Private Equity 2024 Comparisons

In line with global markets, Ireland has seen a cautious start to 2024, which is reflective of broader macroeconomic volatility and geopolitical uncertainty. During the first half of 2024, there has been a 20% decrease in deal volume against the same period in 2023. However, thanks to a number of deals transacted at the upper end of the valuation spectrum (ie, more than EUR500 million), Ireland’s deal value figures have remained remarkably robust – with an increase of over 200% against the same period in 2023.

There has been a general trend towards more bilateral deals and fewer auction processes when compared with previous years, reflecting a broader shift to more buyer-friendly market conditions and an increase in the number of strategic acquirers in the market.

In terms of due diligence, there has been a discernible trend in the past 12 months towards expanded financial, legal and technical diligence, whereby the due diligence process in private equity transactions has become more involved and targeted. This appears to be driven – in part – by the requirements of lenders as well as warranties and indemnity insurance (“W&I insurance”) underwriters, which has led to an increase in both transaction complexity and timeline.

Due diligence tends to consist of a red-flag review of matters above a specific monetary materiality threshold. This trend towards red-flag, exceptions-only diligence reporting is aligned with the increase in private equity buyers in the market. In particular circumstances, there are sometimes selective “deep dive” diligence exercises carried out on specific aspects depending on the nature of the target business. Contract reviews are generally limited to the target’s top ten customer contracts or to those contracts that account for a material proportion of the target’s revenue.

There has been a material increase in minority investments undertaken by private equity investors in recent years. This trend is expected to continue as dedicated minority funds look to take advantage of Ireland’s favourable fiscal and economic policies. However, from a tax structuring perspective, the availability of Ireland’s “substantial shareholders” exemption should be considered, as this relief from capital gains tax only applies where a minimum 5% shareholding has been held for the duration of a specified holding period.

Ireland has always attracted significant levels of inbound investment activity. This trend has continued in 2024, with more than half of all deals involving international acquirers, including three-quarters of the top 20 deals (by value).

The Irish M&A market has proved resilient during the past 12 months when faced with geopolitical concerns and the prevailing economic headwinds of inflation, supply chain issues and rising energy costs. However, the easing of inflationary headwinds – coupled with increased certainty in relation to interest rates – is having and will continue to have a positive impact on deals requiring acquisition finance.

Although business carve-outs have gained prevalence, share purchases of entire businesses remain the most common buyout method. Asset purchases continue to be more appropriate only when specific assets or a specific part of the target’s business is sought after.

Despite the high interest rate environment, private equity continues to play an outsized role in the Irish M&A market. Although private equity deal volumes were down approximately 19% in the first half of 2024, as against the same period in 2023, almost one in five deals was undertaken by a financial sponsor or a private equity-backed company. Notably, half of Ireland’s largest 20 deals in the first half of 2024 involved a private equity acquirer.

EU FDI Regulation

Previously, there were no specific restrictions on foreign buyers acquiring Irish private companies. However, this has changed following the coming into force of Regulation (EU) 2019/452 of the European Council and of the Parliament establishing a framework for the screening of foreign direct investments (FDI) into the EU (the “EU FDI Regulation”) on 11 October 2020. 

The EU FDI Regulation applies to a broad range of foreign investments by non-EU countries into EU member states that are likely to affect “security or public order”. An investment may be deemed likely to affect security or public order where it could potentially affect certain strategic interests, such as:

• critical infrastructure;
• critical technologies;
• supplies of critical inputs;
• access to sensitive information, including personal data, or the ability to control such information; and
• the freedom and pluralism of the media. 

On 31 October 2023, Ireland enacted the Screening of Third Country Transactions Act 2023 (expected to be commenced in Q3 2024), which implemented the EU FDI Regulation. The key points are that this new regime is suspensory (with criminal sanctions), involves very low thresholds, covers a wide variety of sectors, and needs to be considered in parallel with merger control rules. It remains to be seen how it will be implemented in practice; however, the Department of Enterprise, Trade and Employment has published draft guidance documents.

Under the new legislation, a new mandatory notification to undertake a “screening procedure” by the Minister for Enterprise, Trade and Employment will be required for certain transactions to which third-country or foreign-controlled undertakings (this includes both companies and individuals outside the EU, the European Economic Area (EEA) and Switzerland) are parties if the following conditions are met:

• a third-country undertaking or a connected person is a party to the transaction;
• the value of the transaction is at least EUR2 million;
• the transaction relates to or impacts critical infrastructure, critical technologies or dual-use items, critical inputs including natural resources, access to sensitive data, and/or the freedom and plurality of the media; and
• the transaction relates to an asset or undertaking in the state.

A “transaction” includes any transaction or proposed transaction where a change of control of an asset or the acquisition of all or part of an undertaking in the state is affected. The concept of “control” is the same as in the EU and Irish merger control regimes and relates to “direct or indirect influence” over the activities of the undertaking (eg, voting rights or securities, ownership of assets of the undertaking, or rights and contracts providing influence over the decisions of the undertaking).

