perjantai 20. lokakuuta 2017

IPRs in mergers and acquisitions in Finland


Intellectual property may be  valuable let alone the core asset of the target company. Consequently IPRs should not be taken lightly in the DD-process. I always recommend that all trade marks, designs, copyrights and patents which are to be included in the transfer should be listed  in an appendix to the agreement. The buyer should request warranties with regard to the following matters:

(a)    that  the object company  is the owner of the IPRs;

(b)   that those rights are valid and enforceable;

(c)    that the seller has not granted any person a right to the IPRs;

(d)   that the IPRs are not  registered in the name of the seller or any other third party (a.g. a sister company);

(e)    that the operation of the business does not infringe the intellectual property rights of any other person.

I have seen a case where the IPRs were not included in the deal; they were registered in the name of the seller and not in the name of the object company. This was very unfortunate and a proper DD should have revealed it. That error became very costly as the target was a product development company.

In this context I can’t help underlining another aspect ; some essential IPRs may be licensed to the  target company. Therefore the buyer is well advised to ensure that it receives the benefit of all license contracts entered into between the seller and third parties which are important to the business. One we have used  is to assign the benefit of contract. The buyer should, however, check  in the DD whether or not the terms of the contact prohibit assignment or require the consent of the other party. One may also ask the seller to warrant this provided that the seller is ready to give such a warranty.

keskiviikko 15. helmikuuta 2017



You may call it a letter of intent or a memorandum of understanding or a MOA or a LOI… it still serves the same purpose.

As the parties have reached an agreement on the basic terms of the transaction, they usually draft and sign a letter of intent or memorandum of understanding before proceeding to negotiate a full agreement. One argument in favor of a letter of intent is that even if it is not legally binding in Finland, it creates an explicit moral obligation which most business people will take fairly seriously. It also serves as a negotiation agenda and states the basic terms of the understanding and makes it more difficult for misunderstandings on already agreed points. If the parties want to make a binding commitment at this stage it should state so and be called a precontract. Then again: why do this, you could as well draft the final contract in such a case.

You sometimes hear arguments against executing a letter of intent: e.g. that it doubles the time of the acquisition negotiation, that it weakens the seller’s negotiating position etc. Sellers are often keen to make a LOI and have an indication of the purchase price. Sellers often feel that it is a statement of moral commitment and shows the willingness of the buyer.

The most important thing with respect to a LOI is to be sure that the document is precisely as binding or non-binding as you want. Yet, even if the letter of intent says to be non-binding, a course of conduct (true intent in Finnish practice) by the parties treating it as binding may result in a court doing likewise.

Usually a letter of intent will cover the basic elements of the transaction,

·         the price,

·         the form of payment,

·          provisions of protection e.g. escrow or pledge arrangements, important employment agreements etc,

·         provisions prohibiting the seller from negotiating offers form any other party

·         other: indemnification, non-competition, even some representations and warranties.

In case of a publicly owned company the execution of a LOI, depending on its wording, may rise an obligation to make a public disclosure at this stage. So be careful.

My experience of the Finnish M&A market is that you have to find a good balance in drafting your LOI. Too much  legal substance in it may scare off a small or medium sized  Finnish party and then again  a good LOI serves as a perfect agenda for further negotiations.

torstai 25. elokuuta 2016



A schedule of the items of plant and machinery which are part of the sale is usually attached to the acquisition agreement. A buyer who wishes to purchase all of the assets needed to run the business may seek to safeguard itself by providing that plant and machinery  ‘used in the business’ are to be transferred,  including but not limited to those items listed in the schedule. Thus items forgotten or omitted from the schedule by will stillbe included in the sale.

Insure the plant and machinery

The buyer will normally assume risk on the plant and machinery when the acquisition agreement is executed and should get insurance cover from this date, even if completion is delayed.


As a buyer you should ask to include the following warranties as to the condition of the items of plant and machinery:

(a)    they are in a proper state of repair and condition and in satisfactory working order;

(b)   they have been properly and regularly maintained

(c)    they are adequate for (and not surplus to) the need of the business.

(d)   they are not dangerous, obsolete or in need of replacement;

The seller should be careful before agreeing to these warranties and try to restrict any liability to major defects.

perjantai 22. tammikuuta 2016

Mergers and acquisitions in Finland; what can go wrong?

