Acquisition finance in Sweden: overview
A Q&A guide to acquisition finance in Sweden.
This Q&A is part of the global guide to acquisition finance. Areas covered include market overview and methods of acquisition, structure and procedure, acquisition vehicles, equity finance, debt finance, restrictions, lender liability, debt buy-backs, post-acquisition restructurings and proposals for reform.
Market overview and methods of acquisition
Acquisition finance market
In the context of leveraged buy-outs (LBOs), Sweden's acquisition finance market has been very active for many years, both before and after the financial crisis. This could partly be explained by the number of sizeable private equity funds present and active in Sweden and the Nordic region.
Historically, the Nordic commercial banks have dominated the lending market for small and mid-sized transactions (including Nordea, SEB, Svenska Handelsbanken, Swedbank, Danske Bank and DNB). They are also involved in a sizeable proportion of big-ticket deals, but in this context face competition from international banks. Similar to the rest of the European market, the main players are private equity sponsors in terms of borrowers. Key players include the following Nordic private equity houses:
International powerhouses such as CVC, Permira and KKR are also involved in larger deals.
The Nordic region has a relatively large number of multinational corporates, with a high level of M&A activity. Although the need for acquisition financing varies between companies and deals, corporates are substantial players in the market.
The Nordic finance market is highly relationship-driven and most transactions are arranged on a club-deal basis among the Nordic banks. Larger transactions may involve broader international market syndication, even if local banks would still take a larger proportion. Although less visible in recent years, the Swedish acquisition finance market includes a number of junior debt providers and mezzanine lenders, mainly in small and mid-sized transactions where senior banks may find the leverage challenging. These lenders may fill the funding gap with more flexible structures, with or without equity-kickers.
Between 2010 and 2013, Sweden saw the emergence of a rapidly growing local high-yield bond market. The high-yield market introduced small and mid-sized sponsors, as well as several small and mid-sized industrial borrowers, which previously were unable to attract debt capital other than as bank financing. The arranger side of the market comprises not only the commercial banks, but also niche arrangers (including Pareto Securities, Carnegie Investment Bank and Arctic Securities). Initially, the bond market was tapped only for refinancing and recapitalisation purposes. Bonds have also recently been used for direct acquisition finance purposes.
The most significant recent market development has been the local emergence of "direct lending" as a viable alternative to traditional bank lending and high-yield bond financing. The following have appeared as an alternative source of debt financing:
Asset management companies.
The introduction of these alternative credit providers has been fuelled by regulatory capital constraints imposed on banks, leaving a funding gap in traditional bank financing. Part of this gap is expected to be filled by the insurance companies as a consequence of the regime introduced by Directive 2009/138/EC on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II Directive).
Methods of acquisition
Share acquisitions are the main type of business acquisition in Sweden, as many businesses are run in the form of limited companies (aktiebolag) (AB) (see below, Share acquisitions).
Asset acquisitions may be useful in connection with carve-outs where only part of a business is acquired. However, the most notable disadvantage of an asset acquisition is that contracts relating to the acquired business are normally not assignable without the contract counterparty's consent. In larger transactions, this presents practical challenges and creates uncertainty for the buyer.
The financial assistance regime will normally not apply to asset deals, which may be regarded as an advantage from an acquisition financing perspective (see Question 10). Otherwise, asset deals have no particular structural advantages over share acquisitions.
The typical leveraged buy-out (LBO) transaction in Sweden is structured as a share acquisition where a special purpose vehicle (SPV) is established as the entity acquiring the shares in the target company (see Question 4).
The main advantage of a share acquisition is that the business can be acquired on a going-concern basis, with limited impact on the business operations. However, a major challenge is the financial assistance rules, which provide that the target must not assist the purchaser to finance the acquisition of shares in the target (see Question 10). Therefore, LBOs typically require a substantial amount of structuring in order to reassure lenders.
Acquisitions by way of merger or amalgamation are sometimes used between listed companies, but are fairly complex and unusual. Compared with the above methods, large-scale acquisitions through corporate mergers between private companies are uncommon.
Structure and procedure
Documentation and responsibilities
Traditionally, the lenders' legal counsel drafts the financing documentation, but a recent trend is that the borrower's counsel is more often tasked with drafting the documentation for sponsor-backed leveraged buy-out (LBO) financings. This is a result of the sponsors' desire to control the process and increasing ability to dictate terms in a highly competitive market.
