Despite the impact on total M&A investment in Spain of the current global geopolitical climate – particularly the Israel-Palestine and Russia-Ukraine conflicts – and the ongoing political volatility within the Spanish government, these challenges have not prevented the continued growth of the Spanish M&A market. According to the Annual M&A Report in Spain 2024, prepared by Capital & Corporate, 2024 closed with a total investment volume of EUR100.5 billion, an increase of 27.6% compared to 2023 and the second highest figure recorded to date.

Record Levels of PE Investment and VC Transactions

As reflected in a report published by the Spanish Venture Capital and Private Equity Association (SpainCap) for 2024, total private equity (PE) and venture capital (VC) investment in Spain reached a peak in 2019, with a total investment volume of EUR8,527 million, representing an increase of EUR2,514 million over the previous year. However, due to the COVID-19 pandemic, total investment fell in 2020 to EUR6,275 million, before rising again to EUR7,573 million in 2021 and reaching a new peak in 2022, with a total investment volume of EUR9,238 million – a milestone that was decisively driven by the emergence from the COVID-19 pandemic (later decreasing to EUR6,709 million in 2023).

In 2024, according to the above-mentioned SpainCap report, total PE and VC investment in Spain amounted to EUR6,538 million, representing a 2.6% decrease compared to 2023. Nevertheless, a positive trend was observed throughout 2024: investment activity was moderate in the first half of that year due to the complex economic and geopolitical environment but, in the second half of 2024, investment levels recovered to those of 2023 as a result of improved market conditions (eg, the European Central Bank lowered interest rates on 12 June 2024, encouraging investment).

In total, 725 investments were completed in Spain in 2024, compared to 844 in 2023 according to the SpainCap report. Divestments in PE and VC transactions increased by 113% in 2024 compared to 2023, with 211 divestments in 2024 (total amount of EUR2,902 million versus EUR1,362 million in 2023, distributed across 316 divestments). This is mainly due to the portfolio turnover among investors, which has reached its highest level in the past five years.

Major Market Challenges

As previously noted, most PE and VC investments in 2024 were carried out by Spanish fund managers, but the total investment amount by foreign fund managers was also significantly higher than previously. Notwithstanding the foregoing, the volume of investment by foreign fund managers in PE and VC transactions in Spain decreased by 5% in 2024 compared to 2023 (EUR4,800 million versus EUR 5,000 million), and the number of investments carried out by foreign fund managers also fell by 2% in 2024 compared to 2023 (163 versus 166 investments). Therefore, while the Spanish market continues to be an attractive hub for foreign fund managers, one of the market challenges will be attracting more international investment in order to emulate the foreign investment peak reached in 2022, when 224 foreign PE and VC investments were completed, with a total investment of EUR7,400 million.

In terms of VC and PE fundraising, a total of EUR4,701 million was raised in 2024, representing the highest-ever figure and a 51% increase compared to 2023. Another challenge for the market will be to maintain this level of fundraising in the future.

Finally, it will also be important to consider potential geopolitical and macroeconomic developments that may arise at both the national and international levels. Such developments may include, inter alia, a potential resolution of the Russia–Ukraine and Israel–Palestine conflicts, and an agreement between the EU and the USA; European exports to the USA being subject to a tariff of 15% while US products can enter the European market without tariffs could lead to greater distrust in European markets.

All of these – and other – variables must be closely monitored, as they may significantly impact investor confidence and the overall investment outlook.

Warranty and Indemnity (W&I) Insurance

The use of representations and warranties (R&W) insurance has increased in recent years across transactions, and is particularly prevalent in PE and VC transactions. According to the 2024 Global M&A Intelligence Report published by DLA Piper, 56% of transactions exceeding EUR50 million in deal value in 2023 incorporated R&W insurance as a guarantee. This growing use of R&W insurance has led to competition among insurers, which ultimately benefits the investor. The instability of the current geopolitical landscape has prompted investors to seek guarantee mechanisms (such as R&W insurance) that ensure a minimum level of protection.

Technology in M&A Processes

Technology has become an integral element of modern M&A practice, not only in terms of the growing reliance on virtual platforms for holding meetings in order to expedite processes but also as a result of the increasing use of digital signature and artificial intelligence tools, which are commonly employed by law firms to assist with M&A transactions.

According to the above-mentioned SpainCap report, in terms of the total amount raised, the technology and internet sector was the leading area for PE and VC investment during 2024, representing approximately 40% of the total funds. The increase in investment in this sector was particularly significant compared to 2023, where it was around 10% of the total funds. The services and healthcare sectors accounted for between 10% and 20% of the total funds. The most significant transactions were in:

• the internet sector (involving Idealista and the PE fund Cinven);
• the services sector (involving Nace Schools and Wenden, and Prosur and ICG); and
• the healthcare sector (involving Proclinic and Miura Partners, and IPD Dental Group and Proa Capital).

Regarding the proportion of investments, the technology and internet sector again led the way in 2024, accounting for approximately 30% to 40% of total transactions, followed by the healthcare sector, with between 20% and 30% of the deals, and then by the services sector, which accounted for around 10% of the total transactions.

The 2024 Annual Report issued by TTR Data, disaggregating the 2024 data between PE and VC, notes that:

• in terms of PE investments, the internet, software and IT sector recorded the highest number of transactions in 2024, totalling 45 (a 2% decrease compared to 2023), followed by manufacturing (36 transactions; a 38% increase), the renewable energy sector (33 transactions; a 43% increase) and finally business and professional support services (33 transactions; a 30% decrease); and
• in terms of VC investments, the software sector and the internet and IT services sector had the joint most transactions in 2024, totalling 134 (a 60% and 21% decrease compared to 2023, respectively), followed by biotechnology and pharmaceuticals (42 transactions; a 19% decrease) and finally the business and professional support services (29 transactions; a 26% decrease).

The same TTR Data report details the investment funds that made the most PE investments, as measured by volume, not value, with Qualitas Fund (27 investments), Miura Partners (12 transactions), Apax Partners (12 transactions) and Portobello Capital (11 transactions) being the most active.