In the past few years I have seen many great cross border acquisitions; most of them great successes. But it’s worthwhile to have a look at  missed opportunities and learn a lesson of the past failures. I have tried to summarize what usually goes wrong.

1)      A business acquisition is a major investment and decisions for such large projects need to be properly validated to minimize the business risks involved. This is not a legal issue but why acquire a company if you are not convinced of the profitability. You would be surprised how often these kinds of studies and validations are neglected even by multinational companies. We were recently able to prevent  such a tragic mistake from happening by being able to show that the business was no longer profitable in Finland due to changes in the legal and subsidiary framework.

2)      Tax considerations are sometimes poorly dealt with by small and medium sized companies. You should bear in mind that when acquiring shares in a company there is an added layer of complexity which arises from the fact that the buyer is acquiring an entity with a tax history and attached liabilities. As the tax climate hardens buyers should conduct thorough due diligences regarding their targets’ tax affairs and be sure to negotiate appropriate indemnities and warranties as part of any deals. This goes also with the target company’s compliance related to value added tax (VAT ) and other indirect taxes.

3)      When planning the fiscal aspects of your financing you should not always trust past experiences.  Many countries are working to increase tax revenue, shore up their tax bases and curb aggressively financed M&A transactions. In many countries e.g.  the non-deductibility of  interest has emerged as a common legislative means of eliminating the tax benefits of cross-border debt financing structures. Today’s truth may not be that of tomorrow.

4)      The buyer should cover all its legal bases and get a thorough assessment of possible legal risk. I have seen cases with costly and large due diligence reports consisting of copies of the due diligence  material. Little do they serve the buyer’s interest if there is no assessment. A clear analysis of the existing employment contracts is also vital as the Finnish labour laws can become a costly affair for the buyer.

5)      Try to persuade your counterpart to acquire knowledgeable legal advice as well. It saves a lot of the buyer’s time and money if the seller is represented by a business-minded professional who knows his trade.

It is money well spent to have appropriate advisors at one’s side to help avoid pitfalls by tackling them early on at the negotiation table. The earlier the better  - and  usually a lot less costly.

torstai 24. syyskuuta 2015

Substansköp i Finland

Sakrättsliga problem

På senare tid har sakrättsliga problem uppstått allt oftare i köp av affärsrörelse. Säkerheterna komplicerar den annars rätt enkla proceduren och säkerhetsinnehavarnas ovilja att skräddarsy kundernas speciella säkerhetsrättsliga arrangemang har  försvårat läget. Köparna av mindre företag känner sig otrygga och  överväger riskerna: kan man  förlora sin investering om säljaren mot all förmodan går i konkurs.


1.      Den sakrätsliga bakgrunden

Publicitetsprincipen är  avgörande princip i den finländska sakrätten.  Publicitetsprincipen innehåller ett krav på att rättsverkningarna som riktar sig till tredje personer skall vara anknutna till  iakttagbara kännetecken. Det finns två olika slag av sådana kännetecken i vår sakrätt:

(i)                 besittning  och

(ii)               inskrivning.

Något förfarande med kungörelser känner inte det finländska systemet till och inskrivning kommer i fråga bara beträffande fastighetsköp, inteckning eller företagsinteckning.

Publicitetsprincipen hänger ihop med tillitsskyddssynpunkten. Men det är självklart att man kan tala om tillitsskydd endast om den tredje personen är i god tro.

2.      Substansköp

Jag hade nyligen ett fall där fastigheten där veksamheten bedrevs ägdes av ett fastighetsbolag och inkråmet av det verksamma bolaget. Den utländska köparen kände en viss oro över att köpeobjektet (maskinerna) skulle innefattas av  fastighetsinteckningendet Det var dock inte sannolikt;  inte bara för att fastigheten ägs av ett annat bolag utan för att maskinerna inte var specifika för fastigheten (de gick att flytta till en annan anläggning) och således  inte kunde anses ha blivit fastighetens beståndsdelar.

