M&A in Latin America
Lígia Padovani
Lefosse, São Paulo
Report on the joint session of the Corporate and M&A Law Committee and the Latin American Regional Forum at the IBA Annual Conference in Miami
Tuesday 1 November 2022
Session Co-Chairs
Rodrigo Ferreira Figueiredo Mattos Filho, London
Ignacio Pesqueira Galicia Abogados, Mexico City
Speakers
Adriana Castro BLP, San Jose
Juan Naveira Simpson Thacher & Bartlett, New York
Patricia Silberman Carey y Cia, Santiago
Laura Turano Paul Weiss, New York
The panel discussed the perspectives and trends in M&A transactions in Latin America. The two Co-Chairs and four panellists started the discussion with an overview of M&A in Latin America, led by Juan Naveira. Then, the following technical topics were commented on by the speakers considering their respective jurisdictions: representations and warranties insurance, led by the panellist Laura Turando, and foreign direct investment (FDI) control and antitrust.
Overview: M&A opportunities in a changing geopolitical landscape
The introductory theme of the panel was opportunities for regional M&A transactions in light of recent changes in government, with the predominance of left-wing political parties in charge of Latin American countries. This was followed by an analysis of the price and valuation of companies in the same region. According to Naveira, companies have experienced a 40 per cent to 70 per cent decrease in valuation, which has affected M&A transactions in Latin America.
Despite this scenario of the devaluation of companies, the rise in both the prices of products imported from China and interest rates favour M&A activities in Latin America in sectors such as commodities and agribusiness.
In the Brazilian context, according to Rodrigo Ferreira Figueiredo, investors are optimistic and, in addition to agribusiness, hectic movement is expected in sectors such as infrastructure, retail and energy. The same is expected in the Chilean market, according to Patricia Silberman, who stated that, despite the political risk currently identified in the country, this could be a time for opportunities for foreign investors with available cash to acquire good local assets (companies) at cheaper prices. The rejection of the new Chilean constitution brings some certainty to foreign investors.
In Mexico, the prospect is the same because the atmosphere of political instability tends to favour an environment for the divestment of non-strategic assets at low valuations by companies. In addition, the energy sector is another bet that may drive M&A activities in the coming years, according to Ignacio Pesqueira.
As for Costa Rica, which has, as of 2022, a right-wing government mostly approved of by the population and a steady democracy, there is a high prospect for good opportunities and a busy period for M&A transactions, especially in the retail, agribusiness, logistics, financial and energy sectors, according to Adriana Castro.
Relevant topics for doing M&A transactions in Latin America
The second part of the session focused on particular topics that are relevant and novel for transactions in the region.
Representations and warranties insurance
The debate on contracting insurance to cover the representations and warranties provided in a sale and purchase agreement, conducted by Laura Turano, highlighted the difference in treatment of the subject in the United States and Latin America. While Latin American countries are not used to negotiating the contracting of this coverage within the scope of an M&A because it is rare, in the US today, insurance for representations and warranties is a very common form of guarantee for the buyer in case of the breach or violation of the representations and warranties.
On the one hand, the insurance brings more comfort and legal certainty to both parties involved in the transaction – to the buyer, insofar as it has a certain and enforceable guarantee against the third insurer, and to the seller, who is released from any obligation to indemnify –but on the other hand, contracting insurance can impact the timing of the transaction and even make M&A transactions involving lower amounts unfeasible, given the increase in transaction costs.
Even in the US, where insurance for the coverage of representations and warranties is widely used, there is a tendency for the largest deals – involving publicly traded companies and large corporations, whose obvious concern is timing – to dispense the contracting of insurance based on due diligence that was conducted by the transaction's advisers. In cases in which contracting the insurance is part of the M&A negotiation, the panellists stated that the due diligence report (DDR) to be prepared by the transaction’s advisers must focus on issues and topics that are relevant to the insurer and on the best way to address them to the interlocutor, that is, the main recipient of the DDR becomes the insurer and no longer the client. Hence, discussing representations and warranties, and the guarantees to be granted by the seller within the context of the transaction from the preliminary negotiations is relevant.
Finally, another point that was discussed, which involves discussions between advisers in respect of insurance for representations and warranties, is the compatibility between the applicable law of the insurance policy and the applicable law of the sale and purchase of shares agreement.
FDI control/antitrust
The last topic discussed by the speakers under their respective jurisdictions was the need to submit transactions to antitrust bodies and the challenges faced by players in very large global and multijurisdictional transactions.
Considering that the approval of the transaction by antitrust bodies in all applicable jurisdictions is a condition precedent for closing and that the antitrust body of each country has its own rites and deadlines for analysis and approval, this condition precedent has a great impact on the timing of closing of large transactions involving multiple jurisdictions, and must be considered and priced by the parties involved in the transaction. Gun jumping and clean team considerations were also topics discussed by the panellists.