The companies that executed the highest number of VC transactions in 2024 were Invierte Economía Sostenible (48 investments), Inveready Capital (17 investments), Sabadell Venture Capital (16 investments) and Draper B1 (14 investments).

When analysing the foregoing data, it should be noted that the November 2024 election in the USA – won by Donald Trump – created a certain degree of tension in the markets.

The ideologies and interventionism of governments (including the Spanish government) also influence the level of interest – or disinterest – in the markets. Nonetheless, in sectors such as renewable energy, the number of investments continues to increase significantly, largely because Spain is highly conducive to the development and expansion of this type of energy.

One of the legal developments in Spain in recent years most relevant to PE investments and transactions has been the enactment of Royal Decree-Law 5/2023, which introduced a wide range of measures in response to the economic and social consequences of the conflict in Ukraine, supporting the reconstruction of La Palma Island, addressing situations of vulnerability, transposing EU directives on structural modifications in capital companies and work-life balance, and enforcing EU law that came into effect on 29 July 2023.

Royal Decree-Law 5/2023 introduced several amendments to the regulation on structural modifications in capital companies (mergers, spin-offs, segregations, transformations, etc), which had an impact on PE investments by simplifying and expediting the process compared with that under the former regulation.

In particular, expert reports requested for leveraged mergers subsequent to the leveraged acquisition of a target company are no longer obliged to address the “existence of financial assistance”. This amendment simplifies the process by avoiding controversies related to the evaluation of financial assistance in such transactions, which previously created difficulties for independent experts in determining whether such financial assistance was fair and equitable.

The removal of this requirement conferred several benefits for PE funds engaging in leveraged mergers in Spain, particularly by:

• allowing PE investors to execute leveraged mergers more efficiently, and within a shorter timeframe, without the need to determine the existence of financial assistance;
• reducing costs related to additional evaluations and advice; and
• permitting greater flexibility in the structuring of leveraged mergers.

Additionally, the regulatory framework governing Spain’s electric power sector was also amended, with the aim of minimising the impact of the war in Ukraine and promoting the use of renewable energy.

Regulation concerning foreign investment and foreign subsidies was also introduced, as explained in 3.1 Primary Regulators and Regulatory Issues.

As a general rule, M&A transactions in Spain are not subject to restrictions or mandatory regulatory filings, albeit with some exceptions.

Merger Control Regulations

Spanish competition regulations establish the requirement to obtain prior authorisation from the National Markets and Competition Commission (CNMC) in cases where the completion of a transaction exceeds certain market share and turnover thresholds.

In such instances, it is standard practice for share purchase agreements (SPAs) or investment agreements to include, as a condition precedent (CP) to closing, prior authorisation by the CNMC. A frequent condition in SPAs and investment agreements is that, should such authorisation be denied, or if it is subject to the execution of certain conditions that cannot be met, the SPA or investment agreement would be automatically terminated (except in cases where an additional requirement to be fulfilled by the parties is necessary and can be implemented).

This form of regulatory control is more commonly encountered in PE investments or other M&A transactions versus VC investments, which typically involve acquisitions of start-up companies.

Foreign Investment Regulations

Royal Decree 571/2023 primarily aims to provide a legal framework for Spanish investments abroad, as well as for foreign investments in Spain. For these purposes, foreign investments in Spain can be understood as involving, among other things:

• a shareholding in the capital of companies incorporated in Spain equal to or greater than 10% in a Spanish company;
• the acquisition of interests in collective investment institutions when the management company (ManCo) is resident in Spain and, such that a stake equal to or greater than 10% of the target’s assets or share capital is acquired;
• any contributions made by shareholders (holding more than 10% of the share capital of a company) to the net equity of Spanish companies without an increase in share capital;
• financing Spanish companies for an amount equal or greater to EUR1 million; or
• the acquisition of real estate assets in Spain for an amount greater than EUR500,000.

Additionally, there is an obligation to report foreign investments in Spain to the Investment Registry of the Ministry of Industry, Trade and Tourism, with the aim of maintaining oversight over the investments made.

Royal Decree 571/2023 (as well as Law 19/2003 of 4 July) also regulates the suspension of the liberalisation of foreign direct investments (FDIs) in Spain, which requires prior administrative authorisations in specific cases. In this regard, any investment carried out by any non-EU or non-European Free Trade Association (EFTA) residents (or by EU/EFTA residents whose ultimate beneficial owner is based outside these areas) must obtain prior authorisation from the Spanish government when any of the following conditions are met.

• The foreign investor obtains 10% or more of the share capital of a Spanish company or acquires effective control over it.
• The investment is directed towards a sector designated as strategic. In this regard, critical sectors include energy, healthcare, transport, data processing and finance.
• The total value of the investment exceeds EUR1 million.

Any foreign investment transactions carried out without the required prior authorisation shall be null and void and have no legal effect until such authorisation is granted.

The authors had access to a report published by the Ministry of Industry, Consumption and Tourism stating that, during FY 2024, 167 transactions were submitted for prior authorisation, which represents a 29% increase over 2023, and 85 transactions were expressly authorised without any additional requirements from the Spanish Ministry of Industry.

EU Foreign Subsidies Regulation

The EU approved, on 23 December 2022, Regulation (EU) 2022/2560 of the European Parliament and of the Council concerning foreign subsidies that distort the internal market (the “Foreign Subsidies Regulation”; FSR). Entering into force on 12 July 2023, its purpose is to enhance control over subsidies granted and to empower the European Commission to investigate subsidies granted by non-EU countries to companies operating in the EU, which may distort competition and affect the integrity of the internal market.

The regulation includes a requirement of prior notification and approval of certain concentrations and bids in public processes, provided that certain thresholds are met. Under these rules, transactions must be notified to the Commission if the target company, one of the merging parties or a joint venture has an EU turnover of at least EUR500 million, and if the foreign financial contribution exceeds EUR50 million. PE firms participating in major deals should be ready to disclose any foreign subsidies to the European Commission.

