In M&A transactions in Brazil, experience shows that the likelihood of success tends to increase with rigorous attention to the transaction stages, due to the accuracy of the documents, and the ability of both the buyer and seller to anticipate adverse scenarios.
This is especially true with a 40% increase in transaction volume from January to June, compared to the same period in 2024 (according to Seneca Evercore), exceeding US$100 billion.
Based on deals involving the Brazilian financial, industrial, retail, and technology sectors, see below a brief legal checklist with some of the best practices in M&A:
1. Legal Structure of the Transaction: Defining the legal structure of the M&A is crucial to consider the corporate, tax, financial, operational, regulatory, and compliance risks and impacts.
Equity deals, where the acquirer acquires shares from founders and/or issued by the target company itself, and asset deals, where the acquirer acquires certain assets from the target company, are structured differently and involve risks, rights, and obligations for the parties, each specific to each type.
2. Legal Due Diligence: Conducting legal due diligence on the target company, including its assets, liabilities, rights and obligations, controlling shareholders, investors, and other related parties, is mandatory for buyers.
Aspects such as corporate, financial, capital markets, contracts with suppliers and customers, tax, administrative and judicial disputes (civil, labor, and tax), intellectual property, regulatory, compliance (including anti-corruption and AML), licensing, real estate, environmental, and other specific aspects, depending on the sector, must be evaluated.
3. Negotiation of the Share or Asset Purchase and Sale Agreement (SPA): Although M&A transactions involve a set of legal documents, such as term sheets (or letters of intent or memorandum of understanding), shareholders’ agreements (in the case of partial sales), among others, the share or asset purchase and sale agreement is what represents the backbone.
For both the seller and buyer sides, it is essential to carefully and thoroughly negotiate (i) the acquisition object (equity or asset), (ii) the price, price adjustment mechanisms, and payment method, (iii) earn-out (if applicable), (iv) conditions precedent for the M&A to occur, (v) closing conditions for the transaction to be completed, (vi) intellectual property, (vii) extension of the non-compete clause for sellers, (viii) compliance clauses such as anti-corruption and anti-money laundering, (ix) choice of dispute resolution method (judicial or arbitration), (x) forum, among other specific clauses, depending on the sector.
4. Post-Closing Deliverables Review: It is common for M&As to include obligations (deliverables) by the seller and buyer that must be performed after the transaction closing date, such as the delivery of specific information or documents, or others that are based on “best efforts.” It’s also common for parties to overlook these deliverables, as their attention is focused on other relevant aspects of the transaction that just took place.
Designating a focal person or team responsible for demanding deliverables from the other party after the closing date helps ensure these deliverables are effectively met.
Considering that M&As in Brazil are transactions that require attention, regardless of how simple or complex they are, recent track records demonstrate that the likelihood of success tends to increase with rigorous attention to the transaction stages, due to the accuracy of the documents, and the ability of both buyer and seller to anticipate adverse scenarios.
