board engages its shareholders constantly as the negotiations advance. In public companies this might be difficult, so public conversation must be monitored once the proposed transaction has been made public in order to notice if there is an overwhelmingly negative attitude among the shareholders.

Shareholder litigation actions are highly unusual in Finland. In theory, Finnish law allows anyone who has suffered damage because of other person's unlawful actions to claim for damages; however, these claims are highly rare.

11.4 Independent Outside Advice

Generally, the most common outside advisories are legal, financial and taxational advisors, who are present at almost every material transaction. In addition, technical advisors are also used if the nature of transaction or business requires them.

As directors have a general duty of care, they occasionally ask for a fairness opinion – usually following a request from major shareholders. Fairness opinions are not common; however, they are provided regularly in larger transactions.

Originally published by Chambers Technology M&A 2023 Global Practice Guide.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Finland: Technology M&A 2023