The FSR covers a wide range of economic activities – such as mergers, acquisitions and public procurements, making it highly relevant to PE deals – and allows the Commission to examine and investigate how foreign subsidies might affect market competition. If a PE firm has benefitted from substantial foreign subsidies, the Commission will determine whether these funds create a distortion in the EU internal market, without prejudice to the delays caused by such control.

Other Tightly Regulated Sectors

It is important to note that other sectors, like banking and finance, utilities and insurance, all of which fall under the supervision of designated regulatory authorities, are subject to strict regulatory regimes.

When sovereign wealth funds participate as sponsors or co-investors, their involvement is subject to enhanced scrutiny.

Spain has implemented specific regulatory frameworks governing FDI, especially in sectors considered vital for national security, public order or public health.

The due diligence process consists of the target’s owner providing the potential purchaser with all the documents requested to assess the current status of the target, such that they can decide whether or not to proceed with the investment.

Once the documentation has been requested through the “information requested list” (IRL), the target’s owner normally uploads all the documents to a virtual data room (VDR), facilitating its analysis by the potential purchaser and its advisors. If there are any uncertainties after reviewing the documents, meetings may be held to clarify them.

PE transactions usually require comprehensive due diligence covering several areas to confirm the absence of red flags. It is common to carry out financial, legal, tax and labour due diligences. The areas and scope to be reviewed will depend on several variables, such as the size and the industry of the target, the type of purchaser, etc.

Due diligence processes are also carried out in VC transactions; however, given that these investments are mainly focused on start-ups, there are often certain areas that may not be reviewed as thoroughly, and the scope tends to be more limited.

Certain types of due diligence are increasingly being performed, including compliance, ESG, cybersecurity and reputational due diligence.

Contingencies Identified in Financial, Tax and Labour Due Diligence

Financial, labour, legal and tax contingencies are quantified by the different teams that prepare the due diligence reports. As a result, contingencies are covered in the SPA through the inclusion of specific indemnities, such that the seller must indemnify the purchaser for any damage caused by the contingencies. However, if these specific indemnities are rejected by the seller during negotiations, alternative agreements, such as pre-closing actions or even closing actions after which there should not be any tax, labour or financial contingencies, should be made.

Contingencies Identified in Legal Due Diligence

The treatment of the contingencies identified during the legal due diligence will vary depending on the specific contingency. Nevertheless:

• it is important to include a series of R&W that accurately reflect the current status of the target company;
• if certain specific contingencies are identified and quantified during the due diligence process, specific indemnities could be included in favour of the purchaser;
• for any issue identified that must be attended to by third parties, and which is of material importance to the execution of the transaction, a CP could be included; and
• the parties may also agree to take measures prior to or simultaneous with closing.

Due Diligence Findings

In due diligence processes, it is common to include an executive summary, which is a brief overview of the identified contingencies that could have an impact on the transaction. Additionally, the annexes and appendices to the due diligence report provide a more detailed analysis of the documents reviewed.

The documents provided by the sellers during the due diligence process – and, in some cases, the due diligence itself – are among the most discussed points in the negotiation process, which typically focuses on whether the information reviewed or provided exempts the seller from any liability in relation to issues raised in such documents or the report.

Vendor due diligence (VDD) processes are those in which the seller commissions an advisor to carry out a due diligence review of the target company it intends to sell. These due diligence processes are generally not as broad as the buyer’s due diligence review. In any event, the scope of a due diligence process will depend on each seller needs and requirements.

This type of due diligence is usually commissioned by the sellers for competitive processes in which the VDD is provided to the bidders participating in the competitive process, and their advisors, so that they can be privy to an initial overview of the target, or when the seller wants to obtain a clearer understanding of specific matters that could have an impact on the transaction.

Private SPAs

Private SPAs remain the predominant structure for PE transactions in Spain. Court-approved schemes are reserved for insolvency or liquidation procedures, while tender offers are restricted to listed companies.

Private SPAs are typically formalised as public deeds before a Spanish notary public. In this regard, although the presence of a notary public is only mandatory in certain transactions (eg, in the acquisition of shares in a limited liability company; sociedad limitada or SL), they are commonly involved in PE deals, given that the legal certainty they offer benefits all the parties involved. Deeds granted before the notary become enforceable titles for all purposes provided for under the applicable Spanish law, and the parties may request certified or simple copies of said deeds at any time.

Bilateral and Auction Processes

PE transactions may be structured either as bilateral negotiations or as competitive (auction) processes, depending on the specific characteristics of each transaction.

The number of PE deals structured as auctions with multiple prospective bidders fell from 2022 onwards; there was a slight rebound in 2023, with auction processes returning to usual levels according to historical market trend, but the decrease continued in 2024.

In general terms, for medium- and large-cap companies, transactions are generally carried out through competitive auction processes that tend to place the seller in a stronger position, aiming to maximise the price and ensure the best contractual conditions. Nonetheless, the extent of this advantage varies depending on the specific features of the transaction.

Small-cap company transactions usually entail a bilateral negotiation between the seller and buyer.

Share and Asset Deals

Share deals remain significantly more common than asset deals. While the acquisition of a company’s shares results in the indirect transfer of all its assets, rights and liabilities, in asset deals there is a need to:

• precisely detail and identify every asset, right and liability that is being transferred (those not listed remain with the seller, unless expressly agreed otherwise) in the asset purchase agreement; and
• obtain the necessary consents from the counterparties to the agreements that are being transferred – or, where required, from the competent public authorities (depending on the legal transfer regime applicable to each specific asset, right or liability).

Ancillary Documentation

PE transactions typically involve the execution of an SPA. In cases where additional purchasers are involved or certain shareholders remain in the target company, it is also necessary (or at least advisable) to enter into a shareholders’ agreement (SHA).

A management incentive plan (MIP) is also very common in PE transactions, with the aim of increasing the value of the target company and its affiliates by providing an extraordinary incentive to the target’s managers (independent and additional to their employment or mercantile relationship) in exchange for maximising the value of the company in a liquidity/exit event. The amount of extraordinary remuneration (“ratchet”) usually depends on the return on investment (ROI) or the internal rate of return (IRR) of the PE fund.

