Private Equity 2026 Comparisons

According to TTR Data, in the first half of 2026 (1 January to 30 June 2026) the Portuguese M&A market recorded 105 transactions, with an aggregate deal value of approximately EUR2.33 billion. This represents a 20% decline in transaction volume and a 42% decrease in capital deployed compared to the same period in 2025, which saw 244 deals totalling EUR4.04 billion.

Regarding private equity activity, 31 private equity-backed transactions were announced in the first half of 2026, totalling an estimated EUR340 million. This represents a broadly stable level of deal volume recorded in the same period of 2025, but a sharp contraction of around 60% in aggregate deal value (down from approximately EUR868 million), highlighting a shift towards smaller tickets. Figures are negatively skewed as they do not take into account the novobanco transaction (announced in 2025, but closed only in the first half of 2026).

The most notable private equity deal in Portugal to date, as reported by TTR Data, is the sale, by Lone Star Funds (global alternative investment fund manager, with approximately EUR95 billion of assets under management), of its participation in novobanco to French banking group BPCE for over EUR5 billion (total price of EUR6.7 billion). This transaction, classified by TTR as a private equity exit, represents the highest‑value private equity-related transaction so far in 2026. Private equity investment activity in Portugal remained broadly diversified, with manufacturing, travel, hospitality and leisure, real estate, and healthcare facilities and services accounting for the highest number of completed transactions. Also, cross-border investment continued to be a defining feature of the market, with inbound acquisitions driven primarily by investors from Spain, France, the United States, the United Kingdom and Luxembourg.

Despite some slowdown in transactional activity, the broader private capital ecosystem in Portugal continues to mature. Deal flow is increasingly driven by a mix of domestic and international sponsors, and the market now features a wider range of strategies – from traditional buyouts and growth capital to venture capital, infrastructure adjacent investments and specialised sector funds. There was, in fact, a shift in the strategic profile of Portuguese private equity compared with the previous decade. Whereas turnaround and special situations strategies dominated in the years following the sovereign debt crisis, the market has progressively moved towards growth and venture capital. Today, capital is primarily being channelled into scaling established companies and financing innovation, with buyout and restructuring strategies playing a more selective, albeit still relevant, role.

On another note, 2026 signalled the beginning of a potential consolidation trend in the Portuguese asset management industry. Although the market has evolved into an increasingly diverse ecosystem, marked by a growing number of asset managers and specialised investment strategies, the acquisition by Fidelidade – Portugal’s largest insurance group and one of its leading institutional investors – of a 70% stake in IM Gestão de Ativos (IMGA), one of the country’s largest independent asset managers, announced at the end of 2025, reflects a strategic move to reinforce in-house investment capabilities (other transactions are also underway in the alternative investment space, such as C2 Capital Partners’ acquisition, announced in April 2026, of a majority stake in 3 Comma Capital, a fast-growing Portuguese asset manager and venture capital fund manager). While these types of transactions do not yet fundamentally alter the structure of the Portuguese market, they may represent the first signs of a broader trend towards consolidation as regulatory requirements tighten, operational costs rise and investors demand greater scale, governance and product breadth.

From a macroeconomic perspective, Portugal’s economic environment in 2026 continued to be shaped by global dynamics, including geopolitical uncertainty and tensions, trade tensions and moderating economic growth. While inflationary pressures have eased compared to the peak levels observed in 2022–2023, the European Central Bank’s (ECB) monetary policy remains in a transition phase, with interest rates still above pre-pandemic levels despite the beginning of a gradual normalisation. In the context of heightened geopolitical uncertainty and more expensive debt, sponsors and lenders have adopted a more cautious stance, particularly in relation to highly leveraged transactions. This may help explain the contraction in aggregate deal value observed in the Portuguese M&A and private equity markets in 2026.

From a domestic standpoint, regulatory and policy shifts continue to redirect investment flows. The end of real estate-related investments as an eligible path for Portuguese Golden Visa residency has notably reshaped capital allocation. In response, private equity funds targeting Golden Visa investors and focusing on technology, R&D, sustainability and innovation-driven sectors have consolidated their position, providing an important source of growth capital to Portuguese companies.

Besides the Golden Visa scheme, the Portuguese private equity market continues to benefit from several other government-backed programmes, such as Programa Consolidar (allocation of EU COVID-19 recovery funds to support ailing but financially viable businesses), Programa Venture Capital (allocation of EU COVID-19 recovery funds to investments in start-ups in priority sectors such as software, energy, climate and life sciences) and SIFIDE (tax-break scheme available to investors of, inter alia, private equity funds that invest in R&D-focused companies), all having a positive impact and aimed towards, among other things, enhancement of the competitiveness and attractiveness of Portugal’s private equity market. Collectively, these initiatives have contributed to strengthening the competitiveness and attractiveness of the Portuguese private equity market.

The SIFIDE regime has, however, been the subject of significant policy debate. In late 2025, the Portuguese government announced its intention to reform the regime, arguing that the indirect investment mechanism through private equity and venture capital funds did not always ensure that the corresponding tax benefits translated into effective R&D expenditure. The original proposal envisaged the discontinuation of the fund-based mechanism from 2026 onwards; the government has since adopted a transitional approach instead, under which the current SIFIDE framework remains in force until the end of 2026, and a revised incentive is being designed with the objective of strengthening the link between the tax benefit and actual investment in research and innovation.

