Mergers & acquisitions – establishing a presence in Brazil



Foreign investors may decide to enter the Brazilian market through an M&A transaction. M&A transactions may focus on the assets of a Brazilian company (certain specific assets, such as real property, trademarks, patents and equipment, or a group of necessary assets for the development of a particular activity or business), the establishment of a Brazilian company (group of assets consisting of corporeal elements such as furniture, equipment and goods, and/or incorporeal elements such as trademarks, the place of business or trade and the name of the establishment, which are collectively maintained and designed for a particular purpose as determined by their owner), or the purchase of equity interests (shares or quotas) representing the capital of a Brazilian company.

The purchase of assets, establishment of a Brazilian company or equity interests, in a total or partial manner, must be formalised via the execution of a purchase agreement. Also, the subscription of the equity interests of a corporation (shares) or a limited-liability business company (quotas) should be formalised through the execution of a subscription agreement.

When involving the purchase of the entirety of equity interests, the buyer assumes control of the legal entity along with all its assets and liabilities, turning such an entity into the buyer’s Brazilian subsidiary. In the case of the partial purchase of the equity interests or capital subscription, the foreign investor assumes an equity interest in the capital of the target company together with other partners or shareholders, in a situation similar to a joint venture, which should be regulated by a partners’ or shareholders’ agreement.

The negotiation process of an M&A transaction is normally lengthy and complex. During the negotiation process, it is common for different contractual instruments (confidentiality agreement, letter of intent and memorandum of investment) to be drafted and signed. The definitive contracts of M&A transactions, especially the purchase agreement, generally follow international practice but without prejudice to the application of the legal provisions of the Brazilian Civil Code relating to contracts, conditions precedent, indemnification, and losses and damages, for example.

Due diligence investigations

It is advisable that a legal, financial and accounting due diligence investigation of the target company be carried out in order to identify contingencies and potential risks related to the business of the target company, and to also help prospective buyers decide whether or not to go ahead with the deal. If the acquisition involves an industrial plant or establishment or even a piece of land, it is advisable to conduct a specific environmental investigation, with a view to identifying any existing hidden liabilities. This investigation should include the execution of a soil and groundwater contamination analysis (phase I and phase II) on the sites of the business units or manufacturing plants, as well as an analysis of the waste disposal procedure of the target company or establishment and its compliance with the laws concerning post-consumption liability, if applicable to the products of the target company or establishment.

In this sense, it is worth remembering that Brazil introduced a rigorous anti-corruption law, the Clean Companies Act, in early 2014, which provides for strict administrative and civil liability on all legal entities with operations in the country of Brazil for illicit acts performed against local and foreign public administration (e.g., direct and indirect acts of bribery or attempted bribery of Brazilian public officials or foreign public officials and bid rigging and fraud in the public procurement process). Thus, considering the country’s political and economic unstable scenarios and in view of the severe implications that may arise from fraudulent acts, it is also highly recommended that a specific due diligence investigation of the target company be conducted, which will go beyond the traditional scope of the due diligence process commonly carried out on M&A transactions, as it refers to an area subject to its own investigation procedures.

M&A transactions in 2015

As a consequence of Brazil’s slow economic growth, as well as recent political and economic events, M&A transactions have experienced a retraction period. According to PwC, 675 transactions were registered between January and November 2015, which represents a 15 percent decrease compared with the same period in the previous year, when 791 transactions were announced.

In contrast to what was reported in 2014, data released by PwC indicate that foreign investors have taken over the lead in M&A transactions – 51 percent of equity interest acquisitions in Brazil up to November 2015 were conducted by foreign investors (311 transactions) – an increase of 2 percent over the same period in 2014, while Brazilian investors were responsible for the remaining 49 percent of announced transactions (299 transactions).

Transactions involved the acquisition of majority and minority interests in the respective target companies, each with 45 percent of the total number of transactions (306 and 304 transactions, respectively). Joint ventures trailed far behind, with just 2 percent of transactions.

The most important sectors for these M&A transactions, according to PwC, were IT and internet, services (education, consulting, marketing and advertising, management and general advising), finance, retail, energy (including oil and gas), transportation and logistics, and construction and real estate.

As in previous years, the US remains the most important country of origin for foreign investors interested in M&A transactions in Brazil, being responsible for 35 percent of cross-border transactions executed up to November. The UK and Germany came in second and third places, with total participation equivalent to 7 percent and 6 percent, respectively. Additionally, foreign investors from a broad range of countries, including Japan, France, Canada, Switzerland, Italy, China and Argentina, have sought Brazilian assets or companies.

Trends for 2016

The Brazilian M&A market is expected to be more active and strong in 2016, mainly due to the current adverse economic situation. The instability of the financial situation of Brazilian companies, combined with an extended scenario of low access to bank credit, should boost merger announcements in 2016.

It is worth highlighting that well-capitalised financial investors, as managers of private equity, show interest in acquiring companies facing financial difficulties, in order to restructure them and proceed with their resale to strategic investors a few years later. The weakening of the country’s currency will continue to make the prices for Brazilian assets and companies more attractive to foreign investors.

Finally, economic advisers predict that operations in 2016 will tend to be driven by consolidation, the seeking of liquidity and the reorganisation of debts, and should focus on the energy (oil and gas), electricity and infrastructure sectors.


Ricardo Barretto Ferreira da Silva is a senior partner and Juliana Oshima is an associate at Barretto Ferreira e Brancher - Sociedade de Advogados. Mr Barretto Ferreira can be contacted on +55 11 9 6339 3349 or by email: Ms Oshima can be contacted on +55 11 9 9356 4889 or by email:

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Ricardo Barretto Ferreira da Silva and Juliana Oshima

Barretto Ferreira e Brancher - Sociedade de Advogados

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