3.      Maskinerna

Hur definierar man god tro i detta sammanhang? En tredje man (t.ex. köparen) som är i god tro känner inte till hur äganderättsförhållandet egentligen ligger till. För att en sådan tredje man  skulle få skydd är ovetskap ändå inte  tillräckligt utan doktrinen förutsätter s.k. motiverad god tro: personen i fråga kände inte till och borde inte heller ha känt till omständigheten. I det nuvarande fallet blev banken, d.v.s. innehavaren av företags- och fastighetsinteckningarna medveten om  substansköpet.

Det är en självklarhet att produktionslinjen innefattas av företagsinteckningen (Lagen om företagsinteckningar 1984/364; §§ 1 och 5) och substansköpet förutsätter inteckningsinnehavarnas samtycke. Lagen om företagsinteckning § 9, 3 moment är tydlig i detta avseende:

”Om en näringsidkare säljer eller annars överlåter hela den egendom som är föremål för företagsinteckning eller huvuddelen av den, består företagsinteckningen och ger företräde till betalning ur den överlåtna egendomen före företagsinteckning som har fastställts i förvärvarens egendom. Inteckningen förfaller dock när sex månader har förflutit från det inteckningshavaren fick kännedom om överlåtelsen och senast två år efter överlåtelsen, om han inte före det söker betalning för sin fordran ur den intecknade egendomen och anmäler detta till registermyndigheten. Överlåten egendom frigörs från inteckning när inteckningshavarens fordran har blivit betald eller när inteckningshavaren har avstått från indrivning eller annars gett sitt samtycke till frigörandet.”

En försiktig köpare vill förstås gardera sig emot säljarens  oärlighet d.v.s. att säljaren skulle sälja maskinerna till en  tredje man (tvesalu). För det första skulle handlingen vara brottslig och omfattas av Finlands strafflag. Dessutom kan man utesluta möjligheten av  tvesalu genom att  utesluta den senare köparens god tro. Detta görs bekvämast  genom att märka egendomen. (Bl.a. HD 1996:130, HD 2012:17, HD 2005:97)

De senaste tidernas jurisprudens  strävar dock efter att bedöma händelseförloppen  i stora helheter däri syftet för de ekonomiska strävandena och deras stödfunktioner får större vikt. Enligt denna doktrin skulle en professionell köpare lättare få skydd än t.ex. en ren investor.

av Tina Taivaloja, doktorand  vid Helsingfors Universitet

torstai 10. syyskuuta 2015


Recent collateral related issues

I have often heard buyers say that the purchase of business is like a visit to a hard ware store. The buyer will acquire only those assets and liabilities which the agreement specifies as being included in the sale; So true, yet it is important that the assets and liabilities are accurately defined. One often sees agreements contain a list of assets which are excluded from the transfer. There is not much point in including cash in hand or on deposit in the sale since this would simply involve the buyer paying an equivalent sum as part of the purchase price. Debtors and creditors are in most cases left with the seller. In addition, the seller may wish to retain certain assets for which it will continue to have use after completion

A schedule of the items of plant and machinery, including vehicles, which are part of the sale should always be attached to the acquisition agreement. A buyer who wishes to purchase all of these assets of the business may seek to protect itself by providing that plant and machinery  ‘used in the business’ are to be transferred,  including those items listed in the schedule. Thus items forgotten from the schedule by mistake will, all the same, be included in the sale. The buyer will naturally assume risk on the plant and machinery when the acquisition agreement becomes effective and should take insurance cover from this date, even if completion is delayed.


The buyer will usually seek to include the following warranties as to the state of the items of plant and
 machinery listed in the schedule:

(a)    they are adequate for (and not surplus to) the needs of the actuall  business.

(b)   they are in a acceptable condition and in satisfactory working order;

(c)    they are not dangerous, obsolete or in need of replacement;

(d)   they have been properly and regularly maintained;

The seller should think twice before accepting these warranties and consider trying to restrict any liability to major defects. Also, in relation to (d), as it will have no control over how the buyer carries on the business after completion, it may wish to add the word ’as carried  on by the seller prior to the agreement’.  