In both the local high-yield bond and the direct lending markets, the arranger's counsel is normally responsible for drafting.
Procedures for gaining acquisition finance
In the domestic M&A market, finance-out clauses are unusual in acquisition agreements. Purchasers are typically required to demonstrate certainty of funds at the time the share purchase agreement (SPA) is entered into. Depending on whether the acquisition financing originates from banks or bond investors, the implication of the certainty-of-funds concept varies.
In a typical LBO, the sponsor begins the financing process by sending out requests for potential lender proposals, usually including a term sheet prepared by the sponsor and relevant background information. No Swedish regulatory requirements are triggered at this stage. Commercial and legal terms are then negotiated with each lender on the basis of feedback received from the invited lenders. A suitable bank club or syndicate is then put together, the composition of which primarily depends on existing banking relationships and deal ticket size.
At the time the bidder submits its binding offer, it will normally have secured financing through credit-approved commitments on the basis of an agreed term sheet. The level of "certainty of funds" provisions varies in private deals. In a highly competitive auction, the bidder often wishes to show an attractive bid with a high certainty of execution. It is therefore common for the bidder to have prepared commitment documentation on a fundable basis. In practice, there is not much difference between certainty of funds in private and public deals.
If the purchaser intends to finance an acquisition by bonds, the bond issue can be pre-committed from larger investors or even funded into escrow, to ensure the ability to exhibit certainty of funds at the time of signing of the SPA. An alternative is to arrange a customary bridge-to-bond, which is often seen as a more expensive and less attractive solution, mainly due to the strong incentives usually stipulated under the bridge loan for the borrower to complete a bond take-out within a certain time frame.
Private vs public targets
Most acquisitions are carried out in a private and controlled auction environment, in which the parties are free to dictate the terms of the process themselves. For buy-outs of public companies, the statutory and stock market rules apply, making a contemplated acquisition of a listed entity a process that requires even more planning on the bidder side.
The Takeover Act (based on Directive 2004/25/EC on takeover bids (Takeover Directive)) and the stock exchange's Takeover Code are the main pieces of regulation. From a financing perspective, the takeover rules require that the bidder must have sufficient and certain financial resources in order to complete the bid ready when making the offer. Additionally, funding needed to complete the acquisition must be available to the offeror throughout the duration of the bid. Although the Swedish takeover rules do not require cash-confirmation letters from the bidder's financial advisers, evidence of certainty of funds is a strict requirement (see Question 12).
The takeover rules include explicit requirements regarding the conditions of the offer. The same requirements also apply to any conditions for the financing (if the offer has been made conditional on financing) and any conditions that apply to the financing must be fully disclosed in the offer.
Documentation is almost exclusively drafted in English and based on Loan Market Association standards, albeit with notable local adaptations. There are no legal requirements that any documentation be drafted in Swedish. It is in the courts' discretion to require translations. It is unusual for the courts to require translations of documents in English.
As most bank lending structures are more likely to be Nordic club-deals than international syndicates, Swedish law takes precedence. However, in the largest deals where there may be a wide international syndication, the arrangers and underwriters may request English law to facilitate successful syndication.
The established market practice in Sweden is that buyers almost always ensure that they have committed financing available when committing to an acquisition.
In a private environment, certainty of financing is sometimes explicitly required by the seller under the rules governing the auction process. The buyer would nonetheless usually require certainty of funds when committing to an acquisition without a "finance out" clause, even if this was not specifically requested by the seller.
The typical acquisition financing is structured so that a special purpose vehicle (SPV) is formed with the purpose of acquiring shares in the target company. The SPV is usually a newly incorporated Swedish limited company (aktiebolag) that is controlled directly or indirectly by the private equity sponsors involved in the transaction. The structure is most often affected by tax or subordination considerations (the latter due to a willingness to create different layers of debt). The SPV is normally funded by equity from the sponsor and acquisition debt from the third party financiers. The debt piece can consist of several layers, either lent directly from the lender to the SPV, or downstreamed from the lender via the SPV's parent company, as required.
In a sponsor-backed leveraged buy-out, lenders generally allow a mix of equity and subordinated shareholder debt, provided that the debt component is as equity-like as possible (typically as both structurally and contractually subordinated and non-cash pay).