Lastly, Portugal’s lively start-up ecosystem remains a focal point for both private equity and venture capital investors. Lisbon further strengthened its position as one of Southern Europe’s main innovation hubs in 2025, supported by the expansion of Unicorn Factory Lisboa and the growing international visibility of the Portuguese start-up ecosystem. Technology remained a leading sector in terms of transaction volume, particularly in areas such as artificial intelligence, digital infrastructure and software, while investor interest in consumer, retail, life sciences and services increased, indicating a gradual diversification of opportunities for both growth and buyout strategies. From a geographic view point, Porto and Braga continue to gain traction as innovation hubs, attracting venture capital and early-stage funding into sectors such as fintech, AI, digital health and green technologies.

At the fundraising level, domestic fundamentals remain strong, even if the near-term impact of the SIFIDE reform introduces some uncertainty for R&D-oriented strategies. The Recovery and Resilience Plan (RRP) continues to provide substantial capital for green and digital transformation initiatives, often through co-investments with private equity vehicles. Meanwhile, high net worth individuals and family offices, particularly those seeking Golden Visa-linked exposure, continue to channel capital into qualified Portuguese funds. These fundamentals have contributed significantly to the sustained expansion of the Portuguese private equity industry, with assets under management by domestic private equity companies and funds more than doubling from 2015 to 2023, rising from around EUR4 billion to approximately EUR9 billion, and reaching EUR10 billion for the first time in 2025.

In line with the trend in the rest of the EU, the demand for regulatory compliance of (alternative) fund managers has been steadily increasing in the past few years in Portugal. Private equity is not impervious to this, with both EU-wide sustainability rules and evolving domestic frameworks reshaping how funds are incorporated, supervised and marketed. From a regulatory standpoint, 2025 and 2026 have been characterised by consolidation rather than major domestic legislative change. Market participants now operate fully under the new asset management framework, approved by Decree-Law No 27/2023 (RGA), while the regulatory agenda shifted towards the practical application of existing rules and the progressive incorporation of new European standards, particularly Regulation (EU) 2022/2554 (DORA), Regulation (EU) 2023/1114 (MiCA) and Directive (UE) 2024/927 (AIFMD II). The transposition of AIFMD II into Portuguese law has not yet taken place, despite the April 2026 deadline for member states to complete the transposition.

At the national level, the most relevant developments for private equity managers in this period stem from the implementation of these regimes into the Portuguese supervisory landscape. In practice, this has meant the gradual adaptation of the CMVM’s supervisory approach and guidance, as well as increased focus on governance, operational resilience and compliance with the new European regulatory requirements.

At the international level, the broader European agenda continues to evolve. Discussions around the deepening of the Capital Markets Union and the European Savings and Investment Union (SIU) have intensified. In parallel, negotiations on the proposed Retail Investment Strategy (RIS) and the entry into force of Regulation (EU) 2024/3005 (ESG Ratings Regulation) and the new EU AML/CFT package will shape the environment in which private equity managers operate.

Adapting to ESG Rules

Private equity fund managers continue to implement European rules on ESG matters via the mandatory disclosure requirements of Regulation (EU) 2019/2088 of the European Parliament and of the Council (SFDR), as well as Regulation (EU) 2020/852 of the European Parliament and of the Council (Taxonomy Regulation) and associated Level 2 Regulations. The CMVM continued to treat ESG as a strategic supervisory priority during 2026, participating in the common European supervisory action co-ordinated by ESMA on sustainability risks and disclosures and devoting particular attention to compliance with information duties under the SFDR.

To the authors’ knowledge, several private equity funds are applying for, operating as and sometimes upgrading to “SFDR Article 8” funds, which reflects growing interest from investors in the product and efforts from fund managers to structure and implement it (with the hope of improving their chances of successfully fundraising for ESG-driven limited partners). At the same time, new EU initiatives will further influence ESG practices. Regulation (EU) 2024/3005 (ESG Ratings Regulation), applicable from 2 July 2026, introduces rules to enhance the reliability and comparability of ESG ratings and imposes transparency obligations on entities issuing ESG ratings used in financial products and services, including collective investment undertakings.

Additional ESG-related obligations derive from the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD), with the latter having entered into force in July 2024. At the time of writing, Portugal has not yet transposed the CSDDD into national law; in any event, following the entry into force in March 2026 of the Omnibus I simplification package, the CSDDD’s transposition deadline has been extended, for all EU member states, to 26 July 2028, alongside a narrowing of its scope of application to the largest EU companies. These directives impose extensive due diligence and disclosure requirements on large EU companies and certain non-EU operators, including companies within private equity portfolios. As a result, private equity sponsors are increasingly factoring sustainability and human rights compliance into their due diligence, risk management and exit planning strategies.

Together, these frameworks demonstrate a continuous regulatory push towards responsible investment and sustainable finance. For private equity funds, this translates to operational demands as it continues to be challenging for managers, investors and regulators to be able to catch up.

New Fund Management Legal Framework

In April 2023, the RGA, approved by Decree-Law No 27/2023 of 28 April 2023, was published, having entered into force in 2023. This statute approved the new asset management framework, which fully revised the former private equity legal regime, as well as the former Portuguese legal regime for undertakings for collective investment in transferable securities (UCITS) and other alternative investment funds, merging these two statutes into one and enacting noteworthy changes to private equity companies and private equity funds’ activities.

With this revision, the Portuguese legislature aimed to create a unified legal framework for the asset management (including private equity) industry, envisaging a simpler, more coherent and more credible regime by emphasising a risk-based approach and ex post supervision (as an alternative to burdensome and lengthy authorisation processes) – and, very importantly, eliminating excessive regulation of pre-existing directive provisions (ie, “gold-plating”).

