Mergers and Acquisitions

Spain

Marti & Associats

1. Acquisition of Controlling Stakes by Private Companies in Private or Public Companies

1.1 Primary Differences

The acquisition of public companies in Spain is subject to a regulatory framework that does not apply to private transactions.

In the case of public companies, any person who directly or indirectly reaches or exceeds 30% of the voting rights—or otherwise acquires control (e.g., the power to appoint or remove a majority of directors)—must launch a mandatory takeover bid (OPA) for 100% of the remaining shares. Such offers must be addressed to all shareholders on equal terms, require prior authorization by the CNMV (National Securities Market Commission), and are subject to strict disclosure obligations, including publication of a takeover prospectus and compliance with ongoing transparency requirements.

By contrast, private company acquisitions are primarily governed by the Spanish Companies Act and contractual arrangements between the parties. These transactions are negotiated confidentially, without CNMV oversight or mandatory tender offer rules, and generally allow for greater flexibility and speed. Regulatory involvement is typically limited to merger control filings or approvals in regulated industries.

In summary, public company acquisitions are highly regulated to protect minority shareholders and market transparency, while private deals remain contractual and flexible.

Finally, in both public and private contexts, transactions in regulated sectors or involving foreign investment may be subject to prior administrative authorization.

1.2. Primary Documentation

Both public and private acquisitions generally begin with preliminary agreements, such as NDAs and LOIs or MOUs. In both cases, the SPA constitutes the main transaction document. Where applicable, filings may also be required with the CNMC or other sector-specific regulators.

For private companies, share transfers must additionally be executed by notarial deed and registered with the Commercial Registry.

Public company acquisitions, by contrast, require additional documentation due to regulatory obligations. Key documents include:

Tender offer prospectus, authorized by the CNMV.
Public disclosures of material facts.
Expert valuation reports, if required (e.g., for delisting or in-kind consideration).
Board opinions from the target company.

Public deals are therefore characterized by mandatory disclosure, regulatory approval, and minority shareholder protection, while private deals remain governed by contractual documentation and corporate formalities.

For both public and private companies, mergers and corporate restructurings, a draft merger plan must identify the companies involved, set share exchange ratios, outline projected effects on accounting and shareholder rights, and confirm compliance with tax and Social Security obligations. In cross-border mergers, a certificate from the Commercial Registry or equivalent foreign authority confirms compliance with applicable legal requirements.

1.3. Material Facts

For public companies, any information that could significantly affect the share price—such as acquisitions of control, crossing of ownership thresholds, or changes in strategic intentions—must be disclosed immediately to the market and the CNMV. If the acquirer fails to disclose, the target company is obliged to do so once it becomes aware of the information.

In private company transactions, there are no general public disclosure obligations, except for filings required by competition authorities or sector-specific regulators.

For structural changes such as mergers, material facts also include certificates demonstrating compliance with tax and Social Security obligations, which must be included in the documentation submitted to the Commercial Registry.

1.4. Tender Offers

Following the acquisition of control in a listed company, the acquirer is required to launch a mandatory tender offer (MTO) for all remaining shares. The offer must be unconditional, addressed to all shareholders equally, and priced at no less than the highest price paid by the acquirer in the previous 12 months. Prior CNMV authorization is required before the offer can be published.

Mechanisms protecting minority shareholders include:

Squeeze-out: If the acquirer obtains 90% of voting rights and 90% of the shares subject to the offer, it may compulsorily acquire the remaining minority shares at the same price.
Sell-out: Minority shareholders may require the acquirer to purchase their shares on the same terms.

These provisions ensure that minority shareholders have fair exit opportunities upon a change of control in a public company.

For private companies, no statutory tender offer or comparable protections exist.

If regulatory approvals (e.g., competition or foreign investment) are pending, the acquirer cannot exercise voting rights beyond the control threshold, and in case of denial, any excess shareholding must be divested within three months.