Following recent amendments to Swedish tax legislation, limitations in the tax deductibility of interest costs on shareholder loans have been imposed. This has led to a decreasing prevalence of subordinated shareholder debt in acquisition financing structures, with a corresponding increase in the use of pure equity. Focusing on a private equity sponsored deal, the equity is usually downstreamed through several layers of sponsor-controlled entities before being channeled either directly to the special purpose vehicle bid company or that company's parent.
Structures and documentation
Debt financing structures
Senior secured bank lending. The main source of financing for acquisition purposes is senior secured bank lending. Depending on the size of the debt package, the senior debt is provided on a bilateral, club or syndicated basis. However, other factors can also decide the form that the senior debt can take.
Generally, the senior debt consists of one or more term loan tranches for acquisition and refinancing purposes, together with appropriate working capital facilities. Term loan tranches can be either amortising or non-amortising with a bullet repayment at maturity. Since the bank lending market has been highly liquid and competitive recently, there is a clear trend towards an increasing number of term facilities being structured as non-amortising.
The amortising term loan tranches and the working capital facilities are mainly held by banks, whereas non-bank lenders normally have more appetite to offer and hold the non-amortising tranches.
Mezzanine debt. In addition to the senior secured bank debt, the debt funds have offered junior debt in the form of second lien or mezzanine products, in addition to the senior package. In this context, the second lien or mezzanine debt is generally secured and participate in at least parts of the senior security package (on a second ranking basis).
Mezzanine or second lien debt is typically non-amortising, comprising of a mixture of cash pay and rolled-up interest (that is, interest that is not paid at the end of the applicable interest period but which is, instead, added to the outstanding principal amount of the loan). Mezzanine debt can be structured as a pure debt product or with an equity kicker (that is, a warrant or an option to buy equity). In Sweden, the equity kicker is generally a warrant (teckningsoptioner).
High-yield bonds. The adoption by local sponsors of high-yield bonds in recent years demonstrates the ability of Swedish high-yield bonds to compete with conventional leverage financing products. As a result of investors' appetite to participate in more aggressive leveraged buy-outs, high-yield bonds have challenged not only senior secured loans but also junior financing arrangements. Despite the decline in the market during the past year, high-yield capital is likely to remain a feature of the financing options.
There are several reasons bond financings became an attractive option for some domestic sponsors. Benefits of bond financing include:
Easily executed bond issues.
Incurrence based covenants.
Prevailing flexibility in bond terms.
The ability to have a relatively wide base of investors providing local-currency capital to local businesses further increased the attractiveness of bond financing. Lastly, the search for yield in the low interest rate environment following the financial crisis fuelled the growth.
Although the market for high-yield bonds has grown considerably since its inception, certain funds acquisition finance structures incorporating bonds as the principal source of funding have only been used in a handful of transactions.
Direct lending. The latest and most significant development on the acquisition finance market is the arrival of direct lending. Direct lending is where non-bank lenders offer senior secured lending in direct competition with commercial banks. These alternative funding providers include:
Generally, direct lenders provide more flexible terms than the bond and bank alternatives. They are able to provide longer-term loans and are very competitive regarding the speed of the process. In the domestic market, direct lending in the acquisition finance environment has been taking the form of "unitranches", term loan B capital, or second lien capital.
Senior secured bank lending. The documentation used in Swedish acquisition finance transactions is principally drafted in English and based on the Loan Market Association (LMA) recommended standards for leveraged transactions. Most law firms active in the domestic market draft their in-house precedents based on the LMA documents. The exception is small to mid-size transactions offered on a bilateral basis, where agreements are individually tailored to the practices of the local market.
In the most common club deals, domestic law is predominantly chosen as the governing law. Where there is an intention to syndicate to a wider international group of lenders, there may be a preference for English law. However, deals are also being widely syndicated based on Swedish law documentation.
Mezzanine debt. Generally, the mezzanine debt is documented in a stand-alone loan agreement largely based on the senior loan agreement. The security package will be shared with the senior lenders through the inter-creditor agreement.
Direct lending. The documentation used in direct lending transactions is more bespoke and dependent on the preferences of the lenders. In certain deals, documentation follows the normal LMA standard and in others the documentation may be more akin to that used in relation to bonds.
High-yield bonds. In terms of bond documentation, a fairly condensed Nordic-style document is widely used in the domestic market. The documentation is based on market practice from each of the Nordic jurisdictions and has to a large extent emanated from the Norwegian market, but with strong influences from the international bond markets as well as from local organisations such as the Swedish Securities Dealers Association. Non-Nordic investors are likely to find ancillary documentation in Sweden less conclusive than, for example, English law trust deeds or New York law indentures. Additionally, bonds are sometimes sold on long-form term sheets only, with investors agreeing to be subject to final terms and conditions based on the agreed term sheet.