Most importantly, the timeframe to incorporate new private equity funds has shortened significantly (given that the registration of most funds is now subject only to a prior notice procedure). However, this comes at the expense of legal certainty, as the CMVM currently does not vet the documents being submitted beforehand (because the focus is now on ex post, rather than ex ante, supervision); also, with these new rules being approved, many small fund managers are now subject to more organisational requirements and regulation.

Although these changes have streamlined the fund incorporation process, often reducing registration timelines to as few as 15–30 days (factoring in documentation drafting times), they have also introduced greater responsibility. Fund managers are required to adopt robust internal governance and compliance structures from the outset, as ex post regulatory oversight becomes the norm.

The CMVM’s 2026 Supervisory Focus

In February 2026, reflecting its new ex post, thematic and risk-based supervisory approach to private equity, the Portuguese Securities Market Commission (CMVM) published its annual asset management circular (“Circular 002/2026”), setting out its supervisory priorities for the year. This guidance further clarifies expectations for fund managers operating under the new regime. Key areas of focus for private equity fund managers include:

• a common supervisory action co-ordinated by ESMA on the risk management function (extending through 2027);
• thematic supervision of governance and internal control systems, focusing on self assessment reports, identified deficiencies and the effectiveness of boards and control functions;
• supervision under DORA, with a focus on outsourcing and annual reporting of contracts with third party ICT service providers;
• thematic reviews of the activity of depositaries of collective investment undertakings, including their oversight functions and control procedures;
• Thematic supervision of the financial soundness and sustainability of the business models of management companies whose financial performance appears less robust;
• on-site thematic inspections of management companies in the area of AML/CFT obligations;
• supervision of the liquidation processes of collective investment undertakings, with a focus on timelines and the conduct of liquidating entities; and
• thematic supervision of the valuation of portfolio companies held by private equity funds and of the costs charged to private equity AIFs, including disclosure of information to investors.

The main body that provides regulatory oversight for private equity funds (registered in Portugal) is the CMVM. In addition to assessing the legality of the registration and setting up of private equity funds, it monitors their governance, activities and financial standing.

The main regulators of merger and acquisition activity and foreign investment are:

• the Portuguese Competition Authority and the European Commission for merger control (which also have jurisdiction when the seller or purchaser is backed by private equity);
• the CMVM for offers to acquire listed companies, and for public-to-private (P2P) transactions;
• the Portuguese government with regard to foreign investment control and concessions for the operation of certain public goods; and
• sectoral regulators such as ANACOM (telecommunications), the ERSE and the DGEG (energy), the Bank of Portugal (credit institutions), the ASF (insurers and pension funds) and the CMVM itself (UCITS fund managers and financial intermediaries), which also review and clear acquisitions of businesses in the above-mentioned sectors.

For foreign investment control, a review is triggered if the potential purchaser is ultimately owned by an entity outside the European Economic Area, or if the target assets are deemed “strategic assets” for the country (meaning that the main infrastructure and assets are assigned to national security or defence, or to the rendering of essential services in the areas of energy, transportation and communications).

As for foreign subsidies, under Regulation (EU) 2022/2560 (Foreign Subsidies Regulation, or FSR), the European Commission was endowed with extensive investigative and sanctioning powers. Thus, the notification and compliance obligations for EU companies envisaging M&A transactions and entering into public procurement procedures that are triggered by the FSR (ie, if there is deemed to be a foreign subsidy, meaning if a “third country provides, directly or indirectly, a financial contribution that confers a benefit on an undertaking engaging in an economic activity in the internal market and which is limited, in law or in fact, to one or more undertakings or industries”) are being closely monitored by legal advisers when considering potential M&A transactions, or participation in a public procurement procedure. For M&A, the thresholds for the application of the FSR are:

• one of the businesses involved having turnover in the EU of at least EUR500 million; and
• subsidies from third countries of more than EUR50 million have been granted by the acquiring company or one of the merging companies in the last three years; nevertheless, even below-threshold transactions can be “called in” by the European Commission if distortions are suspected.

With regard to antitrust, private equity-backed companies are subject to merger control rules, essentially in the same manner as corporates. Total turnover and other relevant metrics are normally assessed at the level of the management entity (ie, taking into account the aggregate funds managed by the management entity).

If the buyer or co-investor is a sovereign wealth fund, in the authors’ experience this does not lead to enhanced foreign direct investment (FDI) scrutiny relative to other third-country buyers; however, the authors also note that there can be practical difficulties for such entities when going through KYC and onboarding procedures with banks and co-investors.

In relation to sanctions, anecdotal evidence indicates awareness that the conflict in Ukraine, and the ensuing sanctions against some individuals and companies in the Russian Federation, are making it increasingly difficult for Russian citizens and companies (including those not subject to sanctions) to open and operate bank accounts and use financial systems (in Portugal and the rest of the EU). However, the authors have found no significant evidence that these sanctions have materially disrupted private equity activity in Portugal.

As outlined in 2.1 Impact of Legal Developments on Funds and Transactions, rules concerning anti-bribery and ESG compliance have been approved and are being implemented by supervisory entities throughout Europe. As a mark of the importance of these issues in respect of regulatory policy, it is worth emphasising that the CMVM has published a guide on sustainability for supervised entities, with the aim of facilitating and encouraging the adoption of policies and procedures in line with both supervisory expectations and the recommendations of the CMVM and ESMA regarding compliance with the standards on sustainable finance.

