Posted on April 7, 2021 in
Written by: David B. Honig
Two of the most reputable agreements in Europe in the first half of 2019 involved bids from consortia, with several consortia involved in the auction process for Nestlé Skin Health, prior to the announcement in May of a CHF 10.2 billion agreement with a consortium led by EQT and a Sovereign Weal Middle Eastern Eastern Fund. , as well as PSP investments and other large institutional investors. In addition to the obvious tax structuring considerations, which can be particularly difficult to put in place in a consortium to align with a mix of private equity, U.S.-based strategic members and not based in the United States, it is appropriate, if there is an EEA link with the consortium, to consider at an early stage whether or not the consortium vehicle will be an alternative investment fund within the meaning of the AIFMD. and are therefore subject to continuous authorisation and authorization. There is no single solution to the impact of interest transfers on the administration of the consortium. Among the issues that should be considered is whether the right to appoint directors should be tied to minimal participation or whether the right to appoint multiple directors should be reduced proportionately and whether minorities can pool their holdings to appoint board representatives or veto the consortium`s key decisions. Bidders in a competitive bidding process must be able to move quickly and decisively, which must avoid cumbersome decision-making processes to allow for a consistent and agile approach to the seller. In private equity-managed consortia, one or two major sponsors are often empowered to make almost all decisions on behalf of the consortium and create a single priority for legal and commercial diligence. Unleaded, investors risk finding themselves in a dead end or controlling sellers with an overloaded trading table and overlapping due diligence processes. Airbus` four partner companies (British Aerospace, Aerospace, Construcciones Aeronéuticas SA and DASA) were both subcontractors and shareholders of the consortium to illustrate the complexity of such an agreement. This agreement resulted in a number of conflicts of interest and inefficiencies, as well as a possible move to Airbus SAS in 2001, which consolidated the original members of the consortium and reduced overhead costs. Multi-party consortia, which do not have a single main sponsor, often find control more fluid in the case of a so-called stratified alliance structure.
As a result, no party is able to steer certain things or veto them, with only a very small number of critical cases – such as price – subject to a super majority or unanimity. There are also for-profit businesses, but they are less common. One of the best-known profit consortia is the aircraft manufacturer Airbus Industrie GIE. European aerospace manufacturers are cooperating within the consortium to produce and sell commercial aircraft. Depending on the date of the transaction, including the expected closing period and the time available for the signing of the negotiations, more detailed terms for the consortium`s relationship may be established in an interim investor agreement reached at the signing of the transaction. Otherwise, these agreements will be incorporated into a long form of unionized governance agreement reached at the conclusion. Offer agreements should be considered as soon as possible, as while certain aspects of the consortium`s offer and relationship will develop during the transaction, it is important to have a binding framework agreement to ensure alignment and a backstop in case the transaction is abandoned at an early stage.