Recent collateral related pitfalls

I have recently been involved in two asset deals with similar kinds of problems.  The buyer should be very careful if the plant or the machinery is physically located on a real estate that is pledged to the bank. If there is a mortgage on a real estate the mortgage  also includes a house built on it and sometimes even the machinery. Such appurtenances (e.g. machinery) may cause some concern, in particular when they have not been contractually specified, or only have limited effect on third parties. If a specific piece of property is deemed to be an element or appurtenance of the real estate, it legally belongs to the estate and cannot be separated from it, regardless of ownership. The opposite legal conclusion is reached, when the object is deemed to be a piece of movable property and therefore not a part of the real estate.   There is a whole doctrine based on the fact whether the machineryt can be easily moved or removed from the property and whether an initial physical relationship between the machinery and the real estate has been established.

This problem raises in the acquisitions of small businesses where the buyer may have doubts about the seller’s solidity and fear its insolvence. My experience of today’s  banking is not very encouraging; banks tend to be less inclined to abstain from their theoretical rights to the machinery; not so much due to their  wish to maintain a stronger  collateral position in a possible insolvency situation but rather due to the lack of staff to deal with small business specific problems. Thus I only see two options to solve these situations: the buyer either gets a statement from the  bank or engages a qualified  Finnish lawyer who analyzes the risk. I was newly involved in a situation where the buyer’s foreign lawyer chose not to use Finnish council and caused a deal break situation in the sales process. Fortunately we managed to convince the bank and got a pledge where the bank abstained from any potential right to the machinery. This time the bank turned out to be flexible.

torstai 27. helmikuuta 2014

Buying a small business and its DD in Finland

Buying a small business and its DD in Finland

Buying a decades old Finnish family owned company may be a surprising experience for a professional foreign buyer. The owners are often skilful in their business but certainly not experienced in M&As. Dealing with such a seller calls for patience and understanding. The sellers last acquisition may have taken place decades back and he may have great difficulties in appreciating the necessity of due diligence let alone the modern SPA structure including indemnities and warranties.

 In the course of the initial negotiations on the terms of the contemplated acquisition, the buyer does not usually have very detailed knowledge of the object company. The buyer normally relies on information received from the seller, what is publicly known about the target company, any information released by the seller, any knowledge of the target’s business acquired from previous dealings, perhaps as a supplier or a competitor. The buyer should get started with a search of the company’s financial information at the Finnish Trade Register. It provides the buyer with initial information about the object company’s past achievements.

The parties usually draw up heads of agreement or a letter of intent to record the mutual understandings of their preliminary discussions and to provide a helpful basis on which to proceed to the drafting of the main agreement.  It is customary to agree on the purchase price in a non binding manner. Yet, the purchase price is approximate and always subject to the findings of the subsequent due diligence. The buyer will not, however, want to enter into a binding commitment to acquire the target until it has acquired as much information as possible about it, and this information gathering stage is often known as “due diligence”. The aim of due diligence is to furnish the buyer with essential management information to enable it to decide whether or not to go ahead with the proposed acquisition and, if so, on what terms. In particular, the results of the investigation may prompt the buyer to renegotiate the price for the target. Now, this may a novelty to a seller of a small family owned business and require some convincing from the buyer’s side. I have often met sellers who insist on that the price should be final already at this stage.

While the due diligence process can provide the buyer with a considerable insight into the business of the company it is planning to buy, it is important to be thorough and careful. Although we do not have the strict principle of “caveat emptor” (buyer beware) of the Anglo-Saxon system, we are not very far from it. Therefore the buyer should seek to protect itself in two ways,(1) like any prudent buyer by obtaining as much information as possible on the target company and (2) by backing that up with as extensive warranties and indemnities as possible in the acquisition agreement. The purpose of the warranties and indemnities is to provide the buyer with contractual protection should the object company not turn out to be as good as expected.  

It is important to remember that a thorough investigation of the target company is essential to reveal areas where the buyer is at risk and needs to protect itself by including warranties and indemnities. Having said that, there may be some complications ahead with family owned companies. In the  60’s and 70’s it was common in Finland not to include any representations and warranties in the SPAs of small companies and just make a statement that the buyer had had access to the annual accounts of the target company. Therefore a seller of that kind may be quite upset when receiving a draft SPA including several pages of representations and warranties. Many of those representations and warranties could be omitted because they are covered by the Finnish legislation and thus make the draft SPA shorter and easier for the seller. My experience is that with thorough work the SPAs could be made shorter and more adapted to the Finnish legal system thus gaining more clarity without losing any of the accuracy.