Introduction to Acquisition Financing in Norway

Acquisition financing in Norway plays an important role in facilitating mergers and acquisitions (M&A). Below is a short introduction to the primary opportunities and potential pitfalls for acquisition financing in Norway.

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1. What is Acquisition Financing?

In Norwegian law context, the term “acquisition financing” is commonly used on financing in which a Norwegian target company (or its subsidiaries) grants loans, guarantees and/or security for the benefit of lenders debt financing the acquisition of the shares in the Norwegian target company.

2. Key Opportunities in Norwegian Acquisition Financing

Under Norwegian corporate law the general rule is that the financial support (including the granting of loans, guarantees and security) provided by the target company is required not to exceed the target company's dividend capacity. There is, however, an exemption if the acquirer is incorporated in an EU/EEA member state and is or becomes part of the same group as the target company upon completion of the acquisition. Each of these paths offers opportunities for structured financing, although the EU/EEA group exemption is more widely applicable and frequently used.

a. Financial Support Through Distributable Dividends

A Norwegian target company can provide financial assistance to an acquirer if the financial support does not exceed the company’s dividend capacity. The dividend capacity is calculated based on the company’s latest annual or interim accounts. However, as target companies rarely have a dividend capacity corresponding to amount which typically is secured by the target company in form of financial support, this alternative is rarely used in practice.

b. EU/EEA Group Exemption for Financial Support

The EU/EEA group exemption provides a practical and frequently used alternative in Norwegian acquisition financing. Under this exemption, a target company can provide financial assistance irrespectively of dividend capacity, provided that the acquirer or borrower is incorporated and registered in an EU/EEA member state and is or becomes part of the same corporate group as the target company. For example, structuring with a bidco in an EU/EEA member state allows the acquirer to qualify for this exemption, as the acquirer and target are considered part of a single corporate structure.

The EU/EEA group exemption is particularly significant for multinational corporations, as it allows for greater financial flexibility on Norwegian target companies acceding as debt obligors, provided that the M&A and financing documentation are structured with a bidco acquirer vehicle incorporated within the EU/EEA.

3. Compliance Requirements in Norwegian Acquisition Financing

Norwegian law imposes stringent compliance requirements to ensure that acquisition financing arrangements remain fair, transparent, and protective of both shareholder and corporate interests. Key compliance factors include arm’s-length pricing, corporate approvals and registration with the Norwegian Register of Business Enterprises.

a. Arm’s-Length Fees

Acquisition financing in Norway must be structured on an arm’s-length basis, requiring reasonable fees for guarantees and security provided to the acquirer. This is designed to prevent companies from overcharging or undercharging for the financial support and to ensure that all transactions reflect fair market value. Typically, this requires an internal pricing team’s evaluation of reasonable fee levels based on industry benchmarks and financial metrics.

b. Formal Procedures for the EU/EEA Group Exemption

For the financial support to be valid pursuant to Norwegian law, acquisition financing must adhere to several formal requirements:

• Board Approval and Statement: The board of directors of the target company is obliged to formally approve the financing arrangement, including a statement describing the terms and risks related to the transaction.
• General Meeting Approval: Shareholder approval is also required. Specifically, a majority vote of at least 2/3 of the general meeting is required to approve the financial support.
• Registration with the Norwegian Register of Business Enterprises: After obtaining board and shareholder approval, the acquisition financing arrangement will be registered with the Norwegian Register of Business Enterprises. This registration is the final step required to formalize and give effect to the corporate approval of the acquisition financing.

4. Potential Pitfalls and Timing Constraints in Acquisition Financing

While the opportunities provided by Norwegian law are significant, the acquisition financing landscape also presents potential pitfalls that require careful planning. Strict timing requirements and jurisdictional constraints must be navigated to avoid complications in the financing process.

a. Strict Compliance with Timing Requirements

All corporate approvals, as well as filing with the Norwegian Register of Business Enterprises, are required to be completed before the target company grants any financial support to the acquirer. This stringent requirement means that it is not possible to ratify financial support after the fact, as any retroactive approval would fail to meet this legal requirement on timing. Consequently, the granting of financial support by a Norwegian target company is most commonly a condition subsequent to the completion of the M&A transaction (or is done as an integrated part of the closing sequencing).

In practical terms, the sequencing will typically be as follows:

• First utilisation occurs under the acquisition financing and the parties complete the M&A transaction
• New board members are appointed in the Norwegian target company
• The acquisition financing is approved by the board of directors and the general meeting of the Norwegian target company
  The acquisition financing is filed with the Norwegian Register of Business Enterprises
• Finally, the finance documentation on the acquisition financing is executed / released

b. Jurisdictional Constraints on Exemptions

The EU/EEA group exemption is only available for acquirers that are incorporated within the EU/EEA. Following Brexit, UK entities no longer qualify, creating an issue for UK-based companies pursuing acquisition financing in Norway. Companies affected by this change should consider structuring the M&A transaction and the debt financing by incorporating a company within EU/EEA to function as a designated acquirer and borrower in order to access the exemption. To date, there is no indication that Norwegian legislation will be amended to accommodate UK structures post-Brexit, making it crucial for UK-based acquirers to consider alternative jurisdictional set-ups in acquisition financings in Norway.

5. The Role of AGP in Navigating Norwegian Acquisition Financing

AGP is a law firm specialising in M&A, capital markets (ECM and DCM) and debt financing, and routinely assists clients in navigating these regulatory requirements and structuring acquisition financing in line with Norwegian corporate law.

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