M&As in Brazil experienced a 34% increase from January to September 2020, when compared to the average of the last 5 years, and antitrust assessment on whether equity or asset deals are required to be notified to the Brazilian antitrust authority (CADE) is of very importance in order to avoid penalties or even deal reversal.
We highlight below 4 points of attention in such antitrust assessment:
1. Eligibility: In addition to equity acquisitions, the obligation to notify CADE may apply to asset transactions, associative contracts, consortium, joint ventures, and also to the acquisition of hybrid securities, such as convertible debentures.
2. Revenue or Business Volume: Transactions are mandatory to notify CADE when, cumulatively, (i) the economic group of one of the parties has registered more than BR$ 75 million in gross revenue or volume of business in Brazil, and (ii) the other registered BR$ 750 million, regardless of the position of buyer and seller. The companies that are under the control of the same group are added to the account, together with those in which any of the companies in the group has 20% or more of voting shares.
3. Foreign Groups: In the case of foreign groups it is important to consider the gross revenue of companies incorporated in Brazil and the revenue of foreign companies that come from sales to Brazil.
4. Investment Funds: Very important in the case of Equity Investment Funds (FIPs) and Stocks Investment Funds (FIAs), transactions made by funds may also be mandatory to notify. To assess whether the fund exceeds the range of BR$ 75 million or BR$ 750 million, CADE may consider the revenue of the shareholder’s economic group, if it has a participation equal to or greater than 50% of the fund’s shares. In addition, companies in which the fund holds 20% or more of the equity and, exceptionally, the fund manager itself are considered.
With the relevant increase in the volume of M&As, conducting antitrust assessment is an important point within the deal flow, to avoid the risk of penalties and deal reversal.