Pre-Transaction Planning & Structuring: Setting the Strategic Foundation

Why Structure Matters Before You Negotiate

The fundamental decision confronting every acquirer at the outset of an M&A transaction is deceptively simple: should we purchase shares or assets? Yet this choice reverberates through every subsequent aspect of the deal – tax consequences, liability exposure, regulatory approvals, employee transfers, and post-closing integration complexity. As a practising lawyer, I’ve witnessed transactions succeed or fail based on structural decisions made in the earliest planning stages, often before a letter of intent is even contemplated.

The Share vs. Asset Purchase Decision: Commercial and Legal Considerations

The choice between a share purchase and an asset purchase represents far more than a technical legal distinction. It fundamentally shapes the risk profile and commercial attractiveness of the entire transaction.

Share purchases offer operational continuity: contracts, licences, permits, and customer relationships generally transfer automatically with the acquired entity. This simplicity comes at a price: the acquirer inherits all liabilities, known and unknown, historical and contingent. Even comprehensive warranties and indemnities provide only contractual protection, not immunity from third-party claims. In regulated industries, this can be particularly problematic where legacy non-compliance issues may surface years after closing.

Asset purchases, conversely, allow surgical precision. The acquirer selects specific assets and assumes only designated liabilities, leaving historical baggage with the seller. However, this cherry-picking requires meticulous identification of transferred assets, novation or assignment of material contracts (often requiring counterparty consent), re-registration of intellectual property rights, and careful attention to employee transfer regulations. The administrative burden can be substantial, particularly in cross-border transactions where different jurisdictions may classify the same transaction differently for tax and regulatory purposes.

Deal Perimeter and Carve-Out Complexity

Defining the precise boundaries of what is being acquired presents both legal and commercial challenges. When acquiring a division or business unit from a larger corporate group, you’re not simply buying a discrete entity, you’re surgically separating interconnected operations.

Critical carve-out considerations include:

• Shared services: Does the target business rely on centralised IT infrastructure, HR systems, payroll processing, or treasury functions provided by the seller’s group? Transitional service agreements become essential, but their duration and pricing can significantly impact deal economics.
• Intercompany dependencies: Many business units exist within ecosystems of intra-group supply agreements, distribution arrangements, or IP licensing structures. Each must be identified, valued, and either replicated through new standalone agreements or replaced with third-party alternatives.
• Real estate complications: Operating from seller-owned or seller-leased premises requires careful negotiation of lease assignments, subleases, or licence arrangements. The failure to secure property rights has derailed integration plans in more than one transaction I’ve advised on.

The lawyer’s role extends beyond documentation, it’s about anticipating operational disruption and building contractual bridges to maintain business continuity during the separation process.

Ownership Verification and Encumbrance Analysis

Before committing to acquire shares, verifying clean ownership is non-negotiable. This seemingly straightforward exercise can reveal unexpected complexity:

• Minority shareholders and option holders: Even small minority stakes can create consent requirements or drag-along complications. Employee option schemes, convertible instruments, or warrants must be addressed; will they be cashed out, accelerated, or somehow accommodated in the new ownership structure?
• Encumbrances and restrictions: Share pledges securing financing arrangements, shareholder agreement restrictions on transfer, pre-emption rights, or tag-along provisions can all impede or delay completion. Identifying these early allows time for negotiation with affected parties.
• Corporate group structures: When acquiring a parent company with subsidiaries, verify that the parent holds 100% ownership of each subsidiary free from encumbrances. Joint venture arrangements or minority participations in subsidiaries may require separate negotiation or may be excluded from the transaction perimeter entirely.

Cross-border transactions add additional layers, different jurisdictions maintain different registers (or no registers at all), and verification standards vary considerably. Local counsel in each jurisdiction becomes essential, not merely advisable.

Tax structuring: where law meets commercial reality (Finland)

Tax considerations don’t just influence deal structure—they can dictate it. In Finland, the choice between a share deal (osakekauppa) and an asset/business deal (liiketoimintakauppa) can materially affect tax costs and future tax efficiency.