The practice of legal due diligence is common in private equity-driven transactions in Portugal, especially when private equity sponsors are involved.

The due diligence process is usually conducted on a “by-exception” or “red flag” basis (except when there are key contracts or other legal instruments underlying the target business, in which case the main legal terms are described).

Key areas of focus include material agreements, licences and the regulatory environment, corporate and intragroup relationships (services agreements, cash pooling, etc), and financing. Requests to provide compliance, AML and ESG legal due diligence have also been increasing. Taxes are also a common concern (but are often dealt with separately from legal due diligence).

Vendor due diligence is often conducted in transactions involving private equity sellers in order to (pre-emptively) resolve or flag any legal issues the target may be experiencing prior to a sale, and/or to get buyers “up to speed” on the company and to impose “fair disclosure” exceptions on the purchase and sale agreements (pertaining to the report’s conclusion).

Advisers involved in preparing the vendor’s due diligence reports are often asked to provide a statement of reliance to the financing banks of the buyer. It is common for the buyers’ advisers to provide such reliance in their own reports to banks – and to insurance companies if warranty and indemnity (W&I) insurance is obtained for the transaction.

General disclosure of information to buy-side advisers is common, but is not accompanied by reliance (except for financing banks as previously mentioned and W&I insurance providers).

In an auction sale, the seller will also typically provide bidders with presentation decks (often accompanying management presentations) that highlight the activities of the business or assets being sold, as well as non-public information on certain financial, operational and commercial metrics. Transaction structure and key legal matters are sometimes also addressed.

Most acquisitions by private equities are made through private sale and purchase agreements of equity participations in the target company. Asset sales occur less often due to tax and legal structuring reasons.

When companies wish to divest an unincorporated part of their business, they typically restructure the same in advance through a carve-out process. 

Court-approved schemes in insolvency or reorganisation proceedings have also gained popularity in distressed transactions, most notably debt-equity swaps in real estate assets and related businesses (hospitality and logistics). In terms of process, auction sales are becoming more common, most notably in larger deals; by encouraging competition between potential bidders, auction sales typically make the transaction more seller-friendly (by improving the price, as well as offering more favourable terms in W&I policies).

A typical private equity investment structure in Portugal involves a private equity fund managed by a regulated management entity that incorporates one or more wholly owned special-purpose vehicle (SPV) to complete the acquisition (usually for liability and financing ring-fencing purposes).

The SPV is then funded with equity from the fund (capital, quasi-equity contributions or shareholder loans) and usually with debt from third parties to complete the acquisition; in larger deals, bank financing is also obtained.

The typical funding structure in Portugal has not seen significant developments or changes in the past few months, with private equity transactions usually being financed through a mix of equity or quasi-equity from a private equity fund and third-party debt, depending on the size and structure of the transaction and the type of assets involved.

To increase certainty on the seller’s side with respect to the price, equity commitment letters are often requested from the private equity buyer’s structure, either from a corporate entity higher up in the fund’s chain of control or from the fund itself – especially in auction sales.

As far as ownership is concerned, the level of equity participation of a private equity fund depends on the type and circumstances of the transaction: for example, in management buyouts and “growth” transactions, funds typically hold a minority share of the equity, whereas in distressed transactions, a fund retains the majority of or all the equity in the entity.

In some larger transactions, private equity purchasers sometimes present commitment letters issued by lenders with non-binding offers or binding offers, either because certainty of funds is required by sellers in the auction or because they wish to strengthen their bid.

Usually, the debt-funded portion of the purchase price will not be fully binding at the signing stage of the transaction. Often, the full debt financing package remains subject to finalisation after the signing, and the debt commitment is contingent on certain conditions such as the lenders’ due diligence and fulfilment of specific financial, legal and AML/KYC requirements.

Overall, with the gradual normalisation of monetary policy and easing of inflationary pressures, financing conditions for private equity deals are improving and, as a result, debt financing is expected to gradually become a more attractive component of acquisition structures.

Consortium Deals

Deals involving consortium sponsors are not common in Portugal, given the relatively smaller size of tickets in Portugal vis-à-vis other EU countries or the USA. When the target size is such that private equity sponsors alone are limited in ticket sizes, a consortium may be formed. This was the case in the purchase of an 81% stake in Brisa, Portugal’s largest highway toll operator, as well as of six hydroelectric plants in the north of Portugal previously owned by EDP, Portugal’s largest industry and utility company, by a consortium of three private equity pension fund investors.

Similarly, consortia comprising a private equity fund and a corporate investor are not very common in PE-driven deals in Portugal.

Co-Investment Business Models

Some fund managers (eg, institutional asset managers and “first-tier” foreign private equity houses) are exploring joint-investment arrangements in large transactions with unit holders (the equivalent of the limited partner in the Portuguese context). In these cases, the fund will own a minority (largely passive) interest in the acquisition vehicle, which is majority-owned by one or more of its unit holders.

Club Deals

There appears to be heightened interest in the private equity market for club deals, among both traditional players and newcomers. Nonetheless, investors should be aware of the regulatory implications of taking this route, as the definition of alternative investment funds under European law (and the regulations resulting from that definition) may be broad enough to encompass certain club deal structures as well.

Price construction mechanisms in M&A transactions (involving both private equity and corporates) have either locked-box or completion account mechanisms.