As in the case of other European countries, the typical Swedish acquisition financing inter-creditor agreement (ICA) is based on the Loan Market Association (LMA) recommended standard. As with the facilities agreement, the ICA is drafted in English. The choice of law follows that of the facilities agreement and is therefore generally domestic law.
Swedish high-yield bond issues sometimes contain ICAs, the typical scenario being the involvement of a (super) senior revolving credit facility in a bond structure.
Where an acquisition finance structure includes several layers of debt, it is common to arrange contractual subordination through an ICA. In a normal leveraged buy-out (LBO), the ICA typically follows the LMA recommended form. In bilateral transactions, short-form subordination agreements are sometimes used instead of the rather lengthy LMA-style ICAs, depending on the circumstances.
Structural subordination is used as a tool for accomplishing subordination in LBO structures. For the most part, structural subordination is used in combination with contractual subordination, especially in respect of more deeply subordinated debt, such as shareholder debt and investor debt.
Payment of principal
Swedish transaction structures usually follow the order of priority laid down in the LMA ICA. Therefore, repayment of investor debt is not permitted, whereas repayment of inter-company debt is usually permitted until acceleration or an event of default of the senior debt occurs.
Where the structure includes a mezzanine component, repayment of mezzanine principal is normally not permitted until the senior debt is fully discharged.
With respect to the payment of interest on investor debt, the same applies as with the payment of principal. In terms of junior debt, interest payments are usually permitted until a senior default occurs, after which cash payments on junior debt would be blocked.
It is generally permitted to pay fees to junior lenders unless a senior default has occurred, upon which such payments would be blocked in the same way as cash interest payments.
The various secured creditors would normally share the same security package through the ICA agreement. Domestic ICAs follow the structure in the LMA recommended form of ICA. In Sweden, security is held by the security agent as agent for the secured parties, not as trustee. Proceeds received by the security agent on enforcement will be shared in accordance with the payment waterfall provisions in the ICA.
Subordination of equity/quasi-equity
The senior lenders normally seek to create a structure where deeply subordinated debt (such as shareholder debt) is contractually, and sometimes also structurally, treated as equity. This means that subordinated debt is subject to the same contractual restrictions regarding payments as pure equity or dividends. There is usually a leverage trigger for permitted payments, which means that payments on subordinated debt or equity are generally not permitted unless leverage has reduced below a certain pre-agreed level. Deeply subordinated debt is usually both structurally and contractually subordinated.
Extent of security
Senior lenders aim for a comprehensive security package that covers the revenues and assets of the target group. However, the deal must take into consideration that certain types of security are more practical to perfect and deal with than others. Additionally, it is important to identify assets that are crucial for the borrowing entity to be able to conduct business without interruption, as there may be a more restricted choice of perfectible security for those assets.
The security package in a leveraged buy-out financing is supplemented with the contractual restraints in the credit agreements involving a wide variety of negative covenants such as negative pledge, restrictions on disposals, dividends, distributions and the incurrence of financial indebtedness.
Types of security
Generally, security over a company's real estate, shares, chattels (by way of a business mortgage or registered title-transfer), patents or trade marks causes no practical obstacles to the borrower's business and is therefore preferred.
Swedish companies are subject to a set of constraints regarding the provision of security. If a company does not obtain adequate corporate benefit when providing security, it will be considered a transfer of value under the Swedish Companies Act and is therefore subject to the same restrictive rules as dividend distributions. The security will only be enforceable if the restricted equity of the pledgor is fully covered, where enforcement takes place in immediate connection with the provision of the security.
Providing downstream security (that is, where a parent company provides security for the indebtedness of a subsidiary) is normally considered to give corporate benefit to the parent. Providing cross-stream or upstream security is harder to determine as there is no established method to determine that corporate benefit has been given. Therefore, each case must be analysed on a case-by-case basis. However, if increments of a loan are on-lent to a security provider, the provider may be considered to have received corporate benefit up to the corresponding amount (possibly even higher).
Shares. The pledge of a share is perfected when the share certificate corresponding to the share has been transferred to the pledgee's possession or, if the share certificate is held by a third party, when the third party is notified of the pledge (a single certificate can represent a number of shares). Dividends on shares can be paid to its owner, despite a perfected pledge. The right to vote for pledged shares remains with the pledgor unless the pledgee is appointed a voting proxy.
