In the first half of 2024, the Portuguese M&A market tallied 244 completed transactions, with an aggregate deal value of approximately EUR4.04 billion according to TTR Data (covering the period from 1 January to 30 June 2025). This represents a 3% decline in transaction volume and a 12% decrease in capital deployed compared to the same period in 2024, which saw 252 deals totalling EUR4.6 billion. Regarding private equity activity, 35 private equity-backed transactions were announced in the first half of 2025, totalling an estimated EUR868 million. This reflects a decline in total deal value compared to the same period in 2024, although a direct year-on-year percentage comparison was not provided in the source data.

The most notable private equity deal in Portugal to date (where the company involved had some equity investors, including Tikehau Capital) is NOS’s acquisition of Claranet Portugal, valued at approximately EUR152 million, as reported by TTR Data in January 2025. This represents the highest‑value private equity-related transaction so far in 2025.

From a macroeconomic perspective, Portugal’s economic environment in 2025 mirrors broader international trends in advanced economies. Persistently elevated interest rates, which remain high despite recent moderation by the European Central Bank (ECB), are continuing to dampen leveraged M&A and private equity deals, prompting a shift towards smaller, more strategic transactions and more cautious investor behaviour. Additionally, global geopolitical uncertainties (eg, supply chain disruptions, regional tensions) have further hindered and suppressed risk appetite, particularly in cross-border investments.

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, the market has seen the launch of new private equity and venture capital funds targeting Golden Visa investors, particularly those focused on technology, R&D, sustainability and innovation-driven sectors. Besides the Golden Visa scheme, the Portuguese private equity market continues to benefit from several other government-backed programmes, such as Programa Consolidar (attribution of EU COVID-19 recovery funds to support ailing but financially viable businesses), Programa Venture Capital (attribution of EU COVID-19 recovery funds to invest 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.

Lastly, Portugal’s lively start-up ecosystem remains a focal point for both private equity and venture capital investors (Portuguese and foreign alike), with increased interest in early-stage investment. Lisbon, 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, with the trends from previous years still influencing activity. 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 (as assets under management grew from circa EUR4 billion to circa EUR9 billion). As of this writing, the 2024 data was not available.

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.

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.

To the authors’ knowledge, several private equity funds are applying for, operating as and sometimes downgrading 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).

Additional ESG-related obligations derive from the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD), with the latter being adopted in May 2024. 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.

In May 2025, the European Commission launched a public consultation on a major SFDR review, aiming to simplify the regulation, address legal uncertainty and enhance the integrity of ESG labelling. Stakeholders were invited to submit general feedback (as opposed to providing replies to specific queries as in 2023’s SFDR consultations). The outcome will certainly further assist in shaping fund structuring and investor practices in the coming years.

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, Decree-Law No 27/2003 of 28 April 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 (Law No 18/2015), as well as of the former Portuguese legal regime for undertakings for collective investment in transferable securities (UCITS) and other alternative investment funds (Law No 16/2015), 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 Portuguese Securities Market Commission (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 2025 Supervisory Focus

In March 2025, the CMVM published its annual asset management circular (“Circular 002/2025”), 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 include:

• prudential risk indicators and financial soundness;
• marketing transparency, particularly regarding ESG claims and fund classifications;
• oversight of alternative investment funds and related governance;
• anti-money laundering (AML) and countering the financing of terrorism (CFT) compliance; and
• alignment with EU-level frameworks, especially European Securities and Markets Authority (ESMA) guidance, the Digital Operational Resilience Act (DORA) and the Markets in Crypto-Assets Regulation (MiCA).

Circular 002/2025 also anticipates the implementation of forthcoming EU legislative initiatives, including the Alternative Investment Fund Managers Directive 2011 (AIFMD II), UCITS VI, and the ESG Ratings Regulation, all of which are expected to prompt further regulatory updates and promote greater harmonisation across EU member states.

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

The main regulators of merger and acquisition activity and foreign investment are as follows.

• 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.
• 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 (fund managers and financial intermediaries) 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 (the “Foreign Subsidies Regulation”; 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. 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 equity funds 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&Is).

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

The SPV is then funded with equity from the fund (capital, quasi-equity contributions or shareholder loans) to complete the acquisition, and 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 equity or quasi-equity from a private equity fund and debt (depending on the transaction size, the financing structure 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 and legal requirements.

Overall, with higher interest rates, the authors have found that financing M&A deals in general (and also private equity) has become more difficult.

Consortium Deals

Deals involving consortium sponsors are not common in Portugal; however, when the target size is such that private equity sponsors are required, such 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 private equity deals in Portugal.

Co-Investment Business Models

Some fund managers (eg, institutional asset managers and “first-tier” foreign private equity firms) 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 adjustment mechanisms in M&A transactions (involving both private equity and corporates) usually have either locked-box or completion account mechanisms. Fixed-price transactions (ie, those with no adjustment whatsoever) are not common.

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);
• allow the buyer to dispute draft completion accounts; and/or
• cause material changes to the company during the period between signing and closing (in both cases).

This does not differ materially from deals where sellers are corporates.

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, interest is usually charged on amounts classified as leakage, although this is not always the case. On the other hand, the practice of charging “reverse” interest on leakage during the locked-box period varies across deals and is not a standard feature. However, it is not unheard of; sometimes, negotiation between the parties for the specific terms outlined in the locked-box provisions results in this feature (most notably if there is negotiation leverage from the buy side).

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, prior to the COVID-19 pandemic, conditions other than those of a regulatory nature were 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 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 continued to influence deal structuring. Notably, material adverse change clauses have been refined but remain present in most private equity and M&A transactions, particularly as a hedge against exogenous circumstances such as geopolitical volatility or interest rate-driven market disruptions. While material adverse change clauses were once rare in Portuguese deals, the uncertainty introduced by recent global events has made all parties more cautious, with increased attention placed on the precise definition and scope of these 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, these undertakings are usually 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.

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).

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

Termination rights are usually assigned to a private equity seller (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;
• the seller fails to comply with material closing actions; and/or
• (in buyer-friendly transactions) a “material adverse change” occurs.

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 breach of warranties are usually subject to caps in liability for breach of warranties and de minimis and basket provisions.

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 warranties – 10–20% 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). There are also mechanisms for price retention, but indemnities are rarely provided.

W&I insurance is also an increasingly common feature of Portuguese private equity transactions. Policy costs (which are relatively high) are usually borne by the buyer and cover a wide range of business warranties based on due diligence conducted by the insurance company (which in turn takes into account the vendor’s and the buyer’s due diligence).

Fundamental warranties and “plain vanilla” tax warranties are increasingly being covered by W&I insurance as well. On the other hand, pollution liability, pension underfunding, certain tax liabilities and sanctions are common exclusions.

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, 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 (in accordance with Article 187 of the Portuguese Securities Code).

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 Article 188 of the Portuguese Securities Code (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.
• 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 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 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.

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 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.

Managers are often granted common shares with vesting provisions, and preferred instruments are not commonly used in management equity. In addition, sweet equity (equity issued at par or at a discount to managers) is not commonly linked with standard business practices or legal structures in Portugal.

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. With the recent United States Federal Trade Commission ban on non-compete agreements in employment relationships, further developments might also arise at the level of the EU.

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

• it must be entered into in writing;
• it has a time limitation of two years (extendable to three years in certain cases); and
• it must allow consideration to be given to the employee/director in exchange for accepting the clause.

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 the 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. Anecdotal evidence indicates that the most common forms of exit in recent years were trade sales and secondary sales to other asset managers. 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.