Locked-box mechanisms are increasingly being utilised due to their ease of use over the “completion accounts” mechanism (which entails the preparation of target accounts as of the date of closing, a process that is usually costly and time-consuming).

To protect the interests of buyers, private equity sellers agree not to, for instance:

• engage in transactions that would cause value to “leak” from the target group (in locked-box structures);
• hinder or unduly delay the buyer’s ability to review and dispute the draft completion accounts (in completion accounts structures); and/or
• cause material changes to the company during the period between signing and closing (in both cases).

Private Equity Buyers and Volatile Turnovers

Private equity buyers provide equity support/commitment letters as a way to provide surety to the seller that the price will be paid (as well as other eventual pecuniary obligations fulfilled). A parent company guarantee (which would in theory offer stronger protection than equity support instruments) and a situation in which the private equity fund is a joint and several obligor are infrequently encountered.

In transactions involving businesses with volatile turnover, and in which management remains within the organisation (such as a management buyout), earn-outs are often agreed upon by the parties to the transaction.

In locked-box structures, it is common for the purchase price to accrue a daily “ticking fee” (a value accrual or interest-like mechanism) in favour of the seller between the locked-box date and completion, compensating the seller for the time value of money over that period; ticking fee rates are freely negotiated, and are often set between 4% and 8% per annum or by reference to a benchmark rate plus a margin. Separately, the practice of charging “reverse” interest on amounts classified as leakage is less standard, but is not unheard of; it sometimes results from negotiation between the parties on the specific terms of the locked-box provisions, most notably where there is negotiating leverage on the buy side, and serves to compensate the buyer for value having left the target group prior to completion.

Independent experts (jointly selected by the buyer and seller, and usually being in the form of an international audit/consultancy firm or investment bank) are typically used to determine leakage values in locked-box models and cash/debt/change in working capital values in completion account models. It is far less common to resolve such disputes through arbitration or judicial court proceedings.

The types of experts and mechanics of dispute resolution usually depend more on the particularities of the transaction than on the type of price structure used.

Although common when it comes to conditions of a regulatory nature, conditionality in acquisition documentation is not prevalent, particularly in an auction sale, because it reduces the certainty that the seller will be able to complete the deal.

In particular, conditions other than those of a regulatory nature are not common, although third-party consents in key contracts (notably pre-existing financing arrangements or concession agreements) and prior corporate restructurings are sometimes included. Making the transaction conditional on obtaining financing is rare (and usually “prohibited” in auction sales’ process letters).

The pandemic immediately resulted in an increase in:

• the use of material adverse change/effect clauses; and
• the use of conditional and deferred price structures (making the calculation of the purchase price more complex).

These remnants from the COVID-19 pandemic have had a more limited lasting influence on deal structuring than initially expected. Standalone material adverse change clauses remain, in practice, rare in Portuguese private equity and M&A transactions. What is more commonly seen instead is a hybrid approach, combining specific conditions precedent with narrowly defined walk-away rights tailored to very particular and extreme circumstances (such as the total disruption of a key market or supply chain), rather than broad, open-ended material adverse change clauses.

To increase certainty in execution, sellers usually include “hell or high water” undertakings in transaction documents, particularly in auction sales, again to increase certainty in execution; however, although these undertakings are successfully resisted by buyers, particularly private equity buyers who have demanding financial return objectives (which could be adversely affected if portfolio companies are divested too soon) and are often constrained by their investment mandates, in practice buyers ultimately tend to accept robust undertakings, including representations and warranties confirming that they have already reviewed the relevant regulatory clearance matters and identified no issues.

Although the authors have seen increasing FDI controls in cross-border transactions (including in the EU and USA), and even with the new EU FSR regime, there has not been a material change in Portugal in this regard (ie, the level of deal variation that the purchaser is required to withstand as a result of the outcome of these clearance procedures is often included as a condition, with no distinction between merger control and FDI). The relevant legislation is currently under review following discussions in the European Commission, and stricter requirements are expected, although no final outcome has yet been published.

In Portugal, break fees and reverse break fees are still rarely applied.

Termination rights are usually assigned to a private equity seller in very special circumstances (ie, if the closing of the agreement does not occur by the longstop date).

Private equity buyers are typically allowed to terminate their investments in the following circumstances:

• closure of the agreement does not occur by the longstop date; and/or
• the seller fails to comply with material closing actions.

The longstop date, typically agreed upon during the negotiation phase, can vary widely (being anywhere from three months to a year or more) based on the deal’s complexity, the number and type of conditions precedent it is subject to, the industry and other considerations.

In transactions where the seller is a private equity fund, risk allocation is typically shifted in its favour (compared to a “corporate” seller). The primary reason for this is that the private equity seller has a limited period in which it may be liable (private equity funds are eventually dissolved and wound up). Long lists of warranties, extended warranty claims periods and indemnities are thus rendered less effective (and less acceptable to the private equity seller).

In cases where the buyer is a private equity fund, there are no fundamental differences in risk allocation in relation to a “corporate” buyer: those are determined primarily by the economics and circumstances of the transaction. The main limitations of liability for private equity sellers are those related to breach of representations and warranties in acquisition agreements (detailed in 6.9 Warranty and Indemnity Protection); however, these limitations (quantitative and with regard to time) on liability may also apply to a breach of other undertakings or covenants under the agreement by the seller.