In practice, a pledge over shares is perfected through the delivery of share certificates duly endorsed in blank by its owner (endorsement in blank facilitates enforcement). The pledge is then registered in the company's share register after notice is given by the pledgor to the company. In addition, the pledgor is sometimes requested to appoint the pledgee as voting proxy on closing, this right to be exercisable only after an event of default has occurred.
A pledge over dematerialised shares (primarily issued in listed companies) is perfected by way of registration on the pledgor's account with Euroclear Sweden or by notice to the pledgor's nominee, depending on the holding patterns.
Inventory. Depending on whether certain inventory is affixed to land or a building (real estate), machinery, equipment, inventory can either be regarded as real estate or a chattel. To the extent machinery, equipment and inventory are not considered affixed to real estate, it will be regarded as a chattel. Pledges over chattels are perfected when the chattels have been transferred from the possession of the pledgor to the pledgee or, if the chattels are held by a third party, when the third party is notified of the pledge. The fundamental prerequisite to creating a perfected security interest over chattels is that the property is no longer either in the possession or under the control of the pledgor. Consequently, it is not feasible to create this type of security interest if the machinery, equipment or inventory needs to be used in the pledgor's day-to-day business.
However, there are two ways of creating security over chattels that cannot be removed from the security provider's possession or control. One way is for the security provider to grant a "business mortgage" (företagshypotek) (similar in many ways to a floating charge and the procedure for which resembles that for real estate mortgages (see below)). The other way is to register a "title-transfer".
It is not possible under Swedish law to take security over a business as a whole (with the effect that the lenders on enforcement can sell the business as a going concern). The only way to achieve this is in practice is to have security over the shares in the company in which the business is conducted. However, it is possible to grant security over almost all chattels of an entity in the form of a business mortgage. A business mortgage comprises all chattels belonging to the company to the extent that the chattels belong to the company's business and to the extent that such chattels do not include, for example, cash or bank funds, shares or property that cannot be subject to either attachment or included in bankruptcy. The business mortgage can also be limited to certain parts of the business.
A business mortgage certificate is issued by the registration authority and can be either physical or electronic. A security interest is created by a grant of the business mortgage certificate by the delivery of the certificate(s) under a security agreement as security for an obligation and is perfected in the same way as for property mortgage certificates, that is, by the passing of possession of the certificate or when the secured party has been registered as mortgagee. The issuance of the business mortgage certificates will incur an ad valorem stamp duty.
For rolling stock, such as trains, the method of taking perfected security would normally be through a registered security assignment. It is possible to perfect a transfer of ownership through registration with the execution authorities, even if chattels remain in the possession of the transferor. This form of security assignment includes an element of publicity since the arrangement must be announced in daily newspapers of general circulation.
Bank accounts. To create a security interest over the balances on a bank account, the account bank holding the account must be notified of the security interest. In order for the interest to be perfected, the pledgor must be deprived of the right to exercise control over the monies credited to the bank account. As a result, it is usually not feasible to create a perfected security interest over bank accounts that need to be used in the pledgor's day-to-day business.
Sometimes, pledges over bank accounts are granted on an unperfected basis so that the pledgor can continue to have access to the account. The pledge will then be perfected by means of notification to the account bank on the occurrence of certain perfection triggers, such as an event of default. It should be noted that this type of delayed perfection may be vulnerable to claw-back in the event of the pledgor's insolvency.
Receivables. A pledge over a contractual claim, such as the right to receive payments from a customer in respect of a sale, is perfected by means of notification to the debtor by the pledgor or the pledgee. For the pledge to be perfected, the pledgor must also be deprived of any control over the collateral (for example, the contractual right to receive payments). The debtor must therefore be instructed to make any payments to an account that the pledgor does not control, normally to an account controlled by the security agent.
Further, pledges over receivables are sometimes granted on an unperfected basis so that the pledgor can continue to collect payments under the receivables. The pledge will then be perfected by means of notification to the relevant debtor on the occurrence of certain perfection triggers, such as an event of default. It should be noted that this type of delayed perfection may be vulnerable to claw-back in the event of the pledgor's insolvency.
Intellectual property rights. A patent, or a patent application, can be pledged as security. The perfection of the pledge requires the execution of a pledge agreement. The security agreement must then be registered with the Swedish Patent and Registration Office (Patent- och registreringsverket). The same basic rules also apply to trade marks.
