Peruvian Mergers and Acquisitions Control Act and Covid-19

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Walter Aguirre
Aguirre Abogados & Asesores, Lima
walter.aguirre@aguirreabogadosyasesores.com

One of the worst pieces of news regarding the economic impact of the Covid-19 pandemic is related to the fall in mergers and acquisitions in Peru. According to the latest Transactional Track Record report, the country showed the most significant fall in activity in Latin America (64 per cent) to the end of April, with a 68 per cent reduction in mobilised capital ($521m).

This is unfortunate, as business combination is a major mechanism for business survival. A business merger or acquisition reduces costs, injects new capital, introduces different skills and knowledge, helps access new markets, adds more clients, gains tax benefits and more. The above benefits are particularly beneficial at a time of economic crisis, especially given the Covid-19 situation requires strategic partnerships and extreme measures by many enterprises in order to survive.

The new Peruvian Act on Prior Control of Business Concentration Operations, best known as Act on Prior Control of Mergers and Acquisitions (LCPF, by its Spanish acronyms), was recently modified and extended until 1 March 2021. The regulation establishes prior control by the National Institute for the Defense of Free Competition and the Protection of Intellectual Property (INDECOPI) regarding certain business concentration operations including mergers and acquisitions, asset purchase, joint ventures, and other operations generating a control modification on a business unit – provided that specific financial thresholds are met.

This extension is extremely timely and advantageous. It aims to facilitate new operations or the continuity of those already underway. Enterprises affected by the current circumstances may find sales opportunities, while others may find growth potential.

Additionally, one of the major modifications to the Act establishes that, when assessing a business concentration operation, INDECOPI will have to take into consideration the crisis status of the involved enterprises, as well as the need to conduct the concentration operation in order for the business to survive.

From the regulatory and administrative point of view, the extension will provide INDECOPI with the chance to improve implementation of the new regulation in Peru, along with improved training for the staff that will be in charge.

Furthermore, regulations may continue to be published through November this year. This creates a chance to include new provisions as the economic crisis evolves, such as simplifying notices for operations involving a lower probability of producing restrictive effects on competition.

The Previous Control of Mergers and Acquisitions extension provides entrepreneurs with an important survival tool in order to overcome the economic situation generated by Covid-19, and the government with an additional tool to achieve economic reactivation in Peru.