Likewise, it is also common to formalise different types of guarantee agreements to secure payments obligations deriving from the SPA.

PE funds almost always acquire the target company through a Spanish SPV, typically structured as an SL company incorporated in Spain. Such companies are preferred by PE funds due to:

• favourable capital requirements (EUR3,000 to incorporate SL companies, except in certain cases where incorporation can be achieved with EUR1) and more flexible regulations;
• shareholders’ liability being limited to the amount of their contributions; and
• SL companies being more suitable for a limited number of shareholders with concentrated control, as they allow more flexibility and ease in limiting or regulating the transfer of ownership interests among shareholders.

It is unusual for a PE fund to be a party to the transaction documents, except for the equity commitment letter agreeing to fund the target.

Most PE transactions are financially leveraged, involving a combination of both equity and debt (the proportions depend on the specific transaction).

The funding structure typically involves a partial financing of the acquisition, but it may also be intended for the refinancing of existing debt or to partially finance investments in capital expenditure (capex). Financing entities as well as alternative debt providers usually act as lenders. It is standard market practice to share the due diligence report with the lenders to aid their analysis, as a CP to the execution of the facility agreement, or even to require reliance letters from them.

It is also worth highlighting the relevant role played by public domestic entities such as the Centre for the Development of Industrial Technology (Centro para el Desarrollo Tecnológico e Industrial; CDTI), the Spanish Company for Development Financing (Compañía Española de Financiación del Desarrollo, SA; COFIDES), the National Innovation Company (Empresa Nacional de Innovación, SA; ENISA) and the Official Credit Institute (Instituto de Crédito Oficial; ICO-AXIS), as well as European funds including next-tech funds, in supporting VC and PE activity. For many years, public-private collaboration has been a key factor enabling PE general partners to raise and close new investment vehicles.

In Spanish PE transactions, providing sufficient comfort and assurance to the purchaser regarding the debt-funded portion of the purchase price is essential to ensure a seamless and successful closing. The approach to secure debt financing may vary depending on the complexity of the deal, the financing structure, the parties involved and the prevailing market conditions. Purchasers typically resort to various mechanisms, including:

• obtaining a commitment letter from lenders;
• including provisions in the SPA allowing adjustment, retention and/or deferral of the purchase price as a guarantee; and
• termination of the transaction.

When the acquisition of the target is implemented by the PE fund through an SPV, it is standard market practice for sellers to require a commitment letter to be issued by the parent company (the PE fund) confirming the availability of both equity and debt.

Acquired Stake

Direct or indirect acquisition of the entire share capital of the target company is the most common PE transaction in Spain, followed by an alternative structure consisting of the acquisition of a majority shareholding; this is customary in order for key management team personnel and founders to:

• remain as minority shareholders;
• retain talent and their management functions; and
• provide them with a major incentive in exchange for maximising the target company’s value after the acquisition.

In Spain, PE transactions involving multiple investors remain uncommon, except in the context of large-cap deals. Although some exceptional PE transactions involve other investors alongside the PE fund, this structure is infrequent and more characteristic of VC deals, and is usually driven by the modus operandi of the PE fund. External co-investors generally hold limited governance and political rights over the target company, which remains under the control of the PE fund.

Consortia of multiple investors – comprising both PE funds and corporate investors – are less common in Spain compared to other investment structures, as these two types of investor have opposing interests: PE funds tend to prioritise an active ownership and value creation, whereas corporate investors tend to focus on strategic investments aligned with their core business objectives, the creation of synergies and expansion of their business.

The predominant consideration mechanisms in the PE market in Spain are locked-box and completion accounts, along with fixed-price mechanisms. The combination of locked-box and completion accounts mechanisms is becoming increasingly common, where both parties seek to balance consideration certainty with the ability to adjust specific post-closing financial items.

Completion Accounts Mechanism

According to this mechanism, the initially agreed purchase price is subject to potential post-closing adjustments. On the closing date, the seller’s auditor typically determines the relevant parameters used to agree the equity value (mainly net debt and working capital). The purchaser usually has a post-closing review period (normally several months in duration) to review these parameters and, where appropriate, challenge the calculation of the purchase price.

Locked-Box Mechanism

The locked-box mechanism has continued to gain traction and remains the most widely used pricing structure in 2024 in sell- and buy-side transactions. Under this mechanism, the parties agree on a fixed purchase price, based on financial statements, on a specific closing date. Typically, the parties agree that the financial statements must be audited or at least mutually agreed.

The locked-box mechanism allows adjustment of the purchase price in the event of leakages, which are actions executed by the seller between the reference date and the closing date that fall outside the ordinary course of business.

Earn-Outs, Deferred Consideration and Roll-Over Structures

Earn-outs, deferred consideration and roll-over structures are relatively common in PE transactions in Spain. PE funds focus on maximising returns within a defined investment period; therefore, they frequently use mechanisms such as earn-outs or deferred consideration, especially when it is necessary to bridge valuation gaps or incentivise the target in terms of future performance, helping to align expectations accordingly.

These instruments allow the parties to make part of the purchase price conditional on the future performance of the target company’s business, which is particularly relevant in periods of market uncertainty, as well as to incentivise sellers to remain involved in the business after closing – and to contribute to value creation. The deferred consideration is typically linked to the achievement of certain performance milestones based on specific financial objectives (most earn-outs are linked to EBITDA, sales or company benefits).

In PE transactions involving the acquisition of a majority shareholding, it is common to implement a roll-over structure, whereby the seller (or part thereof) reinvests in the acquiring company, usually through a capital increase.

When locked-box structures are used, the seller usually seeks to charge interest on the price after the date on which the locked-box account is opened (commonly referred as the “ticking fee”). The introduction of a ticking fee clause will depend on each negotiation.

Concerning interest on leakages, the standard market practice is to reduce the purchase price on a euro-for-euro basis for any leakages that occur before closing; charging interest on leakages arising post-closure remains uncommon in Spanish PE transactions.