Real estate. In order to create a mortgage over real estate, a two-step procedure must be followed:
First, the owner of the real estate must apply to the registration authority for a mortgage certificate in respect of a specified amount. When granting the application, the authority issues a standardised mortgage certificate, which represents a certain amount in respect of the property's value. The certificates can be "reused" any number of times. They are not specific to any particular transaction. The issuance of the mortgage certificates will incur an ad valorem stamp duty.
Secondly, as the mortgage certificate is treated as a chattel, a security interest over the certificate is created when the owner of the property delivers (pledges) the certificate as collateral for a loan. In the case of digital mortgage certificates, the time of delivery occurs when the mortgagee has been registered as a mortgagee in the mortgage certificates register.
Under Swedish law, a guarantee is a contractual liability that a Swedish limited company normally has the power and capacity to provide. A guarantee is subject to the same restrictions regarding corporate benefit as any other transaction undertaken by the company. In an acquisition finance structure where upstream guarantees and security are taken, the corporate benefit and financial assistance analysis are very important components of the structuring.
The concept of "trust" does not exist as such under Swedish law. However, similar results are achieved by mandate (agency) or power of attorney. In a secured financing transaction in Sweden, the security package is held by the security agent as agent on behalf of the secured parties. The security agent is normally appointed and authorised through specific provisions in the inter-creditor agreement (ICA). If there is no ICA, the appointment and authorisation are included in the loan agreement or the security agreement, as appropriate.
As soon as the board of directors has reason to believe that the equity of the company has fallen below 50% of the registered share capital, the board of directors must request that the auditor of the company prepare a balance sheet for liquidation purposes in order to establish whether this is the case. If the auditor's report shows that the registered share capital is below the critical level, the board of directors must immediately convene a general meeting of shareholders, in which the shareholders are informed of the situation and the shareholders resolve whether to continue the business of the company or place the company into liquidation.
If it is decided that the company will continue to conduct business, a second general meeting must be held within eight months from the first meeting, at which an audited report must be presented that shows that the registered share capital has been restored. The company must enter into liquidation in the following circumstances:
If the second general meeting is not held within the prescribed time period (that is, within eight months from the first meeting).
If the board of directors does not present an audited report demonstrating that the share capital has been restored.
Swedish law rules on financial assistance apply to both private and public companies, and apply to acquisition financing structures. The provisions restrict lenders from accessing assets of a target group, to the extent that lenders' financing is extended to fund the acquisition of shares in the target company or its parent company. In accordance with the Swedish Companies Act, this effectively prevents the target company from granting loans, guarantees or providing security for acquisition debt relating to the acquisition of shares in the company.
The financial assistance prohibition under Swedish law applies to any form of assistance by a company to anyone who intends to buy shares in the company. The prohibition does not explicitly extend to post-closing refinancings, although such assistance can be challenging from a corporate benefit perspective.
Regulated and listed targets
Acquisitions of domestic entities that require authorisation from the Financial Supervisory Authority (Finansinspektionen) (FI) often require approval of the acquirer. This applies to the following entities:
Banks and other credit institutions.
In the energy sector, unbundling rules apply, preventing joint ownership of certain natural-monopoly operators and energy-generation facilities.
Effect on transaction
FI authorisation may have timing implications, but approvals are usually obtained within customary intervals between signing and closing.
Specific regulatory rules
For a tender offer for a domestic company listed on a stock exchange in Sweden, the following legislation will govern the offer:
Takeover Act (lag (2006:451) om offentliga uppköpserbjudanden på aktiemarknaden).
Swedish Financial Instruments Trading Act (lag (1991:980) om handel med finansiella instrument).
Swedish Takeover Rules issued by Nasdaq Stockholm (or another relevant Swedish marketplace).
The Financial Supervisory Authority (FI) supervises compliance with the Takeover Act, and the Swedish Securities Council (Aktiemarknadsnämnden), the Swedish equivalent of the UK Takeover Panel, can grant exemptions from certain provisions in the Takeover Act. The Swedish Securities Council can also grant exemptions from, as well as interpret, the Takeover Rules.
Before making its offer, the offeror must provide a written undertaking to Nasdaq Stockholm (or another relevant Swedish market) that it will comply with the Takeover Rules and the Swedish Securities Council's rulings concerning the interpretation and application of the Takeover Rules, and that it will accept any sanctions imposed by the marketplace in the event of a breach of the Takeover Rules.