The warranties provided by a private equity seller to a buyer on an exit are usually limited. In most cases, “fundamental warranties” are provided regarding the existence of the seller and the target, the capacity to enter into the agreement and share ownership. “Business” warranties are more limited and reserved for certain key matters. Private equity sellers’ liabilities arising from breaches of warranty are usually subject to liability caps, de minimis thresholds and basket provisions, and are increasingly covered by W&I insurance, particularly in larger transactions, with pricing having become more reasonable over time.

The contents of the data room and disclosure letters typically exempt the seller from liability in the case of breach of warranties. Moreover, there is an advantage for the buyer, namely the disclosure of many issues that might otherwise remain “under the radar”.

Typical quantitative limitations on liability include:

• a cap for breach of business warranties – 10–30% of the aggregate consideration;
• time limitations to claim for breach of warranties of 12–24 months;
• de minimis – 0.1% of the aggregate consideration; and
• basket – 1% of the aggregate consideration.

In turn, qualitative limitations on the acquisition agreement usually include:

• issues known and fairly disclosed;
• changes in the law;
• liabilities provisioned in accounts; and
• actions that have been agreed in writing with the purchaser.

If the event that W&I insurance is contracted, however, these limitations will necessarily be different (ie, the buyer acknowledges that it will not make a claim under the acquisition agreement and that claims regarding breach of warranties will be brought against the insurance company under the terms of the insurance policy – which in turn has its own limitations).

Besides warranties, other protections offered by a private equity seller in an acquisition agreement include interim period obligations (including a limitation on the management of the target company outside of the ordinary course of business) as well as pre- or post-closing undertakings (idiosyncratic to the transaction). In smaller deals there are also mechanisms for price retention, but not so common in mid-size to large deals. Indemnities are sometimes provided, in small deals in relation essentially to tax, HR and regulatory, and in larger deals in respect of known liabilities or contingencies that could constitute “deal breakers”, most commonly those relating to litigation.

W&I insurance is an increasingly common feature of Portuguese private equity transactions. Although policy costs were initially relatively high, they have become more reasonable over time and are usually borne by the buyer. W&I policies cover a broad range of business warranties, based on due diligence conducted by the insurer, which in turn takes into account the due diligence carried out by both the vendor and the buyer.

Fundamental warranties and “plain vanilla” tax warranties are also increasingly covered by W&I insurance. Common exclusions, however, include pollution liability, pension underfunding and compliance and sanctions matters.

A private equity transaction rarely ends in litigation (especially when arbitration is used as a dispute resolution method, where its costs act as a relevant deterrent). The majority of pre-litigation disputes concern (alleged) breaches of warranty and the applicability of earn-out provisions (eg, whether earn-out events have been triggered).

In Portugal, public-to-private (P2P) transactions are uncommon. The only P2P transaction to have succeeded is the takeover of Brisa, the highway toll operator mentioned in 5.4 Multiple Investors, by its reference shareholder and a private equity sponsor (Arcus).

In a P2P transaction, the target company and its board play a critical role, since the latter has a fiduciary duty to act in the best interests of the company and its shareholders. When evaluating a P2P offer, the board must thoroughly assess the offer’s fairness and explore alternative options.

In addition, under the provisions of the Portuguese Securities Code, the board is required to produce a report on the fairness of the consideration being offered and its views on the impact of the transaction on the company’s strategic outlook and employment conditions.

Given the issues of equitable treatment of investors and market abuse rules, relationship or transaction agreements between the bidder and the target company are not common.

Under the provisions of Article 16 of the Portuguese Securities Code, any person that reaches 5%, 10%, 15%, 20%, 25%, 33%, 50%, 66% or 90% of the voting rights of a company listed in a Portuguese regulated market (or reduces their level of voting rights below said thresholds) must, as soon as possible, and within a maximum period of four trading days after the occurrence or knowledge thereof, inform the CMVM and the target company.

The communication must:

• identify the market participant as well as the individual or legal person entitled to exercise voting rights on its behalf (where applicable);
• show the entire chain of entities to which the participation is attributed (whether national or foreign);
• explain the situation by which voting rights inherent to securities owned by third parties are attributable to the market participant;
• detail the percentage of voting rights attributable to the holder of the participation, and the percentage of the share capital and the number of corresponding shares – as well as, where applicable, the participation by category of shares (when the issuer has several categories) and the title of attribution of the voting rights; and/or
• show the date on which the participation reached, surpassed or was reduced to the above-mentioned thresholds.

Even simple changes in the chain of attribution of voting rights must also be notified to the CMVM and the target listed company.

A person that has over 33% or 50% of the voting rights of a listed company has a duty to launch a public tender offer over the entire share capital and other securities issued by such company, granting the right for their subscription or acquisition.

However, if a person only has more than 33% of the voting rights of the listed company, the obligation to launch a mandatory tender offer will not arise if such person proves before the CMVM that they do not have control of the target company and are not in a group relationship therewith.

The consideration offered in a mandatory squeeze-out (compulsory acquisition) must be at least the highest of the following:

• the consideration offered in the preceding general mandatory offer, provided that:
1. the offer complies with rules governing the price offered – ie, the highest of the price paid or the price that the acquirer committed to pay in the six months prior, or the volume-weighted average price over the same period; or
2. it enabled the offeror to acquire at least 90% of the voting rights covered by the offer; or
• the price paid by the offeror, or that the offeror committed to pay (or any person whose voting rights are attributable to the offeror), for securities in the same category between the time at which the offer results were determined and the registration of the squeeze-out by the CMVM.

Consideration in public tender offers can be cash or securities. Typically, cash is the consideration of choice in tender offers, perhaps due to the relative “shallowness” of the Portuguese equity capital market.