Including equity tickers and applying interest to leakage amounts is increasingly gaining traction in the Spanish PE market, so both structures may become more prevalent in the near future.

In Spain, the two most commonly used pricing structures (locked-box and completion accounts) typically establish a dispute-resolution mechanism.

The most common mechanism provides that the parties shall first engage in good faith negotiations, within a specific period of time, to reach a mutually acceptable resolution. In the absence of agreement, an independent expert (usually an international audit firm appointed in accordance with the provisions set out in the SPA for this purpose) makes a decision that is typically binding for the parties and excludes the possibility of submitting the dispute to a court or arbitration, except in cases of wilful misconduct or gross negligence.

The most typical regulatory condition in PE transactions is the obligation to obtain regulatory approvals, the most relevant being antitrust clearance and FDI. It is standard practice to conduct a preliminary analysis to assess whether such approvals are necessary for most deals, particularly cross-border deals. Additionally, as indicated in 3.1 Primary Regulators and Regulatory Issues, in some cases prior authorisation shall be obtained from the European Commission, which should be included in an SPA as an additional regulatory CP.

Apart from the regulatory approvals mentioned in the foregoing, other common CPs in PE transactions may include:

• the buyer’s obtaining financing to carry out the acquisition;
• obtaining third parties’ consent for significant agreements containing change-of-control provisions for the target;
• fulfilling pre-closing covenants, such as carve-outs or reorganisations before closing the transaction or executing, terminating, maintaining or executing certain key agreements; and
• the absence of any material adverse change (MAC). This CP is included in order to protect the purchaser against adverse changes affecting the target company during a specific period (typically between signing and closing).

Approval of the transaction by the general shareholders’ meeting of the seller or the purchaser is likely to be a requirement to execute the transaction when it entails the acquisition, transfer or contribution of essential assets to another company, being an action to be completed upon closing rather than a CP.

Although PE funds, due to their inherent nature and investment strategy, typically adopt a highly aggressive negotiating position and are usually reluctant to accept any “hell or high water” undertakings, there is an emerging trend of sellers attempting to transfer execution risk to the purchaser by introducing certain clauses in negotiations. These undertakings usually apply to regulatory approvals. CPs linked to regulatory authorisations often require the parties to accept the conditions imposed by the authorities, unless they are overly burdensome or exceed certain limits, and could require the purchaser to adopt the required measures – including divestments – in order to close the transaction.

In Spain, the use of break fees and reverse break fees has typically been rare in PE transactions. Sellers are generally reluctant to accept any walk-out rights beyond the CPs negotiated and agreed in the SPA.

These penalties are typically structured as a percentage of the purchase price, and the applicable rate depends on the characteristics of each transaction. In certain cases, the fee may represent a significant amount (up to 10% or 15% of the purchase price), although sometimes it is merely a symbolic amount like 1%.

As a general rule, SPAs exclude the application of Spanish statutory law and are governed by contractually agreed terms. Accordingly, an SPA cannot be terminated for legal reasons other than those expressly set out in the agreement, except in the event of wilful misconduct, which cannot be contractually excluded. The most common provisions of termination of a SPA typically include the following.

• Lack of fulfilment of the CPs set out in the SPA prior to the long-stop date: In practice, it is unusual for the parties to terminate a signed SPA on this basis, and they will usually seek an amicable solution to close the transaction. As an exception, in energy (greenfield) sale-and-purchase PE deals, if the ready-to-build status CP is not met prior to the relevant long-stop date, the parties would normally walk away from the agreement as a standard market practice, given the critical nature of this condition for the execution of the transaction.
• MAC clauses (which are not widely used in Spain): PE sellers are very reluctant to accept any MAC clauses, as these significantly reduce deal certainty. However, “soft” MAC clauses (which refer to macroeconomic situations that are unlikely to materialise) were introduced in some SPAs as a consequence of the impact of the current geopolitical uncertainty.

In PE transactions in Spain, there is no general rule governing risk allocation, thus necessitating assessment on a case-by-case basis according to the specific terms of each transaction (but generally favouring the seller).

This seller-favourable approach is particularly evident in competitive auction processes, especially where a PE seller is involved. In competitive processes, SPAs are seller-balanced, resulting in a more limited scope of the R&W, broad qualitative limitations and lower quantitative liability caps. When a PE fund is the purchaser, sellers usually grant business and tax R&W; alternatively, R&W insurance is agreed to cover such risks.

When the seller is a PE fund, R&W insurance typically focuses on fundamental matters such as capacity, good title to the transferred shares and the absence of liens or encumbrances over those shares. It is common for the management team to grant the R&W, which can be dealt with in a separate document known as the “management warranty deed”. When the seller is an industrial or trade party, the R&W usually covers a broader range of topics (including complete operational and business-related R&W).

R&W under an SPA can be assigned to the following two main categories.

• Fundamental R&W cover the existence and valid incorporation of the target company, its registration with the Commercial Registry, ownership, transferability and absence of liens or encumbrances over the shares, the capacity of the parties, absence of conflict and lack of insolvency. The standard market practice is not to limit fundamental R&W or cap them to the amount of the purchase price. In case of several sellers, the most common liability regime is individual rather than joint liability.
• Business R&W cover a wide range of matters concerning the target company (including the financial statements; agreements to which the target is a party; compliance with tax, labour and regulatory obligations; litigation; employees; and the conducting of business). PE funds are generally reluctant to grant business R&W when they are on the sell side, although they are sometimes granted by the management team even if the team’s liability is capped at a symbolic quantity in the management warranty deed (or replaced by W&I insurance).

Given that the granting of business R&W is a non-negotiable requirement for the purchaser to enter into a SPA, the use of W&I insurance has increased in recent years.

Limitation Provisions

Sellers’ liability under SPAs is usually limited both quantitatively and temporally. These limitations vary depending on whether there is an investment or an exit, and on whether W&I insurance is taken out.

When a PE fund is the purchaser, the following principles are generally followed.