2. Structuring the Deal

2.1 Common Structures

M&A deals are typically structured as share acquisitions, asset deals, mergers, or, increasingly, SPAC transactions, in line with trends in other sophisticated markets.

Share Acquisitions: The buyer acquires the shares of the target company, thereby obtaining control of all its assets and liabilities. This is the most common structure, particularly in family-owned businesses and medium-sized enterprises. Consideration is usually paid in cash, although alternative forms of payment may be agreed.
Asset Deals: The buyer acquires selected assets and assumes specific liabilities, allowing for a tailored acquisition that can exclude unwanted obligations or business units. Transfers are subject to legal requirements specific to each asset type.
Mergers: Governed by Real Decreto-ley 5/2023, of 28 June (replacing Ley 3/2009), mergers can occur through absorption or incorporation. All assets and liabilities are transferred by universal succession, and shareholder and creditor protections must be observed. Cross-border mergers are also regulated under the new framework, which aligns Spanish law with EU directives and provides greater legal certainty. Worker rights protections must be addressed in the merger plan and included in registry filings.
SPACs (Special Purpose Acquisition Companies): These are emerging vehicles in the Spanish market that raise capital publicly with the goal of acquiring a private company within a defined period, following international practices.

The choice of structure depends on strategic, tax, liability, operational, and regulatory considerations. Spanish law provides flexibility, and customary contractual terms—such as price adjustments, conditions precedent, R&Ws, and indemnities—are used to allocate risk and address transaction specifics.

2.2 Price Structuring

In Spain, M&A transactions commonly use completion accounts (true-up) and locked-box regimes to structure the purchase price, with earn-out provisions applied in transactions involving performance uncertainty or complex valuations.

Completion Accounts (True-Up) Regime: The purchase price is initially provisional at signing and is adjusted after closing based on the target’s actual financial position (e.g., net debt, net working capital, or other agreed metrics). Price adjustments reflect differences between estimated and actual figures. Business risk between signing and completion generally remains with the seller.
Locked-Box Regime: Increasingly used in competitive processes, this structure fixes the purchase price based on historical accounts as of a specified “locked-box” date. After that date, no value leakage is permitted, except for agreed items such as ordinary-course payments. The buyer assumes economic risk and benefit from the locked-box date. Price adjustments are typically limited to leakage rather than changes in working capital or debt.
Combination Structures: Rarely, parties may blend features of the locked-box and true-up regimes. Such hybrid approaches require careful negotiation to avoid ambiguity or unfair advantage.
Earn-Out Provisions: Common in transactions where the target’s future performance is uncertain. Part of the purchase price is contingent on achieving pre-agreed targets (e.g., revenue or EBITDA) post-closing. Earn-outs are not specifically regulated under Spanish law, so the SPA should clearly define management conduct, accounting methods, and calculation formulas to mitigate disputes.

For mergers, the merger plan must specify the applicable price adjustment mechanism and all relevant reference dates to ensure transparency and compliance with registry requirements.

In summary, completion accounts and locked-box regimes are widely accepted in Spain, while earn-outs provide flexibility to bridge valuation gaps or defer consideration.

2.3 Conditions Precedent

2.3.1 Regulatory Requirements

Mandatory conditions precedent in M&A transactions primarily relate to obtaining regulatory approvals, with the most common being antitrust clearance and, depending on the sector, sector-specific or foreign investment authorizations.

Antitrust Approval: Transactions meeting certain thresholds require clearance from the CNMC. Specifically, this applies where the combined worldwide turnover of the parties exceeds €240 million and at least two parties have Spanish turnover exceeding €60 million each, or where other statutory thresholds are met. CNMC approval is typically included as a condition precedent in the SPA, and completion cannot occur before clearance. Failure to obtain approval can result in fines or unwinding of the transaction.
Sector-Specific Approvals: Transactions in regulated sectors—including telecommunications, energy, financial services, ports, and transportation—often require prior authorizations or notifications to the competent authorities. These may include security clearances or specific permits linked to a change of control.
Foreign Investment Control: Certain strategic sectors are subject to additional review for non-EU investors, under Spanish or EU rules, requiring government authorization before the transaction can be completed. Absence of approval renders the acquisition void and prevents the exercise of voting or economic rights until regularization.