Transactions for the acquisition of shares or voting rights only have to be notified where the above-mentioned criteria are fulfilled and where the percentage of shares or voting rights held changes from:

• less than 25% to more than 25%; and
• less than 50% to more than 50%.

It remains to be seen how this will be implemented in practice. However, broadly speaking, Ireland is expected to remain very “FDI-friendly”.

Investment Limited Partnerships

The use of Investment Limited Partnerships (ILPs) by private asset managers has increased in recent years, following an overhaul of the partnership legislative regime in Ireland in 2021. The ILP now offers the key features and functionality managers and investors have come to expect from similar vehicles in jurisdictions such as the Cayman Islands and Luxembourg, but in the Irish regulatory, tax and service provider environment.

The ILP incorporates standard private equity and real asset fund features such as closed-ended structures, excuse provisions and exclude provisions, capital accounting, commitments, capital contributions and drawdowns, defaulting investor provisions, distribution waterfalls and carried interest, and advisory committees. In addition, the ILP is tax-transparent for Irish tax purposes and one of the ILP’s key features – compared to similar vehicles in other jurisdictions – is its ability to be structured as an umbrella fund with separate sub-funds (including segregated liability between those sub-funds).

More than 50 ILPs have now been established in Ireland and the feedback from managers and investors regarding their experiences of the new structure has been very positive, in terms of the structure itself, the level of fundraising that was achieved following the introduction of the new ILP-based products, and the pragmatic approach experienced in establishing an ILP in Ireland as compared to other jurisdictions. The positive experiences of those who have already established ILPs are expected to continue to drive further activity by other financial sponsors in these areas .

See the responses at 2.1 Impact of Legal Developments on Funds and Transactions regarding FDI and 6.4 Conditionality in Acquisition Documentation regarding merger control.

There have been no major Irish law developments on sanctions or anti-bribery in the past 12 months. Ireland participates in the EU decision-making process when taking sanctions decisions at the EU level but does not adopt sanctions autonomously. The EU regularly adopts new sanctions all the time (particularly against Russia and in relation to its invasion of Ukraine) and Ireland follows those decisions. Ireland’s anti-bribery laws were last updated in 2018 (Criminal Justice Act 2018).

In terms of ESG regulations, Ireland has recently (July 2024) transposed the EU’s Corporate Sustainability Reporting Directive (CSRD) into Irish law. The CSRD introduced the EU’s new mandatory sustainability reporting regime, which many Irish companies will be required to comply with in respect of their next financial year. Portfolio companies are preparing for reporting under the new regime and their financial sponsors are considering how to incorporate the wealth of new non-financial reporting that will be produced into their existing metrics – as well as the challenges that will arise for new acquisitions, where the target does not report under CSRD or has different reporting structures.

Private equity firms with larger portfolio companies are also considering the impact of the Corporate Sustainability Due Diligence Directive, which came into law in the EU in the middle of 2024 and will begin to apply to companies in 2027. Under this new regime, in-scope companies (and, indirectly, their customers and suppliers) will be required to incorporate sustainability due diligence into their operations and strategy.

Due diligence is usually carried out by the buyer’s legal advisers. Typically, the buyer’s lawyers share a due diligence questionnaire (DDQ) with the seller’s lawyers, which will contain a list of questions for them. These are usually categorised under a number of headings, including:

• accounts;
• data protection;
• employment and pensions;
• financial arrangements;
• intellectual property;
• key contracts;
• litigation and disputes;
• real estate;
• regulatory;
• ESG;
• share capital and corporate structure; and
• tax.

The buyer’s lawyers will also request documents from the seller’s lawyers. The seller will then upload these documents to a virtual data room (VDR), to which the buyer, seller and their respective advisors have access.

The seller’s lawyers will respond to the questions raised in the DDQ. This allows the buyer’s lawyers to raise follow-up questions and/or request that further documents be uploaded to the VDR.

The buyer’s lawyers draft a legal due diligence report addressed to the buyer, outlining the issues identified during the due diligence exercise and advising as to how they can be dealt with. The buyer’s lawyers typically have detailed instructions regarding the scope of the due diligence (and the materiality threshold to be applied); the report will only address issues within this scope.

In recent years, areas such as data protection – and, in particular, General Data Protection Regulation (GDPR) compliance – have been given very high priority in the due diligence process, owing to the potential for punitive penalties arising from breaches of the GDPR. In addition, there has been a large focus on pensions arrangements and ESG issues as part of legal due diligence, due to changes to legislation affecting private pensions schemes and various ESG regulation (discussed in 3.1 Primary Regulators and Regulatory Issues).

While there has a been an observable trend towards more bilateral deals, private equity sellers continue to favour sales by auction. A vendor due diligence (VDD) report is typically part of an auction process and involves the vendor providing a report or legal fact book that describes the business and any potential impediments to an acquisition. These are typically provided on the basis of a specified scope of review and include analysis of limited aspects (eg, change of control provisions in commercial contracts). The vendor’s advisers will typically provide reliance on the VDD report.