• Fundamental R&W, in almost all cases, are limited to the purchase price or are not limited at all.
• Business R&W are normally subject to time and quantitative limitations.
1. Time limitations usually range from 12 to 24 months following closing, with 18 months being standard market practice. Tax, employment or environmental warranties are usually limited to the statutory limitation period plus one month.
2. Quantitative limitations generally include the following.
1. A cap: The seller’s maximum aggregate liability to the purchaser may not exceed a certain amount (a specific amount or a percentage of the purchase price).
2. A de minimis value: The purchaser can only claim damages that, when individually considered, exceed a certain amount. Usually, a series of claims arising from facts or circumstances that are substantially the same can be accumulated.
3. Basket/deductible: The seller’s obligation to compensate the purchaser is not enforceable until the sum of all the damages exceeding the de minimis value is above a certain amount. Once this agreed amount is exceeded, the seller should be liable for the excess (a deductible), or for the entire amount from the first euro (a basket).

In competitive transactions, it is common to exclude the seller’s liability for risks identified during due diligence, and sellers typically disclose the entire VDR, which is commonly accepted as a general qualification to the R&W. Specific indemnities are usually included in the SPA, or in a side letter signed by the parties to ensure specific protection regarding relevant known issues, to exclude them from the standard liability regime or give them higher quantitative and time limits.

Payment through an escrow account or deferring part of the price is particularly common in transactions where the purchaser is a PE fund. When the parties to an SPA agree to defer payment of part of the purchase price, or agree on price retention, sellers tend to require a guarantee to secure the payment. These remedies are most often used to cover risks with a clearly defined statute of limitations (the date on which the relevant contingency/risk disappears) under applicable law, such as labour or tax liabilities, whereas when the PE fund acts as seller, there tends to be reluctance to accept any form of price retention or escrow agreement as this conflicts with the objective of achieving a clean exit.

The use of W&I insurance is increasingly becoming standard practice in PE transactions, such that it is emerging as one of the most frequently employed risk allocation tools. However, the additional transaction costs and the exclusion of risks uncovered during due diligence present certain limitations.

SPAs always include dispute-resolution provisions. Most unresolved disputes are submitted to courts, though arbitration is sometimes preferred for its confidentiality, expertise and efficiency in complex cross-border M&A deals – despite higher costs. Disputes concerning consideration mechanisms or earn-outs are typically referred to independent experts under the SPA terms. Otherwise, the most frequent source of disputes are breaches of R&W by the seller.

Public-to-private (P2P) transactions are relatively uncommon in Spain due to the limited number of listed companies compared to other markets.

In Spain, P2P transactions generally involve:

• private investors who have progressively acquired large equity stakes in a listed company through consecutive acquisitions; and
• increasingly, PE investors acting individually or forming a pool.

The main drivers of P2P transactions are typically:

• the desire to reduce listing-related compliance costs imposed by the law and market regulations; and
• economic reasons (based on the valuation).

Spanish takeover bid legislation holds that governing bodies and the management of the target company, any delegated or empowered body thereof, their members, companies belonging to the target company’s group and anyone who might act jointly with the foregoing shall:

• adopt a neutral and passive stance; and
• obtain approval from the general shareholders’ meeting before taking any action that may prevent the success of the bid (such as issuing new securities that would hinder the bidder’s ability to gain control), except seeking other competing bids.

The above-mentioned obligations do not apply if the takeover bid is carried out by an entity that neither has its registered office in Spain nor is subject to equivalent neutrality obligations in its home jurisdiction.

Any transaction by virtue of which a shareholder reaches, exceeds or falls below a voting right stake threshold of 3%, 5%, 10%, 15%, 20%, 25%, 30%, 35%, 40%, 45%, 50%, 60%, 70%, 75%, 80% or 90% in a listed company must be notified to that company, and to the National Securities Market Commission (Comisión Nacional del Mercado de Valores; CNMV). When the shareholder is a tax-haven resident, these percentages are lowered to multiples of 1% (1%, 2%, etc).

In mandatory tender offers, any party acquiring control of a listed company must notify the CNMV to submit the offer to the remaining shareholders. Voluntary tender offers must be communicated to the CNMV once the bidder adopts the resolution to submit the offer.

Following the announcement of a tender offer, any acquisition of voting rights that reaches or exceeds 1% must be reported to the CNMV. Any shareholder holding at least 3% of the share capital must notify the CNMV of any changes in its participation.

Mandatory takeover bids are required when a person acquires “control” of a listed company. In such event, the shareholder acquiring control must make a bid for 100% of the issued shares at a fair price (ie, not lower than the highest price that the offeror paid or has agreed to pay for the same shares during the 12 months prior to the announcement of the bid).

Control is gained when a person:

• acquires, directly or indirectly, a percentage of voting rights equal to or greater than 30%; and
• appoints, within 24 months of the acquisition, more than half of the members of the board, even if the person’s stake is lower than 30%.

A breach of duty pertaining to a takeover bid (ie, failure to make a takeover bid, late submission of a takeover bid, or submission of a takeover bid with material irregularities) entails the following sanctions.

• Suspension of the voting rights held in the listed company.
• Public sanction by the CNMV for a very serious infringement, including:
1. a fine up to EUR600,000 or 5% of the offender’s own resources;
2. suspension or limitation of the transaction or activities that the offender may carry out in the market for up to five years; and
3. publication of the infraction in the official Spanish gazette.

In takeover bids, the consolidation and attribution of shareholding issues are particularly relevant for PE-backed bidders, with respect to the shares of the target company held by affiliated or related funds and portfolio companies. This applies in the following ways.

