The Swedish M&A market for technology has remained very strong throughout the COVID-19 pandemic, with high transaction volumes on the public as well as the private market. Swedish companies remain at the forefront of technical development in many tech areas, including fintech and software as a service (SAAS), and this entails continued high M&A activity for venture capital (VC) transactions as well as exits (private-to-private and private-to-public) for Swedish tech companies. Official M&A statistics support this view, confirming that there has been an increase in the number of tech deals for nine successive years and this was the most active sector in terms of volume last year, reaching its highest annual deal count, with 231 tech deals announced.
In parallel with VC funds, angel investors and family offices that are active on the Swedish market for tech deals, we see a trend where established Swedish private equity (PE) sponsors are setting up specific funds targeting the tech sector, funds that have a higher risk appetite and that are open for transactions and investment structures similar to VC (not always requesting majority ownership, etc).
There is also ongoing high activity from established corporate investors making add-on acquisitions of tech companies relevant to their respective operations, often as an alternative to developing new technology in-house or as a supplement to their existing operations (eg, Visa’s acquisition of open bank platform Tink for EUR1.8 billion and PayPal’s USD2.2 billion acquisition of payment service provider iZettle).
These trends further increase the competition between investors, driving higher valuations and transaction volumes.
Swedish start-ups are generally set up as private Swedish limited liability companies (aktiebolag). Very rarely are other types of associations, such as limited liability partnerships, etc, used for start-up companies where the aim is to ultimately include multiple owners and raise capital. Even though it is possible to set up a limited liability company “from scratch” in Sweden, the normal procedure is to buy a shelf company with no historic business from a trusted service provider. This is a faster and smoother process than a standard formation (which is subject to handling and registration periods with the Swedish Companies Registration Office). The minimum equity required for a Swedish private limited liability company is SEK25,000.
The standard in Sweden is to choose a Swedish private limited liability company.
Early-stage financing is normally provided through a mix of local investors (“friends and family”, business contacts, business angels, etc) combined with early-stage VC from local or foreign sources. An example of the latter is the VC incubator Antler that provides early-stage seed capital to a large number of Swedish tech start-ups.
The financing is documented in an investment agreement and a shareholders’ agreement.
There are several Swedish sources for VC, ranging from traditional VC funds, to special VC-like funds set up by PE companies to capitalise on the Swedish tech boom, business angels, family offices and large corporates making VC-like investments in relevant enterprises. Foreign VC funds are increasingly active on the Swedish market. The state-owned VC company Almi provides venture capital/loans to Swedish start-ups in a broad variety of sectors.
Swedish VC documentation consist of an investment agreement and a shareholders’ agreement. Although such agreements are quite similar in each transaction, there is no set standard (comparing this, for example, to Loan Market Association documentation).
Swedish companies normally remain “private” limited liability companies until there is a need to either (i) go through an IPO, or (ii) without an IPO, expand their group of shareholders to 200 or more. In both cases, the company form will have to be changed to a “public” limited liability company.
In Sweden, when investors in a start-up are looking for a liquidity event, they are likely to obtain private external capital in order, later on (depending on the circumstances on the market), to take the company public on a securities exchange or run a sale process for a “private-to-private” transaction.
Currently, the trend is to choose an IPO or a sale at the outset or quite early in the process, rather than to have a dual-track process.
If a Swedish company decides to do a listing, such company would be more likely to do a listing on a home country exchange rather than a foreign exchange. This is because there is very good liquidity in the Swedish market, including a strong retail market. Furthermore, a listing on a home country exchange entails avoidance of burdensome administrative issues that could arise in connection with a listing on a foreign exchange.
If a Swedish company chooses to list on a foreign exchange, however, the feasibility of a future sale would not be affected. The reason for this is that the Swedish Companies Act, including provisions on minority squeeze-out rules, etc, is applicable to all Swedish companies regardless of where such company is listed.
Controlled auction processes as well as bilateral negotiation processes are frequently used in Sweden. The choice between auctions and bilateral processes are made on a case-by-case basis, but where possible/feasible a seller will normally opt for an auction process to maximise the outcome when it comes to price and transaction terms. Swedish buyers/investors are used to auction processes and the requirements for speed, etc, associated therewith.
