The matter in brief
How it went
Situation. The owners of a fishing group of companies decided to sell the business to a strategic investor. The deal was complicated by a structure of several legal entities with different ownership shares and by the need to obtain clearance from the competition authority.
What we did. We carried out due diligence on the assets and documentation, structured the deal with payment through escrow accounts to protect both sides, prepared and agreed the filing with the competition authority, and brought negotiations with the buyer through to signing.
Result. The deal closed on the agreed timetable, the holding’s former shareholders received full payment, and merger clearance was obtained without delaying the project.
The rules a holding sale is built on
Sale of shares or assets. The legal form of the deal is either a transfer of participation interests or shares in the charter capital of the holding’s companies, or a sale of the business as a property complex (Articles 559-566 of the Russian Civil Code). The choice of form determines both the scope of due diligence and the procedure for registering the transfer of rights.
Merger control. Where the buyer’s and seller’s group of persons exceeds the asset or revenue thresholds set by Article 27 of Federal Law No. 135-FZ on Protection of Competition (aggregate group assets above RUB 7 billion, or revenue above RUB 10 billion where the target’s assets exceed RUB 400 million), the deal cannot be closed without the prior consent of the Federal Antimonopoly Service of Russia.
Escrow accounts as a protection for both parties. Escrow accounts have been part of the Russian Civil Code since 2014 (Articles 860.7-860.10): the bank holds the payment until the conditions set out in the contract are met. This removes the seller’s risk of non-payment and the buyer’s risk of paying for an asset whose conditions have not been fulfilled.
Strategic sectors and foreign capital. Where a foreign investor takes part in the deal and the company’s activity is classed as strategic, which includes certain types of use of aquatic biological resources, approval from the Government Commission for Control over Foreign Investments under Federal Law No. 57-FZ may also be required. This is a separate approval track running in parallel with merger control.
The rules such a deal most often relies on:
How M&A transaction support usually runs
The sequence is similar for most deals of this size; only the timing and the number of participants change.
Due diligence
Legal, financial and tax review of the target: constituent documents, title to assets, litigation and tax risks for every legal entity in the holding, not only the parent company.
Structuring the deal
Choosing the form (shares, interests or assets), the contractual payment scheme through an escrow account, and the procedure for transferring corporate control between the parties.
Approvals
Approval of the deal by the parties’ governing bodies and, where the asset or revenue thresholds are exceeded, prior consent from the competition authority.
Closing and payments
Signing the final documents, registering the transfer of rights and releasing the escrow account once the conditions agreed by the parties have been met.
Common mistakes when selling a holding structure
Underestimating the time needed for merger clearance. The parties fix the closing date before filing the application with the Federal Antimonopoly Service, without allowing for the fact that review can take from one to several months once a possible extension is taken into account.
Paying directly, without escrow. Transferring money before control passes, or handing over assets before payment arrives, creates a risk for one of the parties: in a dispute it is extremely hard to recover funds already paid or an asset already transferred.
A superficial review of subsidiaries. Due diligence on the parent company without the same depth for every legal entity in the holding leaves significant risks outside the scope of review: outstanding obligations, voidable transactions and tax claims at subsidiary level.
Overlooking sector-specific regulation. For certain industries the law requires approvals in addition to merger clearance, and missing them puts the very validity of the deal at risk.
M&A transactions in numbers
Timeframes and thresholds to bear in mind when planning a deal.
Risks typical of deals involving a holding structure
Hidden liabilities at subsidiary level. Warranties as to facts (Article 431.2 of the Russian Civil Code) offset this risk only in part; only thorough due diligence can reveal the problem before signing rather than after.
Missed deadlines because of parallel approvals. Merger clearance, corporate approvals and, where necessary, sector permits follow different procedures and timetables. Without a single schedule the deal risks running considerably longer than planned.
Currency and cross-border restrictions. If one of the parties is a non-resident, or payments are tied to foreign currency, currency control requirements also apply and, in some cases, a special procedure for deals involving strategic assets.
Related areas:
A similar situation? Let us discuss the details at a consultation.
Frequently asked questions
How long does due diligence take before an M&A deal?+
From a few weeks to 2-3 months, depending on the scale of the deal and the number of jurisdictions involved.
Can an asset stripping transaction be challenged if several years have already passed?+
The limitation period for such disputes is usually 3 years from the date the injured party learned of the violation, and the exact period depends on the circumstances of the case.
Is this a real case or a generalised example?+
It is a real matter from the firm’s practice. We publish it without company names or the names of the participants, as every client agreement includes a non-disclosure clause.