The vast majority of transactions are structured as share sales. However, there has been an increase in the number of asset sales in the form of business carve-outs where certain large corporates seek to focus on their core business lines and dispose of non-core assets. Asset purchases and business transfers can be more appropriate where a specific part of the target’s business is being acquired and therefore needs to be carved out from the larger business, which may be appropriate in certain sectors.

While there has been a recent trend towards bilateral transactions, auction sales remain common, particularly where private equity investors seek to exit their investment. No specific regulatory restrictions apply and the structuring of the terms will largely be business- and/or timing-specific.

It is essential that a robust non-disclosure agreement is entered into before commercially sensitive information is shared with potential bidders. Generally, a non-disclosure agreement is entered into with potential bidders before the information memorandum is shared.

Even though in the majority of cases the highest bidder is successful in an auction process, there is no requirement for the seller to accept the highest bid. Where mark-ups of the primary transaction documents are required as part of the bid process, the form of the mark-up can influence the determination of the successful bidder. Although privately negotiated transactions and auction sales will typically be conducted on similar terms, in an auction sale there is typically less scope for negotiation by the bidders, and sellers will look to maintain competitive tension for the duration of the process.

Private equity transactions are typically structured in Ireland using either a double or triple “stack”. This usually consists of:

• a top holding company (“HoldCo”) through which the private equity fund will holds its equity;
• an intermediate holding company (which, depending on the overall funding structure for the deal, will typically be used to hold the private equity fund’s shareholder debt); and
• the purchaser vehicle (“BidCo”), which will be the vehicle used to acquire the shares in the target company.

The primary role of the BidCo is to acquire and hold the target’s shares; however, it may also act as a borrower under debt facilities. For tax purposes, it is common to have multiple holding companies inserted between the HoldCo and the BidCo.

For inbound investments, the BidCo is typically a private limited company resident for tax purposes in Ireland. The jurisdiction of incorporation of the BidCo can vary and may be offshore or onshore.

The structure of a private equity investor will typically differ where the investor is acquiring a minority position in the target company. Such investments will typically be structured directly through an existing entity rather than through a BidCo. In outright buyouts, it is very uncommon in Ireland for the private equity investor itself (or one of its funds) to act as the BidCo, for the above-mentioned reasons.

In an Irish context, an equity commitment letter is typically provided ahead of funds being drawn down. In the context of third-party debt financing, it is less common for the lender (whether that be a traditional bank or a private credit lender) to provide a letter of commitment (or equivalent). This has not changed noticeably in the past 12 months – although, where such third-party debt finance is being utilised, there has been a more recent trend towards lenders undertaking a greater level of due diligence and requiring tighter financial covenants.

M&A deal activity involving a consortium of private equity sponsors is not common in Ireland. Private equity transactions are commonly financed through a mixture of equity provided by a private equity sponsor in combination with third-party debt finance, which is arranged by the private equity sponsor. It is, however, not unusual to see a consortium of investors (such as pension funds) co-invest via one bespoke private equity fund.

Forms of Consideration

The most prevalent form of consideration used in Irish transactions remains cash consideration. However, other forms of consideration are permissible.

Share consideration has emerged as a prevalent form of consideration, coinciding with the increase in private equity activity in Ireland. Typically, share consideration will be used in the context of management shareholders who sell their shares in the target in consideration for the issuance of shares to them in the buyer’s group – integrating the management shareholders into the private equity structure.

Factors in Choice of Consideration

Depending on the transaction structure, consideration can often be structured to incorporate hold-backs or earn-outs in order to provide a private equity buyer with protection against future warranty claims or deteriorating future performance. Earn-outs, in particular, have been commonly used in recent years to bridge valuation gaps. While still a prevalent feature of private equity transactions, deferred consideration has become less attractive following the increase in popularity of W&I insurance, which has de-risked recovery for future claims. Tax structuring can also be an important factor in determining the form the consideration will take, particularly in the context of a management rollover.

Deferred Consideration

The use of deferred consideration, earn-outs, and escrow arrangements is increasing as the market rebalances following the impacts of COVID-19 and the related liquidity injection into the market.

Locked-Box Consideration Structures

Locked-box structures involve the agreement of a final purchase price using the company’s recent audited financial statements – or, where there has been a material gap, a later set of locked-box accounts – and there are no provisions for post-completion adjustment of the purchase price. Locked-box structures are generally preferred by private equity sellers, as they offer the distinct advantages of:

• certainty in the purchase price;
• greater control over financial information;
• reduced contractual liability; and
• expedited distribution of capital.

Locked-box structures have increased in prevalence as the private equity M&A landscape has matured in Ireland.

Completion Accounts

While there has been a material increase in the number of transactions utilising the locked-box consideration structure, completion accounts remain the most commonly used and preferred consideration mechanism among trade sellers. The consideration structure remains the most significant difference between trade sellers and private equity sellers, with the latter typically preferring a locked-box mechanism. It is also dependent on the sector and the deal structure, as completion accounts are often particularly preferred in circumstances where there may have been a pre-sale carve-out.