These regulatory approvals are fundamental conditions precedent, ensuring compliance with Spanish laws designed to protect competition, sectoral regulations, and national interests. The scope and complexity of the review depend on the size of the parties, the sector, and the nature of the transaction.

2.3.2 Other Common Provisions

Spanish M&A agreements typically include provisions to allocate risk and ensure orderly completion between signing and closing:

Material Adverse Change (MAC) Clauses: Allow the buyer to terminate or renegotiate the transaction if significant adverse events materially affect the target company.
Break-Up Fees: Compensate a party for costs incurred if the transaction fails due to the other party’s actions. Fees are generally proportionate to deal value, require board approval, and in public transactions, must comply with CNMV disclosure rules.
Exclusivity Periods: Protect bidders during negotiations by preventing the seller from engaging with other potential buyers.
Completion Covenants: Require the seller to maintain the business in the ordinary course, preserving assets, customer relationships, and operational continuity.
Other Conditions Precedent: Commonly include obtaining third-party consents, securing financing, and delivering required documentation.

These provisions collectively ensure risk allocation, operational continuity, and regulatory compliance, facilitating smooth transaction execution.

Additionally, under Spanish law, breach of good faith during negotiations—particularly in LOIs and NDAs—can give rise to pre-contractual liability.

2.4 Representations and Warranties

2.4.1 Knowledge and Materiality Qualifiers

In Spain, there is no statutory definition of materiality or knowledge specifically applicable to R&Ws. As a result, parties must define these qualifiers contractually within the SPA.

Knowledge Qualifiers: Buyers generally seek a broad interpretation that includes both actual and constructive knowledge, meaning what the sellers, directors, or officers should reasonably know after exercising due diligence. This allows breaches based on constructive knowledge to trigger indemnification. Sellers typically prefer to limit “knowledge” to actual, subjective knowledge of themselves or their senior officers to restrict post-closing liability.
Materiality Qualifiers: These are negotiated and defined by the parties. Buyers often advocate for lower thresholds to maximize disclosure, while sellers prefer higher thresholds to limit exposure. Spanish practice may use “best knowledge” qualifiers tied to the knowledge of company officers rather than the company as a whole.

Since no binding legal or regulatory definitions exist, materiality and knowledge remain commercial negotiation points, aligned with international M&A standards. Spanish courts generally enforce contractual definitions and thresholds for knowledge and materiality, provided they do not breach public policy, involve fraud, or violate mandatory legal provisions.

2.4.2 Bring-Down Provisions

Bring-down provisions are commonly included in SPAs to ensure that the R&Ws made at signing remain accurate as of the closing date. Sellers typically confirm this through a bring-down certificate, providing the buyer with protection against any adverse developments occurring between signing and completion.

However, reflecting a trend towards faster and more efficient transactions, parties increasingly limit the scope of bring-down obligations to breaches causing a Material Adverse Effect (MAE) or similar thresholds. This narrower approach balances risk allocation with streamlined processes, avoiding exhaustive confirmations for immaterial changes.

2.4.3 Sandbagging Provisions

Under Spanish law, sandbagging provisions—allowing the buyer to claim indemnification for breaches despite prior knowledge—are not expressly regulated and case law is not fully settled.

Nonetheless, such provisions are increasingly accepted and commonly included in Spanish SPAs. Their enforceability depends on the principle of good faith (buena fe contractual), which governs contractual performance in Spain. If the buyer exercises sandbagging rights in good faith and without misleading the seller during negotiations, these clauses are generally upheld.

