An acquisition of an Italian company can be completed adopting different legal structures.
The choice between a share deal and an asset deal is mostly driven by tax-related considerations. However there are also several material legal implications to be taken into account in structuring a transaction.
•Share deal: acquisition of the majority (or entire) share capital of the target company. Following the acquisition, the target company remains a separate entity with respect to the purchaser.
•Asset deal: acquisition of the business, or a branch of business, owned by a certain company (seller) by another party (purchaser). According to Italian law, the business, taken as meaning that assets and legal relationships organized for the purpose of carrying out a business, may be the subject of a single sale and purchase agreement. The effect of said contract is the transfer to the purchaser of the legal relationships, debts and credits, together with contracts (including those with employees), and the property in the real estates and immaterial assets of the selling company falling within the perimeter.
The most common forms of Italian corporate vehicles are the joint stock company (“Società per Azioni” or “SpA”) and the limited liability companies (“Società a responsabilità limitata” or “Srl”), both of which have the benefit of limited liability.
In general terms we can say that an Srl is simpler and more flexible instrument than an SpA, but SpA are more common for medium and large size corporations. Listed companies are in SpA form.
An Srl allows (i) stricter restrictions on the transfer of ownership of quotas and (ii) a simplified governance.
•As a result of such acquisition, the purchaser becomes entitled to exercise certain corporate rights linked to the acquired shares.
•Achievement of such goals may differ in function of the entity of the acquired stake:
Acquisition of 100% of target’s share capital: grants the Purchaser the complete achievement of entrepreneurial goals through a full corporate and industrial integration with the target company, allowing to freely dispose of all its material and immaterial assets.
Acquisition of a controlling stake: grants the Purchaser the majority of the target’s voting rights, thus enabling him to control the acquired entity by managing its business and assets, providing a lower financial disbursement. On the other hand, in such case some minority shareholders remain in the company and, most likely, the purchaser shall grant them certain protection rights (e.g. exit rights, proprietary rights, governance rights) by entering into specific shareholders agreements (SHA) or by modifying the target’s AoA.
Acquisition of a minority stake: Purchaser’s entrepreneurial goals may be pursued through the provision of specific contractual clauses having commercial/industrial nature as well as by setting forth in a separate SHA, to be entered into with majority shareholders, certain option rights (i) allowing the Purchaser to increase its stake in the company (call options), or (ii) allowing majority shareholders (or the Purchaser itself) to sell their stake (put options), subject to certain conditions. In the event of minority investments, it shall also be the Purchaser’s interest to have certain protection rights granted by a SHA or by the target’s AoA.
As compared to an asset deal, the main benefit of a share/quota deal is that a share/quota deal requires fewer formalities and provides greater certainty in respect of the continuity on the underlying business.
Additionally, the change of controlling interest in the target company does not determine a formal change of employer, and there are no express legal obligations to notify, or consult with, trade unions in advance of the quota/share purchase, as the case for the transfer of a business is.
From the seller’s perspective, another major advantage to a share/quota deal is that all liabilities remain with the company and therefore pass to the buyer upon transfer of ownership. In addition, there is no implied/automatic seller’s warranty with respect to the assets of the target company. For this reason, buyers will usually request specific representations and warranties and indemnity provisions in the purchase and sale agreement (see more in depth below).
Asset deals are typically negotiated when the subject matter of the sale is a business division/branch of the seller or one of the businesses of the seller. Asset deals, i.e., purchases of a business as a going concern, are relatively common in the Italian market, particularly in small size deals.
The Italian Civil Code provides specific rules setting forth the definition of the business, or business division/branch (“azienda” and “ramo d’azienda”) and their transfers (art. 2555 - 2562 of the Italian Civil Code). These rules are essentially designed to: enhance continuity of the business, protect both creditors and employees of the business.
The transfer of the business requires the entering into of a notarial deed, which sets forth the assets and liabilities, as well as the goodwill for tax purposes, to be transferred. The deed must be filed with Companies Registry.
From the seller’s perspective, an asset deal may be less advantageous than a share/quota deal since, by operation of law, the seller:
•remains jointly and severally liable with the buyer for liabilities existing before the transfer;
•assumes a non-competition obligation; and
•grants an implied warranty on title to the assets and the absence of defects.
The buyer of a business becomes jointly and severally liable with the seller for all liabilities of the business recorded on the books of the company at the time of the transfer, as well as any tax liabilities of the seller in respect of the business up to the value of the same.
The buyer may limit its tax liability by requesting a certificate from the competent tax offices.
The issuance of a certificate stating that no tax is due, or the non-issuance of the certificate within 40 days as from the filing of the petition, releases the buyer from such joint and severally liability.
•The letter of intent (LOI)
Consistent with commercial practice worldwide, the entering into of a letter of intent in the initial stages of negotiations has become rather common in Italy.
•The purchase and sale agreement (SPA)
Price: in the Italian market, the price is quite often paid in full upon closing. However, it is not uncommon for the parties to agree to have part of the consideration:
-withheld against breaches of representation and warranty (indemnity escrow);
-deferred and conditional upon the future performance of the target company (earn-out mechanism);
-withheld while the closing accounts for any price adjustment mechanisms are being prepared.
•Representations and warranties: asset deals and share and/quota deals differ in terms of the scope of the “implied” representations and warranties automatically granted by the seller to the buyer pursuant to Italian law provisions. In share and quota deals, the implied/automatic seller’s warranty is limited to the ownership of the shares and quotas, and it is not extended to the assets of the target company, as it is in assets deals. In share/quota deals, representation and warranty provisions are therefore essential in order to allow the buyer to shift some the liabilities of the target company back to the seller.
•Acquisition agreements concerning Italian companies will usually set forth both pre-closing covenants and post-closing covenants.
•Language: Italian language is the mandatory language used in court during ordinary litigation.