Methods of acquisition
The offeror generally makes an offer for all of the shares in the target and the offer is predominantly made conditional on a level of acceptances of more than 90% of the share capital, which corresponds to the shareholding required to initiate minority squeeze-out proceedings under the Swedish Companies Act.
Once the offer is completed (having regard, among others, to the 90% threshold having been reached), the takeover is finalised by the completion of minority squeeze-out proceedings, where the outstanding minority shares (if any) will be acquired compulsorily for cash consideration. Price disputes are resolved by compulsory arbitration.
Under the Takeover Rules, the offeror must have certain funds available to complete the offer before launching the offer. The offer announcement must include information about any third-party financing available to fund the offer and any conditions applicable to the financing.
A shareholder that owns more than 90% of the shares in a limited company can acquire the minority shares through a compulsory squeeze-out procedure. The proceedings are conducted as arbitration proceedings and generally take about 18 and 24 months to complete.
However, the majority shareholder may request and be granted advance title (förhandstillträde) to the minority shares, as part of the proceedings. Advance title means that the majority shareholder becomes the legal owner of the squeeze-out shares and can be registered as legal owner in the share register. This requires that the majority shareholder provides collateral in favour of the minority shareholders as security for the purchase price (including interest) that is to be determined through the proceedings. The collateral is ultimately subject to the approval of the arbitral tribunal and must be delivered to the representative of the minority shareholders. Under normal circumstances, advance title can be granted within four to eight months after the initiation of the squeeze-out proceedings.
Where a company has on its balance sheet pension liabilities to its employees and such pension liabilities are secured by statutory credit insurance, the company is normally required to provide either a parent company guarantee or other collateral to secure the counter indemnity for the insurance. These security arrangements generally must be attended to and restructured in connection with an acquisition of the company. Obtaining the necessary consents from the insurer may impact timing for a transaction.
There are no general statutory rules or authoritative case law in Sweden holding lenders liable for the actions or operations of a borrower company. The Swedish Companies Act provides that anyone who negligently participates in a transaction that constitutes unlawful distribution may be liable to pay damages to the company corresponding to the unlawful distribution. If that person is unable to discharge its obligation to pay damages, anyone who wilfully or by gross negligence "participated" in the decision to pay a distribution unlawfully or who participated in the execution of that decision may be ordered to pay the balance. The same applies to someone who knowingly received payment or assets from the unlawful dividend.
In renegotiating or providing new financing to a borrower facing financial difficulties, lenders often require that new or additional security and guarantees are granted. The lender in this scenario must pay close attention to the risk of the security and guarantees being subject to claw-back in the formal insolvency proceedings of the security provider. Under the claw-back rules, a security interest granted after the security provider incurred the secured obligations can be subject to claw-back, unless the granting of the security can be considered as "ordinary". The central idea is that ordinary security has not been either contracted or perfected due to changes in the security provider's financial position. For example, where security has been agreed but not perfected, perfection due to down-rating is normally not regarded as ordinary.
The financial assistance prohibition under Swedish law does not explicitly extend post acquisition (see Question 10). There is no formal "whitewash procedure" available, but with careful structuring it is sometimes possible to enhance the security and guarantee package for acquisition debt through debt push down or post-closing security take up.
In sponsor-backed leveraged buy-out financings, recapitalisations (where part of the initial equity has been repatriated through additional debt funding) have been relatively common.
There are currently no reforms or impending regulatory changes that are likely to affect acquisition finance transactions in Sweden. However, any regulatory changes that impact lender costs may affect the pricing and availability of credit (for example, capital requirements). No domestic changes are expected in the near future.
Fredrik Rydin, Partner
Professional qualifications. Advokat, Sweden
Areas of practice. International finance transactions; leveraged and corporate acquisition finance; syndicated lending; restructuring and insolvency.
Professional associations/memberships. Member of the Swedish Bar Association.
Dan Hanqvist, Finance & Regulatory Counsel
Professional qualifications. Advokat, Sweden
Areas of practice. International finance transactions; capital markets; derivatives; restructuring and insolvency; financial regulation; energy regulation.
Professional associations/memberships. Member of the Swedish Bar Association.
Fredrik Fors, Associate
Professional qualifications. Jur. kand., Sweden
Areas of practice. International finance transactions; leveraged and corporate acquisition finance; debt capital markets.