The normal structure for such a transaction in Sweden is the sale of 100% of the shares in the limited liability company (where the shareholders’ agreement for the target company regularly includes provisions on decisive power for initiation of exit processes, drag-along provisions, etc). It is not standard in Sweden to allow a VC fund to stay on as a shareholder in the company after a liquidity event, although such structures will be used from time to time depending on the identity and set-up of the purchaser.
The form of consideration used in a Swedish transaction largely depends on the identity of the purchasing entity (if it is a privately held company, a public company, a PE sponsor, etc). While straightforward cash transactions have been the normal set-up historically (but where key individuals will normally re-invest part of the consideration in the purchaser group where the purchaser is a PE sponsor), it is now not uncommon to have combinations of cash and shares (in particular, for key individuals).
As a rule, founders are normally expected to stand behind both fundamental and business warranties in a capital increase, while “other owners” (including VC investors) normally only stand behind fundamental warranties. There are strict legal limitations under Swedish law restricting a Swedish limited liability company from standing behind warranties in a capital increase for that company. This normally raises questions from foreign investors in capital increases where such warranties are also common from the target company.
The liability for founders and other owners is normally capped, regarding both amounts and time. Breaches of warranties post-closing are normally settled by way of transfer of existing shares, in cash or by issuing additional shares. Escrow arrangements are rarely used in capital increases in Sweden.
Representations and warranties insurances are commonly used in private M&A transactions in Sweden, in particular, where the seller is either a group of individuals combined with VC investors or a PE sponsor. Representations and warranties are not as commonly used at the financing stage where VC funds invest in start-ups or “near” start-ups, with the exception of the situation where the investment round is exceptionally large (several hundred million SEK or higher).
Spin-offs are not commonly used within Swedish tech companies and the transaction structure predominantly used involves the sale of an entire company, or alternatively, individual assets.
The firm supplying the information for this chapter does not provide tax advice. A tax consultant would be better able to give information and advice on the tax consequences.
See 5.1 Trends.
The firm supplying the information for this chapter does not provide tax advice. A tax consultant would be better able to give information and advice on the timing and tax authority ruling.
It is not unusual in Sweden to acquire a stake in a public company prior to making an offer.
There is a requirement to notify the Swedish Financial Supervisory Authority (SFSA) or Finansinspektionen as soon as possible but no later than three trading days following the day on which a party enters into an agreement with respect to acquisition or transfer of shares traded on a regulated market, which entails that the stake of such party’s shares reaches, exceeds or falls below any of the following percentages of the target company’s share or voting rights:
The buyer does not need to state the purpose of the acquisition of the stake nor their plans or intentions with respect to the company.
The buyer is not required to make a proposal or state that it will not be making a proposal within a specified period.
There is a mandatory offer threshold in Sweden prescribing that if a person (or company) alone or together with a closely related person obtains 30% or more of the votes in a publicly listed company, such person (or company) is required to make a public offer for the remaining shares in the company.
The typical transaction structure for an acquisition of a public company in Sweden is either a cash offer or a stock-for-stock offer.
A statutory merger structure is available in Sweden. Statutory mergers are however mainly used in transactions where two companies of similar size merge into one company, due to the fact that more than half of the value of the consideration will consist of shares in the surviving company.
There is no typical transaction structure for acquisitions of public companies in the technology sector as the transaction structure varies between cash and stock-for-stock transactions.
Cash is permissible in a statutory merger transaction structure. However, according to the Swedish Companies Act, more than half of the aggregate value of the consideration must consist of shares in the surviving company.
Generally, there is no minimum price requirement for a takeover offer. However, if the buyer has acquired shares in the target company within six months before a takeover offer, the share price paid at the time of such acquisition normally constitutes the minimum price for the takeover offer.
Contingent value rights or other mechanisms to bridge value gaps between the parties in transactions with high valuation uncertainty are not used in Sweden.
