M&A | How Founders Should Prepare Their Brazilian Company for a Liquidity Event

When Brazilian founders consider the long-awaited moment of liquidity – the sale of the company – the concern is always the same: what to do to ensure the business achieves the best possible valuation, avoiding situations that could lead to a discount on the sale price.
 
There are a number of reasons that might justify a buyer requesting a discount in Brazil, but we highlight 4 here to help founders prepare before going to market:
 
1. Trademark Registration: It is essential to register the trademarks and logos used by the company, allowing the business to continue without the risk of lost revenue. Because this is a lengthy process, it needs to be arranged well in advance.
 
2. Cap Table Organization: It’s common in Brazil that at the time of a company’s founding, shares are negotiated in exchange for some type of service or, especially, for raising capital. However, this is one of the most sensitive points, as minority shareholders can hinder the sale, or even a new management. A reduced cap table with aligned shareholders (including the company having a shareholders’ agreement) is one of the main steps for the success of a liquidity event.
 
3. Technology Licenses: Having robust contracts for the technologies used by the company is another point that the buyer will check, especially when we talk about businesses with a technological focus. It’s important to ensure the continuity of the license so that the business continues without impact.
 
4. Contracting Methods: This point is essential in Brazilian business, as it can generate significant liabilities, which are one of the biggest causes of price discounts. Understanding which relationships can be outsourced and which require employment contracts is part of this analysis.
 
As can be seen, in Brazil the company needs maturity in its management so that a liquidity event can occur quickly, safely, and profitably. This is why strategic governance planning in business management is essential for this process. Founders need to map and understand their company’s weaknesses before any sale move.