When Brazilian founders think about the long-awaited moment of the liquidity event – the sale of the company – the concern is always the same: what to do to ensure the business has the best possible valuation, avoiding situations that could lead to a discount on the acquisition price.
The buyer may use different strategies in an attempt to reduce the price, and that is why founders must act strategically, anticipating the criteria that investors usually analyze, preparing their company for the best possible liquidity event scenario.
Here are 5 key points to consider considering Brazilian M&As, to help founders get organized before going to market:
1. Asset Separation: Confusion between the founders’ personal assets and those of the companies is common in Brazil. Vehicles, real estate, and even machinery may require reorganization. Conducting a partial spin-off to regularize these assets is one of the most efficient and cost-effective alternatives, ensuring that the assets are properly separated and clear to potential buyers.
2. Tax Assessment: An analysis of the tax impacts of the sale is necessary, as the capital gains from this transaction can have significant implications for Brazilian founders. Reassessing shares in advance and considering the creation of new corporate structures are fundamental strategies for minimizing tax burdens, thus ensuring a more profitable transaction.
3. Cap Table Organization: Investors tend to be cautious about companies with widely dispersed share capital. The existence of many shareholders, especially with small stakes, can even negatively impact valuation. Reviewing the cap table structure, including any stakes granted throug hincentive plans, can be complex and exhaustive, but it is a crucial step to ensure attractiveness in the sale process and optimize financial results. A reduced cap table with aligned shareholders (including the company having a shareholders’ agreement) is one of the main steps to the success of a liquidity event.
4. Intellectual Property: When intellectual property registrations are in the name of individual founders, which is common in Brazil, this can complicate the sale process. Reviewing these registrations and including them in M&A negotiations is essential to ensure a smooth transaction and maximize the value perceived by the buyer.
5. 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.
6. 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.
7. Clear Assignment of Roles and Competencies: In a sale process, it is crucial that the company’s governance structure is well defined. Investors value organizations in which each area and leadership has clearly assigned roles, scope, and responsibilities. This clarity avoids overlaps, increases operational efficiency, and provides confidence in the team’s continuity and ability to execute after the transaction.
To operationalize these points, it is essential to evaluate the Brazilian company from a multidisciplinary perspective. This not only anticipates potential issues in the buyer’s due diligence but also protects the value of the shares to be sold, facilitating a faster and more efficient completion of the sale process.
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.