Conversely, actions amounting to bad faith, such as knowingly concealing information or acting unfairly, may render the provision unenforceable. The validity and application of sandbagging clauses ultimately depend on the contractual wording and the specific circumstances of each case.

2.5 Guarantees

Guarantees are commonly used in M&A transactions to secure payment of the purchase price and indemnification obligations, and their form is typically tailored to the transaction and the parties’ negotiating positions.

Payment Guarantees: Buyers may require assurances when there is uncertainty regarding the seller’s ability or willingness to fulfill payment or other obligations. Common mechanisms include:

Bank guarantees
Parent company guarantees (particularly for sellers within financially strong groups)
Escrow arrangements, where part of the purchase price is held by a third party until specified conditions are satisfied
Indemnification Guarantees: To secure potential claims, sellers often provide:
Holdbacks or escrow deposits, retaining a portion of the purchase price to cover breaches of R&Ws, or indemnity obligations. The amount and release conditions are negotiated based on risk allocation.

Fiduciary Assignment of Shares: In cases where sellers retain part of the equity, a fiduciary assignment (similar to a pledge) may be used. Legal ownership transfers to the buyer or creditor on a fiduciary basis while economic rights often remain with the seller until default, allowing for quicker enforcement than typical pledges.

Withholding Dividends: Particularly in joint ventures or partial acquisitions, withholding all or part of future dividends can cover price adjustments or potential liabilities.

Where applicable, escrow or guarantee agreements must be accurately referenced in registry filings (for mergers or transactions requiring registry procedures) and reflected in the merger plan.

2.6 Indemnification Regime

2.6.1 Common Practices

Indemnification provisions are standard in M&A transactions and serve to clearly allocate post-closing risks between the parties. Traditionally, sellers provided limited warranties, leaving buyers to rely on due diligence. Contemporary Spanish SPAs, however, now typically include detailed R&Ws covering all material aspects of the target and the transaction.

A common indemnification framework follows a “my-watch/your-watch” approach:

Seller’s responsibility: Covers risks and liabilities arising up to the completion date.
Buyer’s responsibility: Assumes risks arising after completion.
Indemnities are generally triggered by breaches of R&Ws. Parties often negotiate:
Thresholds and baskets: Minimum amounts before claims can be made
Caps: Maximum liability for the seller
Carve-outs and knowledge qualifiers: Limit exposure for known or excluded matters.

This approach provides the buyer with post-closing protection while allowing the seller to manage liability exposure. Indemnification claims are typically addressed through dispute resolution mechanisms, including arbitration or litigation, as agreed in the SPA.

2.6.2 Common Limitations

Indemnification provisions in SPAs typically include negotiated limitations to balance risk allocation and ensure enforceability:

Caps on Seller Liability: Maximum liability is often set as a percentage of the purchase price, tailored to due diligence findings and the assessed likelihood and impact of potential liabilities. While theoretically negotiable up to 100%, caps are generally lower in practice to align with identified risks.
De Minimis Thresholds: Establish a minimum claim amount below which losses cannot be claimed, reducing administrative burden for minor claims and promoting efficiency. Thresholds vary depending on deal size and negotiation.
Deductibles and Baskets:
o Deductible baskets: Buyer absorbs losses up to a specified amount before indemnification applies. Historically common, buyers increasingly resist this structure.
o Tipping baskets: Once the threshold is reached, indemnification covers the entire loss, offering a more balanced allocation of risk.
Exceptions to Limitations: Limitations usually exclude breaches of fundamental representations (e.g., corporate existence, authority, ownership) and losses resulting from fraud or bad faith, which cannot generally be limited under Spanish law.
Exclusive Remedy Provisions: Clauses limiting the buyer’s remedies primarily to contractual indemnities are increasingly used. Enforceability may depend on the circumstances, particularly if willful misconduct or bad faith is involved.

