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Regulation of Goodwill in Spain and its Impact on M&A Transactions

Darío Jiménez


  • Understanding goodwill, known as "fondo de comercio in Spain" and a significant factor in Share Purchase Agreements, is crucial for navigating mergers and acquisitions.
  • Valuation challenges persist despite due diligence efforts, leading to adaptive measures like earn-outs to mitigate uncertainties.
  • Including conduct of business clauses adds complexity, influencing taxation and valuation dynamics for sellers.
Regulation of Goodwill in Spain and its Impact on M&A Transactions
Sylvain Sonnet via Getty Images


Understanding goodwill in Spain is fundamental in navigating the landscape of mergers and acquisitions (“M&A”) within the country's business framework. Defined as the difference between the acquisition price and the reported net book value or estimated fair value of a firm, goodwill in Spain, known as "fondo de comercio," embodies future economic benefits from acquired assets.

This article primarily underscores the prominence of top clients in this context, crucially impacting Share Purchase Agreements. Valuation challenges persist despite rigorous due diligence, prompting adaptive measures to mitigate uncertainties. Earn-outs, integrated strategically into transaction structures, serve as incentives, compelling sellers to showcase undervaluation in initial goodwill pricing. Negotiating earn-out clauses necessitates strategic foresight to sustain client relationships and maintain seller-buyer equilibrium. These aspects, alongside the complex interplay of conduct of business clauses, significantly influence the goodwill valuation landscape and taxation implications for the seller within the Spanish context.

Challenges in Valuation

The valuation of goodwill in Spain presents a substantial challenge. Despite rigorous due diligence typically undertaken by purchasers, accurately determining its value and identifying potential legal risks associated with top clients remains complex. To mitigate these risks, purchasers commonly adopt several preventive measures:

  • Rigorous examination of top clients' contracts to uncover changes in control clauses or any provisions that might enable contract termination.
  • Engagement of the management team post-acquisition, notably observed in service-oriented companies, to ensure a seamless transitional phase.
  • · Negotiation of conditions precedent mandating the seller to procure consent from top clients before the final closing of the transaction.

Addressing Uncertainties

Despite meticulous due diligence and preventive measures, uncertainties persist. Earn-outs emerge as a widely embraced tool strategically integrated into transaction pricing structures to defer the valuation of goodwill.

In this regard, the earn-out serves as a powerful incentive, motivating sellers to retain existing top clients and proactively engage them, thereby enhancing profitability. Given that earn-outs are usually based on EBIT or EBITDA, the sellers are committed to demonstrating that the goodwill was undervalued in the initial price and that they deserve the earn-out.

Best Practices in Negotiating Earn-Out Clauses

Negotiating earn-out clauses demands strategic considerations to sustain and activate top clients:

  • Ensuring top clients do not perceive the target company as undergoing a transformation process becomes relevant. To maintain these crucial relationships, the target's management team must continue to deliver the same high standard of service that customers are accustomed to. To achieve this objective, we strongly advocate for parties to include a conduct of business clause. This clause will delineate the seller's rights and responsibilities, emphasizing optimizing profits generated from top clients, among other mutual obligations.
  • At times, these conduct of business clauses, alongside other elements, present a challenge in distinguishing whether the earn-out primarily reconciles disparities in goodwill valuation or operates as an incentive extended to the seller in their post-closing role. This detailed scrutiny and the ability to demonstrate that the earn-out stems from a discrepancy linked to goodwill valuation hold substantial significance within the Spanish framework. It's crucial to note that this determination notably influences the taxation implications for the seller.
  • Viewing this from the seller's standpoint, preserving the required level of autonomy is pivotal to meeting the service expectations of top clients. This autonomy grants the seller the authority to manage resources and devise go-to-market strategies based on their experience and the shared objective of maximizing profits.
  • From the buyer's perspective, ensuring the seller comprehends the primacy of preserving and activating relationships with top clients remains imperative. After receiving the initial price, the seller might be inclined to divert focus to other projects, potentially delegating the task of maximizing top client profits to key employees. To diligently monitor this aspect and take prompt corrective measures, it is our experience that including an intervention right is crucial. This provision empowers the pre-deal buyer to dissuade the seller from redirecting attention elsewhere. Following the deal's closure, this tool enables an analysis of performance levels and, if a decline is detected, allows the buyer to retract the autonomy granted to the seller. Subsequently, parties can proactively adopt new strategies to prevent any loss of top clients.


Navigating the realm of goodwill valuation in Spain – focusing on top clients – requires a nuanced understanding of its intrinsic complexities. The evaluation process involves different challenges despite comprehensive due diligence efforts. Earn-outs emerge as pivotal tools, compelling sellers to showcase undervaluation in initial goodwill pricing while maintaining and enhancing client relationships. However, including the conduct of business clauses adds complexity, blurring the line between goodwill reconciliation and seller post-acquisition incentives. This nuanced landscape significantly influences taxation and valuation dynamics for sellers, underscoring the importance of meticulous analysis and substantiation of goodwill-related discrepancies. From seller autonomy to buyer intervention, parties must maintain a delicate equilibrium to sustain top-client relationships while aligning mutual objectives. These strategic considerations and the dynamic interplay between various clauses underscore the intricate nature of goodwill valuation and regulation in Spain's M&A sphere, warranting astute navigation and strategic implementation for successful transactions.