Where a fixed-price locked-box consideration structure is used and a business is expected to generate excess cash profits during the period between the locked-box date and completion, some form of equity ticker or interest charged on the equity price will often be included as a means of compensating the seller for the time lag between the locked-box date and completion. However, this will largely depend on the bargaining power of the parties and the nature of the underlying business. By way of example, in certain pre-revenue businesses in the technology or energy and infrastructure sectors, it would be unusual to see an equity ticker where the target is loss-making and pre-revenue – given the target is unlikely to hold any excess cash profits made between the locked-box date and completion.

It is typical, irrespective of the consideration mechanism, to have a dedicated expert or other dispute resolution mechanism in place for consideration structures in private equity transactions.

The most common provision is for disputes to be referred to a dedicated expert, with the appropriate expertise and level of experience, for determination. This is often by reference to the Big Four accounting firms.

More generally, there has also been an increase in the inclusion of arbitration clauses. These usually involve the parties agreeing that any disputes arising between them be referred to arbitration and that neither party can pursue litigation until the arbitration process has been exhausted.

Regulatory Approval

Private equity transactions in Ireland are subject to regulatory approval by the Competition and Consumer Protection Commission (CCPC). The substantive test for clearance applied by the CCPC is whether the merger would substantially lessen competition in the relevant markets for goods or services in Ireland.

For media mergers, there is a further step whereby the Minister for Communications, Climate Action and Environment then applies a media plurality test to determine whether the merger would be contrary to the public interest in protecting the plurality of the media in Ireland.

See 2.1 Impact of Legal Developments on Funds and Transactions for a discussion of Ireland’s implementation of the EU FDI Regulation, which provides for a new mandatory notification to and “screening procedure” by the Minister for Enterprise, Trade and Employment for certain transactions.

Conditions Precedent

In general, parties seek to avoid conditionality in order to make the terms of a deal more certain and there has been increased focus from sellers on conditionality in the past 18 months. Where conditions precedent are provided for in share sale agreements, they are typically limited to the following:

• obtaining change-of-control consents from key customers and/or suppliers, so as to ensure that key strategic contracts are preserved for the buyer;
• a requirement that specified permits, licences or consents are obtained to enable the buyer to complete the purchase and/or carry on the business;
• where the company operates in a regulated sector, obtaining all necessary regulatory consents and waivers;
• shareholder consent, which may be required in certain circumstances – in particular, where one of the parties is a listed company; and
• other transaction-specific conditions.

In Ireland, competition clearances are (where applicable) a condition precedent to completion, with completion pending approval from a regulator such as the CCPC. (This is also expected to be the approach taken once the FDI regime comes into force in September 2024.) The risks of merger control clearance are often passed on to the purchaser by the use of a “hell or high water” (HOHW) clause, which may include an obligation on the purchaser to:

• make divestments
• agree to behavioural commitments; or
• litigate in the event the transaction is blocked by the CCPC.

In the authors’ experience, private equity-backed buyers generally do not accept HOHW undertakings in Irish deals that involve a regulatory condition. However, it should be noted that buyers may be more open to accepting such undertakings under certain conditions – for example, in the case of a “no-overlaps” concentration (ie, where there is generally no prospect of a significant competition issue). At present, it is more common for HOHW undertakings to be utilised in relation to merger-control/antitrust conditions, rather than for foreign investment/subsidisation conditions under the FDI or Foreign Subsidies Regulation (FSR) regimes. This position may evolve in relation to the new FSR and FDI regimes over time – particularly in terms of the FDI regime, when the Screening of Third Country Transactions Act commences in September 2024.

The inclusion of break fees or reverse break fees in private equity transactions remains rare. This is down to the reticence of private equity buyers to agree to pay costs in the event that a transaction does not reach completion.

Break fees are common, however, in public company takeovers and are permissible under the applicable Irish takeover rules (see 7.1 Public-to-Private), provided that the Irish Takeover Panel has expressly consented to them. Such consent is ordinarily only given where the Irish Takeover Panel is satisfied that:

• the break fee relates to specific quantifiable third-party costs;
• it is capped at 1% of the value of the offer at the time the firm announces its intention to make the offer payable; and
• written confirmation has been received from the board and financial adviser of the target, stating that they believe that the break fee is in the best interests of their shareholders.

As mentioned in 6.4 Conditionality in Acquisition Documentation, outside of regulatory requirements, parties tend to avoid conditionality. Where a deal is subject to regulatory approval and it is not received, the other party may terminate.

Parties will generally put in place a longstop date. These periods have been extended in recent times, owing to the increase in the number of third parties involved in deals, as well as the increased complexity of deals.

When agreeing upon a longstop date, it is crucial that buyers and sellers consider whether closing conditions are feasible within the given timeframe or may take longer than otherwise anticipated. It is also useful to consider the circumstances in which a longstop date may be extended or adapted. The longstop date will vary depending upon the nature of the transaction but is typically up to 12 months.

The allocation of risk between a buyer and seller will depend on the nature of the transaction and the underlying business or asset(s). However, current market conditions favour sellers, so this can lead to the buy-side bearing more risk.

