Acquiring a Nordic Business

By Tuomo Kauttu, Partner, Aliant Finland


From a global point of view, Europe seems to be a puzzle whose pieces are difficult to put together and which are constantly changing, sometimes disappearing altogether. 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.

In the Nordic region, there are countries that are members of the European Union (“EU”) and countries that are non-EU members. Among the Nordic EU member states, Finland is the only country that is also a member of the European Economic Monetary Union (EMU), while Sweden and Denmark are non-euro EU members, and Norway and Iceland are neither EU nor EMU members.

It is no simple task, therefore, to reach decisions with respect to the business or to assess legal questions concerning the acquisition of Nordic businesses. Subsequently, it is imperative that consultation regarding the relevant laws of the jurisdiction where the M & A transaction will take place to be held with local lawyers.

Nordic harmonization

Contrary to the confused situation stated above, 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.

Direct investment in the Nordic region can be made by purchasing an existing business. Laws governing such acquisitions in Europe have been almost exclusively national.

Over the past few years, regulations governing sizeable mergers and acquisitions have been harmonized in EU law as part of the EU’s competition policy. 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, a revised agreement on cooperation in competition cases between Sweden, Norway, Finland, Iceland, and Denmark was implemented on November 29, 2018. This allows authorities in the Nordic countries to engage in cooperation, regardless of EU membership. 

Furthermore, 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 EU regulations include a minimum set of common obligations, but not codified legislation. 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.

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, 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

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.

Regarding contract issues, a Nordic M&A transaction creates similar concerns as those of cross-border transactions globally. Structuring the transaction is an important aspect. After finding an optimal structure given the different considerations of the parties, negotiation of the price can proceed rationally.  When determining whether to structure it as a stock purchase or an asset acquisition, the parties should consider relevant issues that may influence the structure, including implementation, tax, and isolation against liability.

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 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. Not all of these typical provisions need additional consideration in an international context. However, once such a consideration is needed, it is extremely important that local lawyers from both jurisdictions are consulted.

This is not only a question of different legislation but also a tactical matter. Usually, the buyer’s counsel will prepare the first draft of the agreement, unless the seller is negotiating with more than one potential buyer. Therefore, the provisions of the first draft of the agreement generally favor the buyer.

Choice of Law

The purchase price is generally paid using cash, stock, installment notes, assumption of indebtedness, or a combination of these. All of these methods create difficult problems with the choice of law questions. For instance, when paying with a 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 the resale of the stock.

With reference to other terms and conditions of the stock purchase 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 alternate dispute resolution (ADR) provision. Since the buyer is generally more likely to present claims, the ADR provision is also usually favorable to the buyer.