Corporate transactions in Norway

Norwegian legislation is in general neutral to if the investment is done by a Norwegian or foreign natural or legal person. This has some exceptions for ownership and business operations in sectors regarded as important national interests such as the power and energy sector and the financing sector.  

The Norwegian legal system is a civil law system which means that if an agreement is not exhaustive on a topic and / or a situation that are not regulated in the agreement arises, the question will be regulated by the background law.

As the number of unlisted public limited liability companies in Norway is small the target company in most transactions are private limited liability companies. There are also acquisitions of partnerships (ANS / DA), internal partnerships and limited partnerships (IS/KS), but that frequency of this is rarely compared to the acquisition of a private limited company. Below we will focus on acquisition of a private limited company.

The prelude to a transaction

If the purchaser and the seller has found each other already we usually talk about a “bilaterale sale” or a “one-to-one sale”. If the seller doesn’t have a buyer already, finding a buyer is usually done through a structured auction where potential buyers are invited to join, “structured sale”.

A short teaser with information about the target company and that it is for sale made by a financial advisor is usually the opening of the transaction. An information memorandum (“IM”) with further information about the target company will follow, but in most cases the seller will require the signing of a non-disclosure agreement (“NDA”) before this is released.

An NDA should include regulation of; the parties, what information is regarded as confidential, what does the duty of confidentiality mean and the other parties right to use the information received. How breaches of the NDA shall be handled should also be included. In Norway it is also common that the seller presents a Non-disclosure undertaking (“NDU”) instead of an NDA. This is in principle the same in content but note that the undertaking will only be taken by the buyer, not the seller.

Based on the IM and accompanying documentation the buyer should have enough information to set the enterprise value (“EV”) and decide if they want to give an indicative offer. The indicative offer letter will normally hold reservations towards a completion of a satisfactory due diligence and that certain specified conditions must be satisfactory fulfilled. The indicative offer can be binding or non-binding.

Letters of intent

Letters of intent comes in many different forms; there is the ordinary letter of intent, the memorandum of understanding, heads of terms and terms sheet. They are all frequently used if the negotiation is one-to-one. In a structured sale they are generally not used as the seller often provides enough information through the IM and a process letter for the potential buyer to know the sellers fundamental expectations for timeline and conditions.

The purpose of the letter of intent is to set out the main commercial topics agreed, or intended to be agreed, and set the basis for further negotiations to a final agreement. Key topics in a letter of intent is typically: parties, completion of satisfactory due diligence and timeframe for this, price and costs, conditions, timeline leading up to the transaction, choice of law and dispute resolution mechanisms and responsibility to make the first draft of the purchase agreement. It should also be clearly defined if the letter of intent is binding for the parties or not.

An exclusivity provision can be included in the letter of intent. This can also be done in a separate exclusivity agreement if that is preferred. An exclusivity agreement is binding for the parties and the buyer can claim damages if the seller breaches the exclusivity clause.

The use of break fees occasionally appears in letters of intent. In some situations this may seem to seller-friendly, but where the seller has granted one buyer exclusivity it may seem reasonable that the buyer should compensate the seller for the possible loss accrued of other buyers leaving the auction due to another buyers exclusivity period.

Due diligence

The goal with the due diligence (“DD”) is to verify the commercial assumptions made by the buyer at the preliminary staged and identify potential risks in the company and the transaction to be made.   

The scope of review will be defined by the buyer and a request list will usually be sent from the buyer to the seller. Based on the request list the seller will provide information to the buyer. This is usually done through a data room that is categorized in the same order as the request list. All parties and / or their advisors will receive login details to the data room and the data room will be open in the period agreed for the due diligence to be completed. After this the data room will be closed and the information provided in the data room stored at ex. a USB stick. This will be handed over to the buyer either at signing or closing.  

Presenting the physical documentation at the sellers office still happens in smaller transactions, but it is rare.

After the due diligence is completed the buyer’s advisors will make a due diligence report so the buyer can review the facts and findings. The buyer can choose if they want a full and comprehensive report or a shorter red flag report. Which one to be chose depends on the buyers need for complete and full information about the target company, as well as costs to advisors.

When the due diligence is completed the parties are ready to start negotiating towards the final agreement. In a structured sale there may be several potential buyers that has done a due diligence and the seller will then ask for a final binding offer together with a mark-up of the draft of agreement the seller has presented. Variations of this process occurs. 

Share purchase agreement

The share purchase agreement (“SPA”) comes in many forms and formats, but they are usually built on the same framework.

For the purchase of shares in a company owning a property / business premises there is a standard estate agency terms agreements that are used in most cases (Meglerstandarden). That this contract shall be used will usually be included in the information provided in the preliminary period. Even though this is a standard agreement, there is always the need to tailor it to the specific transaction.   The standard comes in Norwegian and English.

If the sale is structured as an auction the seller usually prepares the first draft. If the sale is bilateral it is common that the buyer presents the first draft. 

Asset purchase agreements

The asset purchase agreement (“APA”) comes in many forms and formats, but they are still usually built on the same framework. When entering an APA it is crucial that the assets the buyer is acquiring are precisely specified in the agreement.

Signing and closing

At signing the agreement will be signed by the persons authorized to bind the seller and the buyer. For Norwegian companies the authorized signatories will be set out in the articles and registered in the Register of Business Enterprises. A proxy can be given from the authorized signatories. If a proxy is signed abroad for use in Norway the signing must be witnessed and legalized by the Notary public in accordance with the Hague Legalization convention. If the signing of a proxy is done in Norway, this applies to Norwegian and foreigners, the proxy can be witness by one attorney or two Norwegian residents.

If a Norwegian bank is financing the purchase, they will request a sample signatures and copy of ID for all parties authorized to sign on behalf of the party. In some cases, the bank also requests a utility bill for the person in question. The copy and sample signature must be certified by a Norwegian lawyer or by a Notary Public in accordance with Hague Legalization convention.

At closing both parties shall fulfil their obligations set forth in the agreement. Before closing the parties should have prepared a unified closing memorandum where all stages necessary to close the agreement, hereunder which documents must be presented, what is sufficient proof of payment of the purchase price etc. When closing is completed both parties will sign the memorandum and it will serves as written record of that both parties fulfilled their obligation at closing.