2.6.3 Common Liabilities

Indemnifiable liabilities in M&A transactions typically relate to tax, labor, environmental, regulatory, and contractual matters:

Tax Liabilities: Tax obligations are a significant risk due to the complexity of the Spanish system and potential audits. The general statute of limitations for tax claims is 4 years from the filing date of the relevant return, with exceptions for fraud or serious irregularities.
Labor Liabilities: Spanish labor law strongly protects employees. Potential claims include wrongful dismissals and unpaid social security contributions. The statute of limitations is typically 1 year for individual claims, counted from when the employee becomes aware or should have become aware of the alleged breach.
Environmental Liabilities: Claims may arise from contamination or non-compliance with environmental regulations. Administrative fines generally have a 4-year limitation, but liability for environmental damage can be unlimited. Owners, previous owners, and occupiers can be jointly liable for pollution.
Regulatory Liabilities: In sectors such as financial services, energy, telecommunications, and healthcare, breaches can result in administrative or criminal penalties, license revocations, and operational restrictions. Limitation periods for administrative sanctions are typically 4–5 years.
Contractual Liabilities: Claims arising from breaches of contract have a statutory 15-year limitation under the Spanish Civil Code. In M&A agreements, parties commonly negotiate shorter indemnification periods of 2–5 years to ensure commercial certainty.

Liabilities outside these categories are transaction-specific and assessed case by case depending on the company’s sector, history, and contractual framework. Contractually agreed periods for indemnification claims can be shorter than statutory limitations, but must be clearly stated in the SPA to be enforceable.

2.7 Choice of Law and Jurisdiction

2.7.1 Applicability of Foreign Law

In Spain, parties to an M&A transaction are generally free to choose the governing law and forum—including foreign courts or arbitration—for resolving contractual disputes. Spanish courts recognize and enforce such choices, provided they do not contravene mandatory Spanish rules or public policy.

Applicability of Foreign Law: Spanish procedural rules and international conventions allow parties to select foreign substantive law to govern their agreements. However, mandatory Spanish provisions—such as corporate law, public law, and certain employee rights—remain applicable regardless of the chosen law.
Enforcement of Foreign Judgments and Arbitral Awards:
o EU judgments: Enforced under EU regulations without re-examining the merits, subject to due process and public policy.
o Non-EU judgments: Recognized through the exequatur system, requiring Spanish court approval.
o Arbitral awards: Enforced under the New York Convention, with limited grounds for refusal, making arbitration a streamlined option for cross-border disputes.

In summary, Spain accepts the applicability of foreign law and generally recognizes foreign court and arbitral jurisdiction, subject to public policy and mandatory provisions. Notwithstanding party autonomy, Spanish public policy, mandatory employment rights, anti-money laundering, and competition laws continue to apply to local operations.

2.7.2 Courts Vs. Arbitration

M&A disputes may be resolved through courts or arbitration, each with distinct advantages and disadvantages:

A) Courts

Pros:

Established procedures, particularly in commercial hubs such as Madrid and Barcelona with specialized commercial courts.
Public judgments enhance transparency and the development of legal precedent.
Costs can be lower for straightforward disputes.
Judicial powers, including injunctions or interim measures, may be available.

Cons:

Proceedings can be lengthy, potentially taking several years.
Rigid procedures may limit flexibility.
Enforcement of foreign judgments outside the EU may involve additional steps.

B) Arbitration

Pros:

Provides confidentiality, faster resolution, and procedural flexibility.
Parties can select arbitrators with industry expertise, yielding more technically informed decisions.
Foreign arbitral awards are enforceable under the New York Convention, facilitating cross-border enforcement.

Cons:

Costs can be higher, especially with large panels or complex rules.
Smaller arbitration bodies or less experienced arbitrators may produce unpredictable outcomes.
Limited options for appeal may be a concern.

To conclude, Arbitration is often preferred for complex, high-value, or cross-border transactions, while courts remain a practical choice for domestic or smaller deals, or where interim judicial relief is critical.

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