Common conditions for a private equity-based takeover offer incorporated in the offer announcements include the lifting of voting limitations in the general shareholders’ meeting (when by-laws of the target include such voting limitations) and regulatory clearances.

Effectiveness of the offer (when the offeror seeks to obtain control of the target company) is usually subject to the condition of obtaining more than 50% of the voting rights therein.

It is not generally allowed under Portuguese law for a takeover offer to be conditional on obtaining financing, given that the buyer must have funds available to pay the full price resulting from the offer.

To ensure the protection of the bidder in the offer, break fees have been used as a way for the bidder to cover its costs should the offer not be successful. While not expressly prohibited under Portuguese law, break fees carry a considerable degree of risk for the target company’s directors, given that:

• the fee could be considered a breach of directors’ duties (if it is proven to be a way to entrench management or to favour one shareholder over another); and/or
• if sufficiently high, the fee could breach the “passivity rule”, which prevents management from making material decisions that would affect the target company before the offer is completed.

The law allows bidders to increase the price offered at any time, especially when a competitive bid is being submitted.

Outside of their shareholding, a person acquiring less than 100% in a tender offer can make use of the statutory squeeze-out procedure to acquire the entire share capital of the target.

If a purchaser (by itself or through related entities whose voting rights are attributable to it) holds more than 90% of the voting rights in a Portuguese listed company up to the time of the assessment of the offer results, it may – in the three subsequent months – acquire the remaining shares in cash through fair consideration.

The consideration offered must be the highest of:

• the highest price paid by the offeror, or that the offeror committed to pay (or any person whose voting rights are attributable to the offeror), during the six months prior to the announcement of the offer; or
• the volume-weighted average price of the stock in the six months prior to the offer.

Separately, and irrespective of the specific mechanism used to gain control of the target, there is no statutory threshold for a private equity-backed bidder to achieve a debt push-down into the target following a successful offer.

Any offeror that intends to launch a squeeze-out procedure must immediately announce it and send it to the CMVM to be registered. On the order of the remaining shareholders, they must also deposit the total consideration in a credit institution.

The acquisition of the remaining shareholders under a squeeze-out procedure is effective from the date of publication, by the offeror, of the registration before the CMVM.

The negotiation of irrevocable commitments in tender offers that occur prior to the announcement of the transaction is not common in Portugal.

To ensure that these commitments, which must in principle be disclosed, do not result in the CMVM judging the voting rights of the committing shareholders to be attributed to the offeror (which may trigger mandatory public offer thresholds), protections are sometimes provided for investors who wish to accept competing offers or exit in another manner.

Offering managers equity incentives/ownership is a common, but not inevitable, feature of private equity transactions in Portugal.

There is no standard way to attribute management shares, with equity participations ranging from residual (5–10%) to significant (40–49%). In certain management buyout transactions, management will hold the majority of the share capital post-transaction.

Employee stock option plans (virtual or physical) are sometimes also used for management and other key company employees. With the advent of tax reliefs to increase the appetite for stock option plans as a way to reward key employees and C-level executives, many small and mid-sized companies have been using the tool with success and so far to the satisfaction of employees.

Given legal constraints in Portugal that differ substantially from those applicable in non-Continental legal regimes, managers are often granted ordinary shares subject to vesting provisions, while preferred instruments are not commonly used for management equity. In addition, sweet equity, whereby equity is issued to managers at par or at a discount, is not commonly aligned with standard business practices or legal structures in Portugal. However, with the increasing presence of international infrastructure funds investing in Portugal, structures are now being considered and developed to reward management on terms more similar to those commonly used in the UK or USA.

Vesting provisions for management equity have become increasingly popular in Portugal, especially among start-ups and high-growth companies backed by venture capital or private equity investors. The primary aim of introducing these provisions is to incentivise and align the interests of management with the company’s long-term prosperity. Generally, these provisions hold that the rights associated with the equity shares granted to management will gradually become effective over a specified timeframe, subject to continuous employment or the achievement of predetermined performance objectives.

Good leaver/bad leaver provisions, which qualify the circumstances in which managers cease holding participation or directorships/employment positions in the target, are normally included in shareholders’ agreements regarding the target, which are entered into between management and the private equity sponsor.

Good leaver provisions are triggered if managers are forced to depart from the company due to extreme circumstances outside of their control (such as serious disease or injury). In turn, bad leaver provisions are usually triggered if managers leave the company without being considered good leavers.

In venture capital transactions, vesting provisions (where management is prevented through contractual means from fully owning the equity participations acquired/subscribed in the transaction) are also included in the relevant shareholders’ agreement. The vesting period will be three to four years, with a one-year cliff (whereby some shares vest) and two to three years of “linear” vesting (for the remaining shares).

If the manager is deemed a bad leaver, private equity sponsors will be granted the right to purchase their shares at nominal value. If, however, the manager parts ways with the company as a good leaver (and the agreement is negotiated in a balanced manner), private equity sponsors will usually be required (or have the right) to purchase the manager’s shares at fair value.

Management shareholders frequently commit to non-compete and non-solicitation undertakings. From an employment law standpoint, these raise concerns by restricting fundamental rights to work and the pursuit of professional livelihood – and from a competition law standpoint, by stifling competition. Therefore, they may be subject to limitations.

A non-compete clause applicable to an employee is subject to the following statutory restrictions:

• It must be entered into in writing.
• It has a time limitation of two years following the termination of the employment agreement.
• It must allow consideration to be given to the employee/director in exchange for accepting the clause.

