1.1 What are the most common types of private equity transactions in your jurisdiction? What is the current state of the market for these transactions? Have you seen any changes in the types of private equity transactions being implemented in the last two to three years?
A broad range of private equity ("PE") transactions are carried out in Ireland, the most common including leveraged buyouts, refinancings, trade sales, secondary buyouts, bolt-on deals and secondary transactions.
Macroeconomic issues such as uncertainty over "Brexit" impacted Irish corporate activity generally in 2016 including PE activity. However the Irish PE market grew in 2016. The last two to three years have seen some new PE entrants to the Irish market with traditional bank acquisition financing being more difficult to obtain, particularly for small to medium sized businesses.
1.2 What are the most significant factors or developments encouraging or inhibiting private equity transactions in your jurisdiction?
- a low corporate tax rate – corporation tax on trading profits is 12.5% and the regime does not breach EU or OECD harmful tax competition criteria;
- the regulatory, economic and people infrastructure of a highly-developed OECD jurisdiction;
- the benefits of EU membership and of being the only Englishspeaking jurisdiction in the eurozone;
- a common law jurisdiction, with a legal system that is broadly similar to the US and the UK systems;
- refundable tax credit for research and development activity and other incentives; and
- an extensive and expanding double tax treaty network, which includes over 70 countries, including the US, UK, China and Japan.
2 Structuring Matters
2.1 What are the most common acquisition structures adopted for private equity transactions in your jurisdiction? Have new structures increasingly developed (e.g. minority investments)?
PE transactions are usually structured using a holding company ("Holdco") and an indirect wholly-owned subsidiary of Holdco ("Bidco"). Holdco is commonly owned by the PE fund and management, as majority and minority shareholders, respectively. Holdco can take the form of an offshore vehicle, although it is usually Irish or UK tax resident.
Bidco's primary role is to acquire and hold the target's shares and it may also act as borrower under the debt facilities. For tax- and/ or financing-related purposes, it is common to have intermediate holding companies inserted between Holdco and Bidco. For inbound investments, Bidco is typically a private limited liability company resident, for tax purposes, in Ireland. The jurisdiction of incorporation of Bidco can vary and may be onshore or offshore. Minority investments have become more common. See question 2.6 below.
2.2 What are the main drivers for these acquisition structures?
There are a number of factors which affect the acquisition structure adopted in PE transactions. These drivers include: (i) the tax requirements, capacity and sensitivities of the PE house, management and target; (ii) the finance providers' requirements; and (iii) the expected profile of investor returns.
2.3 How is the equity commonly structured in private equity transactions in your jurisdiction (including institutional, management and carried interests)?
PE investors typically use small proportions of equity finance to subscribe for ordinary or preferred ordinary shares in Holdco. The balance is generally invested as a shareholder loan (often structured as loan notes issued by Holdco), or preference shares.
Management will generally subscribe for ordinary shares in Holdco representing between 5% and 15%, commonly referred to as "sweet equity". On some buyouts, key senior management with sufficient funds to do so may also be permitted (and/or required) to invest in the institutional strip.
Senior management are usually expected to make sufficient financial investment in the target group to ensure their interests remain aligned with the PE investor and that they remain incentivised to create further value. They will also typically sign up to contractual restrictions (see question 2.5 below).
Other key personnel may be invited to participate in management incentive plans or to become additional employee shareholders.
2.4 What are the main drivers for these equity structures?
Management incentivisation, structural subordination of equity and investor financing, ease of return of funds to investors, and tax considerations generally feature as main drivers for these structures.
2.5 In relation to management equity, what are the typical vesting and compulsory acquisition provisions?
Transaction documents will invariably include provisions enabling the PE fund to compulsorily acquire a manager's shares on termination of his/her employment with the relevant portfolio company.
Documentation will usually include good leaver/bad leaver provisions, which will determine the amount payable to the departing manager. These provisions come in many forms but will frequently define the term "good leaver" by reference to specific circumstances (death, retirement over statutory retirement age, long-term illness, etc.) with all other circumstances constituting a "bad leaver". A "good leaver" will commonly obtain the higher of cost and fair market value for his/her shares while a "bad leaver" may expect to receive the lower of fair market value and cost.
The relevant documentation may also include vesting provisions that will regulate the proportion of shares for which the departing employee will be entitled to the "good leaver" price (i.e. higher of cost and fair market value) by reference to the length of the period from buyout to termination. Vesting may be straight-line or stepped and full vesting may typically occur after a period of between three and five years.
2.6 If a private equity investor is taking a minority position, are there different structuring considerations?
A minority PE investor will typically be more focused on veto rights, given it is unlikely to have board control. Depending on the size of the stake, vesting periods for management shares, good leaver/bad leaver provisions may be somewhat relaxed.
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Previously published in the International Comparative Legal Guide
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