Club deals: the essentials of structuring co-investments via Luxembourg vehicles
In a market seemingly experiencing increased pricing for high-quality targets there appears to be a rise in the number of club deals, the term referring to the position where investors pool resources and share risk with the aim of acquiring larger or pricier targets.
In a market seemingly experiencing increased pricing for high-quality targets there appears to be a rise in the number of club deals, the term referring to the position where investors pool resources and share risk with the aim of acquiring larger or pricier targets. Club deals have the benefit of enabling investors to acquire assets which would ordinarily be out of scope for the individual investor alone, but such acquisitions come with the complexity of co-investors.
Due to its flexible corporate laws, lender friendly collateral law, AAA credit rating and various other investor friendly benefits, Luxembourg has long been a favourite jurisdiction of private equity investors when it comes to structuring investment vehicles for European targets. It is therefore no surprise that Luxembourg is a preferred choice jurisdiction for establishing the corporate entity facilitating any club deal.
In this article, the authors address the main aspects to be considered when structuring a co-investment vehicle via a Luxembourg company.
In addition to the Company Law1 and its articles of association, a co-investment vehicle will ordinarily be subject to the provisions of the co-investment agreement, a private contract containing the rules on, amongst other matters: (i) the governance of the company, (ii) the transfer of its shares and exit, and (iii) funding, anti-dilution rights and distributions.
1 Law of 10 August 1915 on commercial companies, as amended
The Luxembourg SARL is widely used in practice as a co-investment vehicle due to the flexibility of its regime and the ease of its constitution and management. The SA on the other hand will be the preferred choice when the particularities of the deal require it.
Other company forms are also available under the Luxembourg framework if any restrictions in either mentioned form are not acceptable to the investments.
The final choice of a co-investment vehicle will have to be analysed on a case-by-case basis to ensure that the form chosen best meets the peculiarities of the investment and the terms of the commercial agreement reached between the parties.