W&I insurance has become increasingly prevalent in Irish deals during the past few years. Such policies serve to reduce the seller’s liability and, in the case of some assets, liability can be limited to as little as one euro.

In line with market practice, private equity-backed sellers will typically bear very little risk outside of title and capacity warranties. In the authors’ experience, both trade sellers and trade buyers in the Irish market will often bear more risk on transactions.

Typically, a buyer will endeavour to include far-reaching and broadly drafted warranties, whereas a seller will seek to limit the scope of the warranty language so as to reduce the likelihood – and financial consequences – of a warranty claim. Due diligence reports are deemed to be disclosed against the warranties given for the purposes of the W&I policy, effectively putting the purchaser on notice of all the matters contained therein and excluding liability for such matters. In recent years, it has become increasingly common for the VDR to be disclosed.

Private equity sellers will typically only give fundamental warranties in respect of title and capacity. Although the target’s management team may – to varying degrees – provide business and operational warranty cover, the cap on liability for such management warranties will typically be significantly lower than the overall purchase price. This has resulted in the widespread use of W&I insurance in private equity M&A deals.

Financial caps on seller liability for breach of warranty claims of between 25% and 50% of the overall purchase price is common on mid-market and higher-value transactions, whereas historically market practice in Ireland would have been for 100% of the overall purchase price to be “on risk” for breaches of warranty. Known issues are typically excluded, except in the case of fraud.

Customary time limits on fundamental warranties and tax warranties can be up to five or six years, whereas for business warranties the time period is typically 12 to 24 months. Given that private equity sellers typically insist on a W&I policy, there is no difference in the periods provided, save that W&I providers will often extend the time periods to six or seven years and three years respectively.

W&I insurance has, over the years, become a popular means used by parties in private equity transactions to bridge the gap between the desired level of warranty coverage from a buyer perspective and the level of exposure a seller is willing to assume in respect of potential warranty claims on the sale of a company or business.

Even though the level of cover will vary, the policy can be used to reduce the seller’s liability to as low as one euro for certain assets and, in particular, property assets – although the one euro cap is being applied more and more in other industries. However, the seller typically retains risk for the title and capacity warranties, and – if found to have acted fraudulently or engaged in wilful misconduct – will retain full liability.

W&I insurance is now common in respect of fundamental and/or business warranties and also for tax warranties. In Ireland, a separate tax deed is typically also used to allocate tax risk between a buyer and seller on a euro-for-euro indemnity basis. More recently, W&I providers have been willing to cover tax deeds in full under the W&I policy, subject to certain customary carve-outs.

Owing to the prevalence of W&I insurance, and the insurer’s appetite to provide specified cover for certain indemnities, it is no longer common to have an escrow or retention in place to back the obligations of a private equity seller. We rarely see escrow or retention arrangements save for bespoke deal-specific risks in deals that carry a high value or probability of risk.

Litigation is relatively uncommon in private equity transactions in Ireland. This is partially attributable to the limited warranty liability provided by private equity sellers. Where disputes arise, they typically relate to the consideration mechanism and earn-outs.

Public-to-private transactions by private equity-backed bidders are rare in the Irish market – there are seldom more than one or two a year (and often none). The authors have noted an increase in the number of enquiries where clients were exploring opportunities in this space, particularly in light of the pressure on public market valuations.

It is typical for transaction agreements to be entered into in public-to-private acquisitions. Such transaction agreements will usually be governed under Irish law.

A public-to-private transaction is regulated by the provisions of the Irish Takeover Panel Act 1997 (as amended), as well as the Irish Takeover Rules 2022 and the European Communities (Takeover Bids (Directive 2004/25/EC)) Regulations 2006 (together, the “Takeover Rules”). The Takeover Rules regulate the conduct of takeovers of Irish companies listed on certain stock exchanges. The Irish Takeover Panel (the “Takeover Panel”) is the regulatory body that is tasked with overseeing the application of the Takeover Rules to specific transactions. The rules impose a rigourous framework on such transactions and mandate engagement by private equity investors with the Takeover Panel.

While the application of the Takeover Rules means that such transactions are generally subject to a more restrictive framework than a typical private company transaction, there are three particular Takeover Rules features of note, as follows.

• A transaction must be independently cash-confirmed before a bidder can announce a firm intention to make an offer. For a private equity investor, this means that – at the time of announcement – its funding will need to be unconditionally available to the bidder (including possibly being placed in escrow).
• Once a firm intention to make an offer is announced, a bidder will generally be bound to proceed with the offer. Furthermore, save for the acceptance condition or any competition/antitrust condition, the bidder will have limited scope to invoke any other condition to lapse or withdraw an offer once the offer is made. This increases the importance of due diligence for the private equity investor.
• Special arrangements with any category of target shareholder, including management incentivisation proposals, will generally require consent to be granted by the Takeover Panel. Such consent may be given subject to independent shareholder approval at a general meeting. This necessitates the early formulation of such arrangements or proposals and engagement with the Takeover Panel.

