M&A trends and challenges in Latin America

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M&A trends and challenges in Latin America

IBA Latin American Entrepreneurship Conference: challenges and opportunities in Latin America
6–8 November 2019 - São Paulo, Brazil

Thursday 7 November

Interactive workshop 1 – Part 1

M&A trends and challenges in Latin America

Breakout group discussion on benchmarking deal structures in different economic climates

Karin Alvo
KLA, São Paulo
kalvo@klalaw.com.br

Daniel del Río
Basham Ringe y Correa, Mexico City
daniel.delrio@basham.com.mx

Pablo Artagaveytia
Marval O’Farrell Mairal, Buenos Aires
paa@marval.com

The main topics discussed at our table were:

• structures abroad – when to use them and the downside to local investors;

• yimes of crisis – how to deal with them and earn-out alternatives;

• insurance for reps and warranties – experiences in different jurisdictions; and

• layers of entities versus ‘piercing the corporate veil’ under local law, and the involvement of instrument funds.

Our table had approximately 15 participants. It was creative group of delegates willing to share experiences from their own jurisdictions.

The initial topic discussed - probably the one that is most used in all the jurisdictions involved - and the one on which we spent the most time on was ‘structures abroad’. This is where clients are willing to incorporate a company out of the country where their operations are established. We discussed this in relation to Argentina, Brazil, Chile, Colombia  and Mexico. Such a structure usually gives greater comfort to foreign investors so as to avoid potential local liability. It also provides more liquidity for the entrance of new investors in the company. Our group also included Cayman Island lawyers, Campbells, who helped explain the structure of different classes of shares and the robust corporate structure provided by their laws and practice. We also discussed the tax advantages of such jurisdictions compared to those of Latin America countries.

The insurance alternative was discussed with the financing limitation as costs are typically high and insurance companies are usually only willing to cover the basic basket limit, not broad and open liability. Some of the participants mentioned that insurance is still not used at all in their countries and in some others, it is in the very early stages. It was mentioned that it is becoming a tool that is being used in the United States due to the need to close transactions straight away, which is not usually the case in Latin America jurisdictions.

The earn-out alternative was also discussed, together with phantom shares. It was noted that litigation cases were involved in this alternative ie, Teva arbitration, and that it is hard to measure and demonstrate the additional cost based on future growth.

By the end of the first part of the session, the panellists had discussed the alternatives with the broad group and shared some ideas about foreign structures, insurance coverage and earn-out alternative as an optional structure for different economic climates.

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