The following conditions are common for a takeover offer in Sweden:
The use of offer conditions is restricted by the rules in the Swedish Take-Over Code. These rules entail that a condition for completion must be formulated in a way that allows for its fulfilment to be objectively determined and it may not be formulated in such a way that the buyer has decisive influence over its fulfilment.
It is not unusual in Sweden – in particular, in connection with combinations of two equal parties – to enter into a transaction agreement in connection with a takeover offer.
In such a transaction agreement, the target company may not commit itself to any offer-related arrangements in relation to the buyer, with the exception of confidentiality undertakings and undertakings not to solicit the buyer’s employees, customers and suppliers. Furthermore, it should be noted that undertakings which relate to the merged group after the offer has been completed are not to be seen as offer-related arrangements. Moreover, the Swedish Securities Council (Aktiemarknadsnämnden) may grant exemptions from the rules on offer-related arrangements.
Public companies in Sweden do not give representations and warranties in a transaction agreement.
The typical minimum acceptance condition for tender offers in Sweden is an acceptance of at least 90% of the shares in the target company. The main reason for this is that the possibility for a squeeze-out arises at this level of acceptance.
The relevant control thresholds in Sweden are as follows (at the level of voting rights prescribed in brackets):
The provisions on squeeze-out mechanisms and required ownership thresholds to acquire shares for which acceptance has not been obtained following a takeover offer in Sweden, are provided in the Swedish Companies Act. The squeeze-out mechanisms prescribed in the Swedish Companies Act entail a right both for minority owners to sell and for majority owners to purchase minority shares in a company where a shareholder has obtained direct or indirect ownership that equals 90% or more of the shares in the company.
"Certain funds” (ie, executed financing documents with bank certification) are not required to launch an offer in Sweden. However, in accordance with the Swedish Takeover Code, the buyer is required, prior to the announcement of the offer, to ensure that it has sufficient financial resources to implement the offer, but there is no formal requirement to show that the financing is in place.
Furthermore, it is not possible to make a takeover offer conditional on the buyer obtaining financing. However, it is possible to make a takeover offer conditional on a lender disbursing an acquisition loan to the buyer in accordance with the terms of such loan agreement.
In Sweden, it is the buyer itself that makes the offer (also in the case where the bid is financed by a bank).
A target company in Sweden may grant matching rights as a means of deal protection.
However, apart from that, the target company may not normally commit itself to any other deal protection measures in relation to the buyer. Accordingly, a target company may not grant deal protection measures in the form of non-solicitation of other buyers or break-up fees.
If a buyer cannot obtain 100% ownership of a target as a result of a takeover offer for a Swedish limited liability company (Aktiebolag), the buyer may obtain, inter alia, the following governance rights with respect to a target (at the level of voting rights prescribed in brackets):
Furthermore, the right to conduct group contributions arises at an ownership level of more than 90% of the shares.
It should further be noted, in this context, that as long as there are minority shareholders, the minority protection rules apply which, inter alia, entail that all actions taken by the company must be for the benefit of the company and not violate minority protection rights.
It is common in Sweden to obtain irrevocable commitments from the principal shareholders of the target company to tender or support the transaction.
Such irrevocable commitments from the principal shareholders are usually discharged if there is a higher competing offer (the percentage price increase may be specified). The commitments may further contain a matching right for the buyer.
The offer does not need to be approved by a securities regulator or the stock exchange prior to the launch of the offer. However, within four weeks (where the target company is listed on a regulated market) or within six weeks (where the target is listed on an MTF) of making the offer public and before the commencement of the acceptance period, the buyer must prepare an offer document which must be approved by the SFSA.
The acceptance period for a takeover offer in Sweden is a minimum of three weeks up to a maximum of ten weeks. The acceptance period for the offer may be prolonged if the buyer has reserved the right to do so, however, the aggregate acceptance period may not be longer than three months (although, if the offer is conditional on obtaining permits from the authorities, the acceptance period may be extended to a maximum of nine months). Should such approvals not have been obtained within the nine-month period, the buyer must either revoke its offer or apply for exemption at the Swedish Securities Council (Aktiemarknadsnämnden) to extend the timeline beyond the nine-month period.