Until the time of announcement of an intention to make an offer under the Takeover Rules, the Substantial Acquisition Rules (SARs) apply to a person acquiring shares and impose restrictions on the timeline within which a person may increase a shareholding in the target.

The SARs prohibit the acquisition by any person (or person acting in concert with that person) of shares or rights in shares carrying 10% or more of the voting rights in an issuer within a period of seven calendar days if that acquisition would take that person’s holding of voting rights to 15% or more but less than 30% of the voting rights in the issuer.

Dealings in the securities of a target company that is in an offer period under the Takeover Rules (and, in certain circumstances, dealings in the securities of a bidder) may trigger a disclosure requirement. The Takeover Rules require that a bidder publicly disclose any acquisition of target securities or derivatives referenced to such securities, including those that are purely cash-settled contracts for difference. Other persons interested in 1% or more of the target’s securities are also required to publicly disclose their dealings during an offer period. Complex rules apply to exempt fund managers and principal traders, particularly when they are members of a group that includes the bidder or a financial adviser to the bidder.

In Ireland, certain disclosure obligations may arise under the Transparency Directive regime, which has been transposed into Irish law through the Transparency (Directive 2004/109/EC) Regulations 2007 (as amended) and the Central Bank of (Investment Market Conduct) Rules 2019 (together, the “Transparency Rules”). The Transparency Rules, which may apply depending on which market the target is listed upon, require a stakeholder to notify a listed company once the percentage of voting rights acquired by that stakeholder reaches, exceeds or falls below 3% (and then each 1% thereafter).

The Companies Act 2014, as amended, requires that a notification be made within a prescribed timeframe where there is a change in the percentage of shares held by a person in a public limited company resulting in:

• an increase from below to above 3%;
• a decrease from above to below 3%; or
• where the 3% threshold is exceeded both before and after the transaction, but the percentage level in whole numbers changes (fractions of a percentage being rounded down).

The Takeover Rules contain mandatory offer requirements that apply according to the following thresholds:

• where any person, or any persons acting in concert, acquire control of a relevant company; and
• where any person, or any persons acting in concert, who control a relevant company acquire within any period of 12 months additional securities of such an amount as will increase by more than 0.05% the aggregate percentage of the voting rights in that company conferred by the securities held by them.

If a transaction falls within the above-mentioned criteria, except with consent of the Takeover Panel, an offer made must – in respect of each class of shares – be in cash (inclusive of cash alternatives) at a price per share that shall not be less than the highest value of the consideration per share paid by the offeror of that class during the 12 months immediately prior to the announcement of the offer.

Please see 6.1 Types of Consideration Mechanisms.

With regard to any minimum price rules applicable to tender offers, a bidder may be required to make a cash or cash alternative offer matching the highest price that it previously paid for target shares in a number of circumstances. If the bidder (or any person acting in concert with it) has, in the 12 months prior to the commencement of the offer period, purchased securities of the target carrying in aggregate 10% or more in nominal value of any class of share that is the subject of the offer, then any offer for that class of share must be in cash or accompanied by a cash alternative at no less than the highest price paid by the bidder or concert party for that share in the relevant period. The Takeover Panel has the discretion to remove the 10% threshold and apply the rule to any acquisition, irrespective of the percentage acquired.

Unless the Takeover Panel otherwise consents, a bidder is not typically permitted to include any:

• pre-conditions to announcing an offer (other than receipt of irrevocable undertakings);
• conditions to completion of an offer, which depends solely on the subjective judgements of the bidder or the target or is within their control (conditions relating to required targets’ shareholder acceptance levels and regulatory conditions are permitted); or
• conditions relating to financing.

In addition, neither bidder nor target are permitted to invoke any condition (other than the acceptance condition and certain required competition law clearances) without the Takeover Panel’s consent. Such consent will only be given where the circumstances that give rise to the right to invoke the condition are of material significance to the bidder or the target, as the case may be, in the context of the offer and the Takeover Panel is satisfied in the prevailing circumstances that it would be reasonable for the condition to be invoked.

Practically, while certain “material adverse change”-type conditions are included in offers, Takeover Panel consent to invoke such a condition will be required and such consent will not be readily provided.

In Irish recommended public takeovers, a transaction facilitation agreement usually provides for certain deal protection mechanisms, including match rights, force-the-vote provisions and non-solicitation provisions. Break fees of up to 1% covering transaction costs are permitted with Takeover Panel consent. Reverse termination fees (ie, providing for payment by the bidder to the target) are also permissible under Irish law, without an upper limit.

Where the offer is for cash or includes an element of cash, the formal offer announcement must include confirmation by the offeror’s financial adviser that resources are and will be available to satisfy full acceptance of the offer.

In Irish public takeovers, private equity funds will typically issue hard-equity commitment letters, which commit the fund to invest in the bid vehicle in order to pay the offer price. Limited conditionality is permissible in debt facilities.