• Mandatory takeover bid: A 30% voting rights threshold applies, regardless of whether they are held by a single person or a group of companies.
• Affiliates and other portfolio companies: PE funds typically manage multiple funds or entities, or may have other portfolio companies that hold shares in the target company. During a takeover bid, it is essential to consolidate the shareholdings of all affiliated funds or related entities, and other portfolio companies, to accurately assess the bidder’s overall ownership interest in the target company, identify potential conflicts of interest and ensure compliance with disclosure requirements. This consolidation may affect whether regulatory thresholds are met.
• Competition and antitrust law risks: Consolidating shareholdings may raise antitrust concerns, particularly if the bidder has significant ownership in related industries or competitors.
• SHAs: SHAs between the bidder and other shareholders, such as voting syndicates, must be taken into account given their impact on the calculation of control thresholds and whether the percentage required to launch the takeover bid is achieved.

In the majority of takeover bids, consideration is paid in cash, although share-based consideration may also be offered.

In mandatory takeover bids, the offer shall be submitted at an equitable price, equal to the highest price paid by the bidder for target’s shares within the 12 months prior to submission of the offer. Alternatively, if no previous acquisitions have taken place, the equitable price shall not be lower than the exclusion price determined by an independent expert.

Mandatory takeover bids can only be conditioned on the approval by competition authorities or other supervisory bodies. Voluntary takeover bids may be subject to additional conditions, such as:

• approval of resolutions of the general shareholders’ meeting of the listed company;
• a minimum number of shareholders’ acceptance; or
• other conditions permitted under applicable law, subject to the discretion of the CNMV.

Under Spanish law, conditioning the bid on obtaining financing is not admissible, as it would breach the principle of irrevocability of the bid and contravene the bidder’s obligation to:

• ensure that it has sufficient financial resources to cover any cash consideration offered in full; and
• provide a guarantee or a cash deposit to secure the payment of the consideration for the shares sold within the takeover bid.

Break-Up Fees

In scenarios involving competing takeover bids, the listed company and the initial bidder may agree on a break-up fee to compensate the initial bidder for the costs and expenses incurred in preparing its bid, subject to the following limitations:

• it cannot exceed 1% of the total amount of the bid;
• it must be approved by the board of the listed company;
• its arrangement must be supported by a favourable financial advisors’ report; and
• its details must be disclosed in the bid prospectus.

Any bidder who, as a result of a takeover bid, has acquired at least a 90% stake of the share capital – along with the related voting rights – and whose offer has been accepted by shareholders holding at least a 90% stake in the listed company is entitled to require the remaining shareholders to sell their shares at a fair price.

The bid prospectus must indicate the offeror’s intention to execute the squeeze-out right in the event of acquiring a 90% stake, which has to be executed within three months after the expiration of the acceptance period of the takeover bid.

Remaining shareholders also have a sell-out right, which must be executed under similar terms and conditions to the squeeze-out right.

To ensure the success of a takeover bid, it is standard market practice to reach irrevocable commitments between the bidder and significant shareholders prior to the issuance of the offer – often including not only an irrevocable right to sell, but also a commitment to exercise their voting rights to facilitate and support the successful completion of the bid at both the shareholder and board level.

Equity incentivisation of the management team (who often retain equity of between 5% and 10%) is a standard feature of PE transactions, aimed at aligning the management and investor’s interest by encouraging the former to enhance the value of the target company and its affiliates. This is achieved by providing an extraordinary incentive to the target’s managers (independent and additional to their employment or mercantile relationship) in exchange for maximising the value of the company in a liquidity/exit event.

The management team’s incentivisation is normally structured through MIPs, which typically include the following incentives:

• ratchets linked to the PE fund’s ROI or IRR, and normally conditioned to the management team’s continuation;
• phantom shares, stock options or similar plans; and
• debt instruments, the interest on which is linked to the ROI or the IRR of the PE fund.

The rights and obligations of the management team are typically set out in a combination of an SHA, management incentive agreements (comprising a MIP’s general terms and conditions together with individual adherence letters from each manager) and/or executive director agreements.

PE investors usually hold preferred shares to secure control over the company’s decision-making – either holding the majority of voting rights and/or veto rights over key or strategic matters. They may also benefit from contractual rights such as a call option right over the remaining shares, drag-along rights, a liquidation preference and similar protective mechanisms.

In cases where the managers are not former shareholders, it is also common for PE funds to provide financing for the acquisition of their equity.

Management equity plans involving investment in the PE fund’s structure have become one of the major incentive mechanisms in the PE environment. Typically, the manager invests indirectly at the same level as the PE fund through fully participating entities located in foreign jurisdictions. In most cases, the entire management team invests through the same vehicle (ManCo), managed by the PE fund and holding the so-called sweet equity (share capital acquired by managers or key employees under favourable conditions).

Vesting mechanisms, which are very common in MIPs in Spain, are used to mitigate the risk associated with the non-continuation of the key managers. Vesting periods are typically between four and five years.

MIPs frequently include accelerated vesting provisions under which – if a liquidity event takes place prior to vesting of 100% of the incentive, and provided that the beneficiary complies with all the terms and conditions set forth in the MIP – the beneficiary would be entitled to receive 100% of the incentive amount at the time of the liquidity event, regardless of the remaining vesting period.

MIPs also include “good-leaver” and “bad-leaver” provisions, to establish the exit scenarios of the manager that would or would not be permitted.

• Good-leaver provisions entitle the beneficiary to receive the total amount of the incentive linked to the liquidity event – or prior to the liquidity event if certain “reasonable” circumstances agreed between the PE and the manager occur, including death, severe/permanent disability, dismissal by the company without cause or resignation by the manager for good cause.
• Bad-leaver provisions entitle the PE to terminate the management incentive agreement early, without paying the incentive to the relevant beneficiary; these are the opposite of the good-leaver scenarios referred to in the foregoing.

Restrictive covenants and related obligations are typically set out in the documentation regulating the relationship between the PE and the beneficiary.

PE funds usually require the beneficiaries to:

• assume non-compete, non-solicitation and exclusivity obligations;
• remain with the company during an established period after the PE fund’s exit if a new investor offers similar conditions; and
• in certain transactions, grant R&W at the time of the PE fund’s exit.

Non-disparagement clauses (regulating what a manager can or cannot say about the PE fund after its exit) are not usual in Spain but may be agreed upon.