If a competing offer is announced, it is possible to adjust the acceptance period. Furthermore, it is possible to apply for a prolonged acceptance period with the Swedish Securities Council, which has the authority to grant exemptions from the rules.
See 6.13 Securities Regulator's or Stock Exchange Process. In Sweden, a takeover offer is launched through a press release. It is typical for the parties to obtain regulatory approval after the launch through such an announcement.
The establishment of a tech company in Sweden does not include any specific requirements, as such, but requirements and the need for licences, etc, may apply depending on the industry sector. For example:
The process of obtaining (and the timing required for) the necessary permits varies significantly between different authorities. Start-ups are advised to engage specialist legal counsel early on in the process to evaluate if a permit or licence will be required and the process involved in obtaining the necessary permit, in order to set up operations at an early stage in line with what is required under the relevant permit or licence.
With respect to public M&A transactions in Sweden, the SFSA is the primary securities market regulator. However, the SFSA has delegated responsibility to the Swedish Securities Council (Aktiemarknadsnämnden) to make statements regarding certain takeover matters.
No such regulations apply in Sweden (see, however, 7.4 National Security Review/Export Control).
National Security Review of Acquisitions
Certain acquisitions in Sweden may be subject to a national security review. Before an activity or parts of an activity, which is classified as a “security-sensitive activity” is transferred, the transferring operator must execute (i) an assessment of whether the activity to be transferred is a security-sensitive activity (special security assessment), and (ii) an assessment of whether the activity is suitable to be transferred, including an assessment of whether the contemplated acquirer is suitable ("suitability examination"). The definition of “security-sensitive activity” is not clear cut and is still subject to development (as the regulation is quite new), see below.
Where it is concluded that a business is a security-sensitive activity, and if the suitability examination results in the conclusion that the transfer is not suitable from a security perspective, the transfer may not be executed. However, if the suitability examination instead results in the conclusion that the transfer is suitable, the transferring operator must consult with a consultation authority, which is primarily the Swedish Security Service ("SÄPO").
The consultation process is normally initiated by submitting a description of the contemplated transfer as well as the documentation of the specific security assessment and suitability test to the consultation authority. The consultation authority may order a seller to take certain actions to fulfil its obligations under the legislation and can ultimately decide that the contemplated transfer may not be executed.
Transfers executed despite a prohibition from the consultation authority will be considered null and void. If a transfer subject to the consultation requirement has been carried out without consultation and it meets the conditions for prohibition, the transfer can be considered null and void retroactively.
The legislation applies regardless of the nationality of the buyer. It is however unclear which activities will be deemed as security-sensitive. An activity is considered to be security-sensitive if it is important for Sweden’s national security or if it is covered by an international protective security commitment that is binding on Sweden. “Sweden’s national security” refers to conditions of fundamental importance to Sweden, which may include both military and civilian activities, eg, airports, energy facilities and information systems for electronic communication. Furthermore, sales of shares in public companies are excluded from the scope of the regulation. The exception applies regardless of whether the company is listed on a stock exchange.
In Sweden, it is necessary to have a licence to export war equipment and to export dual-use items, ie, items which can be used for both civil and military purposes. For certain sensitive products, it is also necessary to have a licence for export within the EU.
There are also certain reporting requirements regarding the export of dual-use items and military equipment, according to which the exporting party must, for example, inform the competent authority of its export volumes.
The Swedish antitrust merger control rules apply to transactions that lead to a change of (positive or negative) control (or change in the quality of control) over a company on a lasting basis (eg, as a result of a merger or acquisition) and the establishment of a so-called full-function joint venture. If such transaction meets the applicable turnover thresholds, the transaction is subject to mandatory notification to the Swedish Competition Authority (SCA).
The applicable turnover thresholds are the following:
Where the first but not the second turnover threshold test is fulfilled, the SCA may order the parties to notify the concentration if special reasons exist, and the parties to the concentration also have the right to make a voluntary notification to the SCA.