There is a variety of governance structures used, ranging from ordinary equity investments with certain control rights to preferred equity or debt-like structures with limited governance rights but with the ability to participate in equity returns. Although not a major feature of the Irish market in recent years, mezzanine debt and convertibles have also become more common. Typically, a financial sponsor who is taking a minority position will seek certain rights and protections, including tag-along and drag-along rights, the ability to appoint a director, a right to information about the company, rights of first refusal in respect of new equity or debt issuances, and board representation rights. It is important that a well-negotiated shareholders’ agreement is put in place to ensure a minority investor obtains adequate protection, but in a way that does not unduly stifle the development of the relevant business.

A private equity minority investor will usually include specific covenants in a shareholders’ agreement (or investment agreement) to ensure it has control over material business decisions made by the portfolio company. The main investment agreement will typically:

• allow the private equity fund to control the composition of the group’s board of directors;
• include veto rights over material business decisions; and
• oblige the management team to submit regular financial and event-driven reporting to the private equity fund for the purpose of monitoring its investment.

Alternatively, or in parallel with a shareholders’ agreement, a private equity fund will hold the majority of voting rights in the target entity to ensure control over material business decisions.

Debt push-downs provide a tax-efficient acquisition-structuring option for private equity buyers whereby an Irish BidCo can obtain interest tax deductions for interest on debt financing obtained for the purpose of the transaction. In terms of applicable thresholds, the BidCo and the target must be part of the same corporation tax group.

The most common squeeze-out mechanism in the context of Irish public limited companies is a scheme of arrangement, which is a statutory procedure that has the effect of rearranging the capital structure of a company and any existing arrangements with creditors. A scheme of arrangement requires majority approval from each shareholder class (representing not less than 75% of the voting shares in each class), as well as the approval of the High Court of Ireland.

In larger transactions, it is common for irrevocable commitments to be sought from major shareholders to ensure that the terms of the offer are accepted and to bind the shareholders to selling their shares to the buyer. This commitment is usually given before the offer is made, as it offers certainty to the bidder in relation to their chances of being successful.

An irrevocable commitment is binding on shareholders and will generally set out a timeframe for the shareholders to accept the offer. Such commitments are regulated by the Takeover Rules.

Management incentivisation is a hallmark of Irish private equity transactions and is typically a key element of a private equity firm’s three-to-five-year business plan.

Management will generally subscribe for ordinary shares in the HoldCo representing between 5% and 15% of the overall share capital. Such equity is commonly referred to as sweet equity. The sweet equity shares will typically have nominal value initially on completion of the buyout transaction and they will typically be non-voting and subject to good leaver and bad leaver vesting provisions. Where there are a large number of managers in the sweet equity pool, a new nominee company or trust vehicle (“NomineeCo”) will often be set up by the private equity fund to hold the legal interest in the shares on behalf of management.

As referenced in 8.1 Equity Incentivisation and Ownership, where there is a larger pool of management investing in sweet equity, it is common for a management pooling vehicle or NomineeCo to be utilised. The NomineeCo will typically hold the beneficial interest in the non-voting shares on trust for the management team. Private equity funds will typically engage tax advisers to structure a NomineeCo in a tax-advantageous manner for the participants on exit.

See 8.1 Equity Incentivisation and Ownership for a description of sweet equity terms. In addition, where management are also sellers and are reinvesting a portion of their sale proceeds, they will typically reinvest by way of a share-for-share exchange and receive ordinary shares in the same entity as the financial sponsor holds their equity. Such reinvestment can often be a mix of ordinary equity and preferred equity, which will be on similar terms to shareholder debt from the financial sponsor.

It is notable that, given the increasing number of US financial sponsors that are active in the Irish market, there is increasingly more of a US-style approach to management equity, with more prescribed key performance indicators required to be satisfied in order for the management sweet equity pot to become participating on an exit.

Management equity will typically be subject to both vesting and good-leaver/bad-leaver provisions, whereby – in circumstances where a member of the management team leaves the business prior to an exit – such shares can be repurchased from the relevant manager at a nominal or agreed price. The valuation will depend upon the circumstances in which the manager leaves (ie, whether the manager is a good leaver, a bad leaver or a very bad leaver).

Good-leaver/bad-leaver provisions will determine the amount payable to the departing participant. A “good leaver” will commonly obtain a fair market value for their shareholding on exit, whereas a “bad leaver” typically obtains the nominal value of their shareholding. It is common practice for such vesting provisions to include claw-backs whereby an individual that has been designated as a “good leaver” may be required to reimburse their windfall for subsequent breaches of restrictive covenants or other material provisions.

Historically, leaver provisions were drafted heavily in favour of the private equity fund, including an expansive definition of “bad leaver”. However, as competition for suitable assets increases, it is increasingly common for private equity funds to have a more management-friendly leaver provision whereby a “bad leaver” is defined with reference to specific circumstances, such as:

• breaches of restrictive covenants; or
• defined events of default.

Management shareholders are generally subject to restrictive covenants in Ireland, including non-compete, non-solicitation and non-disparagement undertakings. Such restrictive covenants can be included in both the equity package and the employment contracts to be entered into as part of completion. However, such provisions should be carefully drafted in light of the delicate balancing act between disruption of competition coupled with the right to earn a livelihood and the protection of a legitimate business interest. The basic position is that restrictive covenants are, prima facie, unenforceable for being unduly in restraint of trade – unless the party seeking to rely on them can demonstrate that the restrictions in question are no more than what is strictly necessary to protect a legitimate business interest and are not otherwise contrary to the public interest.