Restrictive covenants, such as non-compete, non-solicitation and exclusivity, are typically included in both equity and bonus/contractual plans, and a breach usually has a negative effect on managers’ perceptions of the incentive.

It is essential to ensure these obligations are properly assessed under labour law and that appropriate remuneration is provided in exchange.

Manager shareholders are usually granted protection rights in relation to a PE fund’s exit/divestment and anti-dilution of their participation, such as tag-along rights, allowing them to sell their shares alongside a PE investor upon exit and also conditioning the exercise of the usual PE fund’s drag-along rights to a minimum valuation of the manager’s shares.

It is standard market practice to ensure that manager shareholders can preserve their percentage of sweet equity in the company during the PE fund’s period of investment. This may include providing financing to managers for the subscription of additional shares. Anti-dilution provisions typically include a commitment from the PE fund to prioritise non-dilutive financing sources where feasible. However, the PE fund is typically entitled to meet urgent treasury needs.

Veto rights are generally reserved for PE investors, either through preferred shares conferring direct veto rights over certain decisions or by keeping control over the majority of the voting rights of the company (in some structures, sweet equity does not have direct voting rights). However, certain key shareholder managers (depending on their role and involvement) may be granted veto rights over specific matters.

As a general rule, the management team is responsible for the day-to-day operations of the company, whereas the PE fund retains control over key strategic matters at both the shareholder and board levels.

This control is typically regulated through the SHA by means of mechanisms such as the following.

• Reserved matters requiring the PE fund’s consent (veto right), including:
1. decisions at the shareholders’ level – amendment of the company’s by-laws, mergers, spin-offs, transformations, liquidations, distribution of dividends, share capital increase/reductions, approval of the annual accounts, appointment of the statutory auditor (if mandatory), disposal of essential assets, agreements with related persons, granting of convertible loans, issuance of convertible bonds, etc; and
2. decisions at the board level – granting/revoking general powers of attorney, asset or business acquisitions exceeding certain thresholds or falling outside of the ordinary course of business, significant decisions over judicial proceedings, obtaining financing over a certain amount, formulation of the annual accounts, appointment of a voluntary auditor, or approval or amendment of the business plan.
• Comprehensive reporting obligations to the PE fund.
• Drag-along rights, allowing the PE fund to force the rest of the shareholders to transfer their shares under certain conditions.
• Call options in favour of the PE fund.
• Right of first offer (ROFO) or pre-emptive acquisition rights immediately after the lock-up period.
• Lock-up provisions restricting share transfers during a specific period of time.
• Non-competition, exclusivity and continuation covenants applicable to management.

Management is typically required to keep the PE fund fully informed of any material matter affecting the company’s business, assets, financials, tax position, etc.

As a general rule, shareholders’ liability is limited to the amount of share capital contributed to the company. Under exceptional circumstances, shareholders may be held personally liable through the so-called corporate veil doctrine, when the shareholders have fraudulently benefitted from the incorporation or use of an SL company or a group of companies.

This doctrine was established by the Spanish Supreme Court in May 1984 to prevent the misuse of a company’s separate legal personality as an instrument of fraud. Its application is exceptional and subject to restrictive interpretation by the courts. In general, it requires the fraudulent use of the company’s legal personality along with the following:

• control of several companies by the same person, individual or group;
• transactions between related companies; and
• a lack of valid economic or legal grounds for such transactions.

The typical holding period for a PE fund between investment and divestment generally ranges from four to six years, although this timeframe may vary depending on factors such as the expected return or market momentum.

The most common exit routes for PE investors have been auctions and bilateral sales. Dual- or triple-track processes are only attractive to large-cap companies under specific circumstances (depending on market appetite, potential acquirers, etc) as they require significant cost and time. When properly executed, these processes can significantly increase the chances of successful divestment, maximising the exit valuation.

Secondary buyouts have notably increased during the past few years; 2022 marked the peak in activity, wherein these transactions represented over 40% of all deals. This trend was primarily driven by market liquidity from recent capital-raising activity. Although secondary buyouts decreased during 2023, when almost 80% of all deals were pure investments, the market rebounded in 2024, with secondary buyouts once again gaining momentum and accounting for approximately 38% of all transactions.

PE transactions commonly include drag-along rights in favour of PE investors, regulated in the SHA to enhance the PE fund’s capacity to execute a partial or total divestment. Thresholds for exercising drag-along rights may vary depending on the transaction. They are generally enforceable against any co-investors, regardless of their nature or the shareholding. When a co-investor is another PE firm, the lock-up periods and exit mechanisms are often heavily negotiated, as aligned exit strategies are critical.

Minority and manager shareholders are frequently vested with tag-along rights under the SHA. For management shareholders, these rights are triggered by the PE fund’s sale of a stake leading to a change of control. If the PE investor is a minority shareholder, or when two or more PE funds co-invest in the same target, such PE shareholders usually have reciprocal tag-along and drag-along rights.

It is advisable to clearly establish which mechanism shall prevail in case of overlap between rights (ie, pre-emption right, tag-along, drag-along). Additionally, irrespective of the exit mechanism, a clear procedure should govern the communication between shareholders and the management body, including timeframes and the consequences of non-compliance.

Although an IPO remains the preferred exit strategy for PE funds in large-scale transactions, it has become increasingly uncommon, particularly following the global financial crisis of 2007–08, the COVID-19 pandemic, the geopolitical uncertainty in recent years and the US tariff policies introduced in early 2025.

When a PE fund sponsors an IPO, the process differs from that of a non-PE-backed company. Key features are as follows.

• Valuation and pricing: PE funds typically work with investment banks to establish an initial price attractive to both industrial and PE investors, ensuring market traction and optimal proceeds.
• Relationship with the company and management: PE funds often have an active role in the management and strategy of the invested company. However, after the IPO, their influence may diminish as the company becomes subject to increased scrutiny and governance by shareholders.
• Partial or total sale: Depending on the market conditions and the PE fund’s internal strategies, the IPO may involve a total or partial divestment. Some PE funds decide to retain a residual participation to benefit from potential future price increases.