Transactions between the same persons or undertakings that have taken place within a two-year period are treated as one and the same concentration for the purpose of calculation of turnover.
From a labour law perspective, a distinction is made between transactions in the form of (i) share transfers, and (ii) business/asset transfers. As a general rule, no labour consultation is needed as part of a share transfer transaction (unless it is evident that the share transfer will result in employee redundancies, etc), while a business/asset transfer triggers mandatory consultation obligations with the relevant unions.
The consultation obligation is just that; an obligation to consult with the unions prior to deciding on the transaction, but the unions have no real veto or blocking rights.
Union consultations are rarely ever relevant in public takeover transactions.
No currency control or central bank approval requirements apply in Sweden.
Swedish M&A transaction documents are normally subject to arbitration clauses, and arbitration awards in Sweden are subject to confidentiality (this also includes M&A disputes relating to warranty & indemnity (W&I) insurances). Consequently, there is very little publicly available case law in Sweden relating to M&A.
W&I insurances are commonly used in mid-cap and large-cap private M&A transactions in Sweden to the degree that they can be considered a commodity, in particular, when a private equity sponsor is involved in the transaction. The common use of W&I insurances has to some extent also influenced the legal transaction terms for “non-insured” transactions when it comes to, for example, the loss-definitions used. The standard loss-definition used in W&I insurance, including not only direct losses but also “reasonably foreseeable indirect losses”, is now more frequently used and accepted also in non-insured transactions (where the Swedish standard historically would be only to cover direct losses).
The high valuations commonly applied in tech transactions, combined with the insecurity on future earnings, etc, have apparently increased the use of post-closing earn-out provisions in transaction documentation as a way to bridge the gap between buyers and seller on valuations.
There are no limits as to the due diligence information a public company in Sweden is allowed to provide to buyers. However, only relevant due diligence information should be provided and it is important that the recipients of such information are bound by non-disclosure agreements.
Generally, the company is required to provide the same information to all buyers. However, if a buyer is a direct competitor to the company, certain information may be withheld from such buyer.
There are no rules on what level of technology due diligence the board of directors may allow. Although the board of directors should not provide a level of technology due diligence that puts the company at risk. As a safeguard in this regard, the technology due diligence could be conducted by a third party which has entered into a clean team non-disclosure agreement.
There are no data privacy restrictions that specifically limit the due diligence of a technology company. However, the companies involved in the transaction must comply with Swedish data protection legislation, including the EU's General Data Protection Regulation (GDPR), during the due diligence process. If the parties wish to transfer personal data, the general requirements of the GDPR on data minimisation, the legal basis for the transfer and prior information to data subjects, etc, apply.
A takeover offer is required to be made public by way of a press release which must include detailed information about the transaction and be published without delay from the time when the buyer resolved to launch the takeover offer.
A prospectus is required for the issuance of shares in a stock-for-stock takeover offer.
In theory, the buyer’s shares do not need to be listed on a specified exchange in the home market or other identified markets.
A buyer in stock-for-stock transactions needs to provide financial statements in the disclosure documents.
In a cash transaction, the buyer needs to produce a brief presentation of the target company’s financial position and the most-recent published interim report or statement of result in the disclosure document.
Financial statements in Sweden need to be prepared in the form of Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS), as applicable.
As mentioned in 6.13 Securities Regulator's or Stock Exchange Process, the buyer must file an offer document with the SFSA and apply for approval of the document. Other than the filing of the offer document, there is no requirement to file copies of any transaction document.
In a transaction context, the board of directors of a Swedish limited liability company is obliged not only to consider the interests of the company shareholder, but also the interests of the company itself and its employees.
Special or ad hoc committees are established from time to time in public M&A transactions and in large private M&A transactions in Sweden when there is a risk of a conflict of interest within the board/shareholder group.
The board is expected to be involved in negotiations in public M&A transactions, while the board of a target company has no formal role in a private M&A transaction.
It is not common to have shareholder litigation challenging the board’s decision to recommend a public M&A transaction.
It is not uncommon in a public M&A transaction to engage outside advice and to obtain a fairness opinion from a financial adviser.