In general, in Ireland, a non-compete is unlikely to raise concerns if:

• it is limited to a duration of two years (where goodwill is being transferred);
• it is limited to a duration of three years (where know-how also transfers); and
• it relates strictly to the business being acquired and is limited to the territory in which that business already operates.

Management does not typically enjoy veto rights over the day-to-day or strategic decisions of the company, which:

• in the case of the former, will be determined by the board; and
• in the latter case, will be reserved for the investor through reserved matters.

Depending on the structure of the agreement in place between the investor and management, it is often the case that certain limited matters will be reserved specifically for management either through specific reserved matters or by requiring unanimous board approval (where management is represented on the board).

Typically, but not always, management are awarded pre-emption rights to avoid dilution. Ratchet mechanisms are also utilised to vary the amount of equity held by management and can act as an anti-dilution protection where more sweet equity is issued to other managers at a later stage.

It is uncommon in Ireland for management to be awarded a right to control or influence the exit of the investor, unless management is awarded a controlling percentage of strip equity in the ultimate holding company. The only exception to this is where the private equity investor is participating in a joint venture or the nature of the arrangement is such that it is more akin to a joint venture.

In addition to holding the majority of the voting rights in a target or HoldCo, private equity investors will seek to include specific covenants and management provisions in any shareholders’ agreement entered into with management to ensure they have control over the material business decisions made by the target.

The transaction documents will typically provide for the private equity investor to assume control of the composition of the target’s board of directors, including veto rights over material business decisions and provisions for the submission of regular financial and event-driven reporting to the sponsor, creating an oversight mechanism for the private equity investor. Notably, there has been an increased focus on ESG and regulatory reporting obligations, including flexibility to update policies and reporting formats to enable financial sponsors to adapt to their evolving reporting obligations.

Financial sponsors will also look to include emergency powers with step-in rights and freezing of certain management rights during certain periods or on the occurrence of certain events. There is often a catch-up right for management if there are debt or equity issuances during such emergency periods.

An Irish private equity fund will generally be structured as a limited partnership. Its wholly owned subsidiaries utilised as investment vehicles will usually be incorporated as private limited companies.

Thus, provided the portfolio company is a limited liability company, it will enjoy a separate legal personality and Irish courts will not “pierce the corporate veil” to impose personal liability on shareholders for the actions of its portfolio company unless there has been fraudulent activity. Irish legislation also provides for limited circumstances where the corporate veil can be pierced – for example, in the context of environmental or health and safety legislation or where “pooling orders” have been made. The effect of these provisions is that management and, in even more limited circumstances, shareholders can be made liable for the acts or omissions of a portfolio company – although such events are extremely rare in Ireland.

In recent years, exits in Ireland are typically achieved via a sale process to other private equity-backed investors or corporates, rather than by IPO. This usually takes the form of a sale or liquidation of the portfolio company. This is so, given the recent lack of IPOs in the Irish market.

Although it remains rare for a private equity investor to continue to be a shareholder in a portfolio company beyond the term of the initial investment, continuation funds are emerging as a viable exit alternative for private equity investors. This is a particularly useful option where investors foresee a better exit down the line and additional liquidity will assist in making this more likely.

Drag and tag rights are staple provisions in most equity arrangements in Ireland. They are usually structured with the aim of making a sale more attractive to potential buyers by providing a mechanism to allow for the entire interest in a company to be sold.

Although drag rights are commonly provided for in shareholders’ agreements, they are rarely utilised in practice. Where they do arise, it will generally be the private equity fund that has the right to exercise them and only very rarely will a fund be subject to being dragged along.

Tag rights are also common in Ireland and allow for minority shareholders to have the opportunity to sell their shares on the same terms as the majority shareholder(s).

The threshold to enforce these rights, whether tag or drag, will usually depend on the equity structure of the company in question.

In recent years, Irish companies have generally avoided going to market via IPO, with many existing shareholders instead preferring to exit via M&A. However, a number of Irish companies have chosen to go public in the USA via “deSPAC” transactions, whereby an existing listed “blank cheque” company merges with the Irish target and the Irish target gains a US listing (SPAC listings have generally not been possible in Ireland and the UK, owing to local listing rules).

In the case of deSPAC transactions, it is common that the large shareholders (including private equity sellers) will be required to enter into lock-up agreements in advance of completion and listing. The terms of lock-up agreements may vary, but most prevent the locked-up parties from selling their shares for a period of 180 days after completion and listing. In more recent transactions, there has been a move towards stepped lock-ups, which permit the sale of shares in tranches at predetermined intervals.

Relationship agreements that include board appointment and information rights are, in principle, permissible under Irish law (subject always to a review against applicable company, securities and takeover laws). These rights may be set out in the issuer’s articles of association or in a standalone agreement.