For sellers, taxation depends heavily on seller status and the nature of the shares/assets. Corporate sellers may, in qualifying cases, benefit from the participation exemption for disposals of fixed-asset shares (EVL 6 b), making a share deal particularly efficient; by contrast, an asset/business deal typically results in taxable income at the seller level as assets are sold and gains are realised under normal business income rules. Individuals selling shares are generally taxed on capital gains (luovutusvoitto).

For buyers, an asset/business deal generally allows the purchase price to be allocated to acquired assets and depreciated/amortised according to Finnish tax depreciation rules, improving future deductions. A share deal does not step up the target’s asset bases, but it can preserve the target’s tax attributes (such as loss carryforwards), subject to Finnish change-of-ownership loss limitation rules (often requiring a permit). Transfer tax and VAT considerations may also influence the preferred structure.

Cross-border structuring multiplies the complexity exponentially. Withholding tax obligations, transfer pricing implications, permanent establishment risks, and tax treaty planning all require careful analysis. The “best” structure from a UK perspective may create disastrous consequences under the target’s local jurisdiction’s rules.

My advice to clients is invariable: engage tax advisors at the earliest stage, before structural decisions are locked in. Changing structure mid-negotiation is possible but creates momentum loss and negotiating leverage problems.

Transaction Perimeter in Multi-Jurisdictional Operations

Modern businesses rarely confine themselves to a single jurisdiction. When the target operates across multiple countries through subsidiaries, branches, agencies, or distributors, defining what precisely is being acquired becomes complex.

Key questions include:

• Are all foreign subsidiaries being acquired, or are certain jurisdictions being excluded?
• Do branch operations require separate transfer procedures under local law?
• Will agency or distributor relationships survive the change of ownership, or do contracts contain change-of-control provisions allowing termination?
• Are there local regulatory approvals required (sector-specific licences, foreign investment restrictions, national security reviews)?

Each jurisdiction should be mapped not only for corporate structure but for revenue generation, asset location, employee numbers, and regulatory sensitivity. This mapping informs both deal structure and regulatory approval strategy.

Seller’s Post-Closing Plans and Their Impact on Deal Structure

Understanding the seller’s motivations and post-closing plans is essential for structuring appropriate agreements. Is this a complete exit from the industry, or is the seller retaining competing operations? Will the seller need ongoing access to certain assets or relationships being transferred?

Common scenarios requiring careful structuring:

• Sellers retaining related businesses may require transitional supply or distribution arrangements, raising both commercial and competition law considerations.
• Sellers exiting completely may be willing to provide broader non-compete covenants, enhancing deal value for the buyer.
• Management participation in the acquisition (management buy-outs) creates unique dynamics around representations, warranties, and indemnification—managers become both sellers (for their equity) and ongoing employees (and potentially re-investors).

Practical Pitfalls and Lessons from the Trenches

Several structural mistakes recur with depressing frequency:

1. Underestimating separation complexity: In carve-out transactions, assuming that the business operates as a standalone unit when it actually depends heavily on shared group services. This leads to inadequate transitional service agreements and post-closing operational chaos.
2. Ignoring local law quirks: Assuming that a structure that works in the UK will work identically in all jurisdictions. Asset purchases, for example, may be classified as business transfers in some jurisdictions, triggering automatic employee transfer obligations even if not intended.
3. Failing to stress-test the structure against worst-case scenarios: What happens if regulatory approval is delayed? If key consents aren’t obtained? If disclosed liabilities prove larger than expected? Robust structuring includes contingency planning.
4. Letting tax considerations override commercial sense: Whilst tax efficiency matters, the most tax-efficient structure is worthless if it creates unacceptable commercial or legal risks.

Conclusion: Strategic Planning Pays Dividends

Pre-transaction planning and structuring is where lawyers add the most value, not merely by selecting the “right” structure from a legal textbook, but by understanding the client’s commercial objectives, identifying hidden risks, and designing structures that balance tax efficiency, liability limitation, operational continuity, and regulatory compliance.

The time invested in rigorous upfront analysis invariably pays dividends when negotiations intensify and deadlines loom. Structural decisions made hastily under pressure rarely optimise outcomes and frequently create problems that resurface throughout the transaction lifecycle and beyond.

Jan Lindberg, Partner