Board members do not hold, as a matter of law, an employment contract, thus the above-mentioned restrictions are not applicable to board members. However, if a board member of a company wishes to exercise functions in a competing company, he or she must obtain a waiver from shareholders.

In either case, competition law rules also come into play when defining non-compete provisions of manager shareholders (particularly when such restrictions are included in the agreements governing the acquisition), and these determine (per the most recent guidelines from the Portuguese Competition Authority):

• the temporal scope, which should generally not exceed three years from completion (in exclusive control scenarios), save in duly justified exceptional circumstances (eg, where the target’s activities require long-term research and development or involve strong customer loyalty to the seller);
• the material scope, which must be confined to the activities actually carried out by the target company as of the date of the transaction; and
• the geographical scope, which must be limited to the area in which the target company was actually operating (or was demonstrably planning to operate) at the time of the transaction.

The above are “safe harbours”, and including non-compete clauses which sit outside of these parameters are not automatically deemed unlawful or contrary to competition law.

Non-disparagement clauses, where managers agree to not make negative public statements regarding the company, are unusual.

Restrictive covenants have the flexibility to be included in multiple documents, encompassing both the equity package and the employment contract. They can be integrated into the shareholders’ agreement or other equity-related documentation, specifying the roles and responsibilities of management shareholders. Furthermore, these covenants can also be seamlessly integrated into the employment or administration contracts of the management team, effectively governing their conduct throughout and after their tenure with the company.

Manager shareholders, when holding minority participations, are usually provided with contractual protections (in the transaction documents – most notably shareholders’ agreements) to ensure the integrity of their investments.

In the first instance, managers will usually be entitled to be appointed to the company’s board of directors (with executive functions).

Veto Rights

Sometimes, manager shareholders are afforded veto rights in shareholders’ decisions (share capital increases, issue of options, etc) to prevent the company from engaging in dilutive transactions for the management.

It is common practice to use veto rights and legal pre-emption rights to prevent dilution of manager shareholders in share capital increases. Managers also hold veto rights (in both shareholders’ meetings and board of directors’ meetings) to prevent a private equity sponsor from unilaterally taking fundamental decisions regarding the company’s governance (eg, amending the by-laws), legal characteristics (eg, transforming, merging or demerging the company) and strategy (eg, amending the business plan).

These veto rights are typically structured either around a shareholders’ agreement (where the protection is contractual and therefore enforceable only against the management’s counterparties) or through shares carrying special rights (where the protection is enforceable against the company and, therefore, company resolutions in violation of such “special rights” may be challenged on that basis).

Majority Participation

When a private equity fund shareholder holds the majority interest in the target company, typical control mechanisms are provided by statute (particularly the ability to appoint the members of the target company’s corporate bodies on one’s own; there is no statutory provision providing proportional representation in management or audit bodies under Portuguese corporate law).

Minority Participation

When the private equity fund shareholder has a minority participation in the target company, board appointment rights in shareholders’ agreements (proportional or not) are commonly negotiated. Veto rights at the shareholder level are also commonly requested in critical matters (eg, reorganisations, further financing and capital increases and decreases), along with information rights (eg, the right to receive monthly information on accounts and key performance indicators) and exit rights (pre-emption rights, tag-along rights, drag-along rights, etc).

A Portuguese company (extending to EU companies) that wholly owns another Portuguese company is responsible for compliance with a wholly owned subsidiary’s obligations both before and after it has been incorporated. However, it is doubtful that this provision applies to private equity funds since these funds are not incorporated and have a “proprietary” legal regime of their own that does not include a similar provision.

Nevertheless, there are (rare) cases where it would be conceivable (applying certain general civil law principles) for the legal personality of the portfolio company or SPV incorporated for the acquisition to be disregarded, and the “corporate veil pierced”. This requires proof of behaviour that is fraudulent or obviously in contravention of good faith principles.

It is typical for a private equity investment to be held for a period of four to seven years in Portugal before an exit occurs. Recently, exit activity represented the bulk of deal value, highlighting a more active secondary market and the predominance of larger divestments. The most common forms of exit continue to be trade sales and secondary sales to other private equity players. A write-off may also occur from time to time.

There have not yet been any initial public offerings (IPOs) or dual-track processes initiated by private equity sponsors in Portugal.

Drag-along rights are typically included in investment documentation to ensure that management and (often) other co-investors are required to sell if an exit opportunity arises.

In Portugal, the drag threshold can vary depending on the specific terms negotiated between the parties. It is often the case that a drag threshold falls within the range of 50–75% of the total outstanding shares. This means that if shareholders holding this percentage (or more) of the company’s shares agree to a sale, they can force the remaining shareholders to participate in the transaction through the drag-along rights.

Conversely, the typical tag threshold (if there is one at all) is usually set at a lower percentage, commonly around 50% of the total outstanding shares. If shareholders holding this percentage or more decide to sell their shares, minority shareholders can exercise their tag-along rights to join the sale and sell their shares on the same terms.

It is not common for management and institutional investors to have different tag thresholds.

In Portugal, there has never been an IPO promoted by a private equity seller (the closest to this situation was the debut of a venture capital-backed company on an alternative trading exchange).

In other IPOs in the Portuguese market (not triggered by a private equity exit) where the sponsor retains a majority participation, a relationship agreement is entered into between the dominant shareholder and the listed company to ensure the two entities conduct business in an arm’s length manner.