M&A Transaction – Local Trends and EU/Nordic Aspects

By Tuomo Kauttu

A strategy for international M&A transaction in Finland requires analysis of three levels of regulation development. Beyond local laws, it is useful to consider both, the Nordic harmonization and EU harmonization. This view applies not only to business executives who think in terms of markets, but to lawyers as well who are supposed to think in terms of jurisdictions.

Nordic and EU aspects

In the Nordic region, there are countries that are members of the European Union and countries that are non-EU members. Contrary to this, the Nordic countries have a long tradition of harmonizing and modernizing legislation beyond the EU. As a result, the Nordic countries can be considered as a single regional jurisdiction in some relevant issues. Consistent with this, investors are seeking to treat the Nordic as a regional market and this trend is likely to continue and strengthen.

In Europe, laws governing acquisition of business have been almost exclusively national. Since 2004 regulations governing sizeable mergers and acquisitions have been harmonized in EU law as part of the EU’s competition policy, starting with the Merger Regulation (139/2004), which is the most relevant EU-level competition policy regulation concerning cross-border M&A. Recently, the Commission made a notification that the Merger Regulation will be revised and this means even further harmonisation of competition law. The objective of the revision is to lower the threshold for national courts to make referrals concerning merger cases that have an EU community-wide element.

Despite the fact that competition legislation is the most harmonized of all EU legislation, it has not necessarily been harmonized to the same degree among and between all Nordic countries. However, the Agreement on Cooperation in Competition Cases between Sweden, Norway, Finland, Iceland and Denmark allows authorities in the Nordic countries to engage in cooperation, regardless of EU membership.  The covenant was ratified in Finland on November 29, 2018 and in Sweden and Denmark the same year, following Norway that ratified in 2019 and Iceland in 2020.

M&A transactions always contain a number of legal problems beyond the competition aspects, and the primary concern with smaller transactions is not usually related to competition legislation at all.

While corporate laws have not been harmonized in the same way as competition legislation in the EU, the Nordic countries have pursued harmonization and have prepared corporate laws through joint collaboration.

The Nordic countries have, among other things, adopted the Nordic Corporate Governance Model. This governance model allows the shareholder majority to effectively control and take long-term responsibility for the company they own, including a principle of equal treatment of shareholders and transparency. Individual Nordic legal codes may appear to differ. However, in terms of crucial substance matters, the Nordic regulations are based on common concepts and principles, resembling one another to a large extent.     

The EU regulations include a minimum set of common obligations, but not codified legislation. However, the harmonization will increase in the near future with Directive 2019/2121 concerning cross-border mergers. The new Directive will revise the Directive (2017/1132) on Certain Aspects of Company Law. The EU’s objective is to increase cross-border mobility of EU companies by making common rules to simplify the procedure of changing a company’s home place within the EU. The deadline for implementation for members was in January 2023.

Stock v. Debt

It is notable that in classifying corporate stock and debt, the freedom of contract applies to some degree to corporate law issues.

In Finland, there is no requirement of minimum share capital, and a corporation has the power to create and issue shares, all in a single class or divided into two or more classes. A corporation may issue convertible bonds and shares which are more marketable, and which permit the corporation to generate funds with lower dividends or interest rates. Corporate law also permits a corporation to enter into an agreement for the purchase of its own shares.

As an alternative to equity securities, capital transactions may be structured in the form of secured or unsecured loans, which may contain a clause giving the lender the opportunity to participate in the growth of the business beyond the passive receipt of the principal and interest payment. While instruments regarding stock and loans can be almost identical, preferred stock is, however, stock and not debt.

Structuring the Transaction

In Finland, a share acquisition is generally simpler to implement than an acquisition of a business through an asset purchase. However, since negotiation of the structure typically involves all of the issues that may influence the structure and the goal, an asset purchase is favored in many cases. When determining whether to consummate the acquisition as an asset or a stock transaction, the parties should consider all relevant factors, including implementation, tax, and isolation against liability.

Generic contract principles are more or less the same in all Nordic countries, whether they are EU members or not. This is the easiest question, albeit one that depends on questions of jurisdiction and applicable law. An M&A transaction creates similar concerns as those of cross-border transactions globally. After finding an optimal structure given the different considerations of the parties, negotiation of the price and other terms and conditions can proceed rationally. 

Beyond structuring the deal, the process often involves consideration of the negotiation strategy, preparation of a pre-deal examination, and the exit of investors in the target company, as well as the handling of post-signing matters, from the agreement to closing and post-closing events.

There is no standard acquisition agreement applicable to all transactions. Nevertheless, a typical stock or asset purchase agreement contains a large number of provisions in a variety of definitions, purchase price, representations, liability, indemnification, confidentiality, governing law, dispute solutions, and much more. Some of these, but not all, typical provisions need additional consideration in an international context.

Choice of Law

The purchase price is generally paid using cash, stock, instalment notes, assumption of indebtedness, or a combination of these. All of these methods create difficult problems on choice of law questions. For instance, when paying with stock of the acquiring company, it is notable that such a payment may be governed by the law of the buyer’s jurisdiction with respect to many of the questions. Such legislation may have a significant effect on valuation issues with related regulations on securities and restriction problems, the requirement of shareholder approval, and in particular, variations on the requirements, tax consequences, and restrictions regarding resale of the stock.

With reference to other terms and conditions of the acquisition agreement, questions relating to the governing law and dispute resolutions are always important when drafting an agreement for an international acquisition. Generally, the main focus of negotiations is on comparisons between the courts or arbitration tribunal of the seller’s and buyer’s countries or alternatively, the choice of a third jurisdiction. In addition, the parties may agree on an alternative dispute resolution (ADR) provision. Since the buyer is generally more likely to present claims, the ADR provision is also usually favorable to the buyer.

About the Author

Tuomo Kauttu is a partner at Aliant and the head of Aliant practice in Finland. Tuomo is a member of the firms Corporate Practice Group, and he regularly represents corporations with more than 20 years’ experience advising his clients on cross-border business transactions, international projects, technology commerce, mergers & acquisitions, joint ventures, corporate governance and other complex corporate matters. While Tuomo primarily represents large multinational corporations, he also advises emerging growth businesses with exceptional complex legal questions. Tuomo serves as a representative of the International Chamber of Commerce (ICC) Finland delegation. [email protected]