A cross-border M&A transaction in Brazil is never just an international deal, it is the meeting point of different legal systems and cultures, reflecting an added layer of complexity that goes far beyond translating contracts.
Corporate, tax, regulatory and even cultural considerations become part of the equation, and overlooking them can compromise not only the value of the deal, but its legal viability altogether.
Below, we outline 7 key considerations for anyone structuring or taking part in a cross-border transaction in Brazil:
1. Corporate structure: Reviewing the foreign counterparty’s corporate structure is the first step, since different countries adopt distinct corporate models, with a direct impact on the legal validity of the transaction, as well as tax and liability implications that vary depending on the structure involved. In Brazil, for instance, the distinction between an asset deal and a share deal carries specific tax and successor-liability consequences that don’t necessarily mirror those of the foreign jurisdiction involved. In this same context, it is essential to understand exactly what is being acquired – whether only assets, such as property or inventory, or an actual equity stake – to ensure that all transfer requirements applicable to the foreign legal regime are properly addressed.
2. Payment structure: Since cross-border transactions typically involve foreign currency, most commonly the U.S. dollar, exposure to exchange-rate fluctuation is a point that deserves attention from the outset of negotiations, as it can affect the deal’s effective value over the long run. In Brazil, this is compounded by Central Bank reporting requirements for capital held abroad, which add a layer of compliance rarely present in purely domestic deals.
3. Guarantees: The guarantee structures typically used in Brazil often diverge from those adopted in other countries, making this a particularly sensitive point. Aligning the parties’ expectations on the type and scope of guarantees early in the negotiation is essential to avoid friction throughout the business relationship.
4. Trademark: Cross-border transactions often involve trademark exploitation across different territories, which calls for a clear, objective definition of how each party may act within its own territory, including well-defined sanctions for misuse – capable of causing reputational harm that crosses borders. Brazilian companies expanding abroad, in particular, need to ensure that trademark protection abroad is treated as a standalone workstream, not an afterthought to the deal itself.
5. Governing law and jurisdiction: Contrary to what many assume, the most favorable law is not always that of one’s own country. It is necessary to first understand the company’s actual exposure in the transaction, and only then determine, with confidence, the most appropriate governing law and jurisdiction. Brazilian parties, for example, should bear in mind that Brazil has double-taxation treaties with some countries but not others – the United States being a notable example – which can materially affect how a transaction is ultimately structured.
6. Ancillary agreements: It is common for the parties to maintain some form of relationship after closing, such as supply or distribution arrangements. Addressing these matters in dedicated, standalone agreements is what ensures that relevant points are not lost in the shuffle of the main transaction.
7. Cultural considerations: Understanding how much weight certain legal topics carry depending on the parties’ nationalities also directly shapes the negotiation and its outcome. Every country has its own sensitivities, and mapping these cultural and legal risks is what keeps a transaction safe and free of surprises. A Brazilian company negotiating in the United States, for instance, will face a materially different risk appetite and negotiating style than one negotiating in France or Italy.
A cross-border transaction involving Brazilian companies cannot be treated as simply an M&A deal with an international detail. It demands a different kind of knowledge, dedication and preparation. Recognizing this distinction from the very first contact with the foreign counterparty is what separates smooth negotiations from those that drag on for months longer than necessary – and that can give rise to significant legal exposure.
