A significant portion of the risk in an M&A transaction in Brazil lies in the assessment and transfer of the assets.
It is essential to map these assets, verify the existence of proper documentation, and define how they will be transferred. Failing to observe these steps may result in assets that are legally fragile, exposed to disputes, use restrictions or even non-transferability.
When it comes to tangible assets, such as real estate, machinery, equipment and inventory, an objective survey must be carried out in line with the company’s financial statements, and it is essential to verify: effective ownership; existence of liens, security interests, attachments or non-disposal clauses; and the existence of regulatory or zoning restrictions that affect the use of the asset. Identifying any of these elements may significantly reduce the expected economic benefit of the asset.
In the case of intangible assets, such as trademarks, patents, software, copyrights and databases (customers, suppliers, etc.), even greater care is required, as the analysis can be critical due to the subjective nature of some of these matters. Lack of formalization or a poorly documented chain of title may lead to challenges to ownership or hinder the enforcement of delivery obligations, undermining the exclusive use that the buyer assumes when completing the acquisition.
For this reason, we suggest two essential precautions when assessing any type of asset in Brazil:
1. Review Of Contracts Linked to the Asset: In many cases, the value of an asset is directly connected to the contracts that support it. The analysis should go beyond confirming the existence of these contracts and also consider: the possibility of assignment or transfer in the context of an M&A transaction; and the existence of change-of-control clauses that allow termination or renegotiation. Acquiring assets without clarity as to the continuity of the contracts that give them utility may create a mismatch between the price paid and the actual cash generation capacity.
2. Identification of Hidden Risks: Mapping of contingencies; ongoing disputes involving specific assets; administrative or regulatory notices with potential to result in restrictions or loss; and any differences between the accounting treatment and the legal reality (for example, assets recorded as fully available but subject to disputes or limitations) are some of the items that must be assessed.
The discussion about assets in Brazilian M&As is not only a legal matter; it is a strategic one. The way real estate, machinery, trademarks, software, contracts and other assets are structured determines how much of the value projected in the transaction will actually be captured after closing. Due diligence that treats assets merely as items on a checklist, without examining their legal and operational consistency, increases the likelihood of price adjustments, disputes and unmet expectations.
