The straightest path through M&A negotiation in Brazil



There is no doubt that Brazil is going through a deep economic recession and political crisis, and this resulted in a significant reduction in the number of mergers and acquisition transactions in 2015.

On the other hand, foreign investors pursued more M&A transactions than Brazilian investors for the first time since 2003. In 2015, there were a total of 773 deals in Brazil, of which 398 involved foreign investors acquiring Brazilian companies.

The reason for the greater presence of foreign investors in M&A involving Brazilian companies is most likely due to the devaluation of the Brazilian currency (Real) against the US dollar, which has created good business opportunities for foreigners at lower prices.

Caution advised

Despite the favourable scenario for foreign investors in view of the reduced cost of business opportunities, it is important to be very careful when negotiating deals in Brazil.

In Brazil, as in other countries, there are two types of deals that can be used for acquiring businesses – the equity deal and the asset deal – but foreign investors must be aware of certain Brazilian particularities related to asset deals, which are usually seen as being simpler and less risky than equity deals. In accordance with Brazilian legislation, the acquisition of certain assets altogether could be considered the acquisition of an ‘establishment’, which results in successor liability for the purchaser, such as in an equity deal.

Furthermore, foreign investors must also be aware of the importance of conducting due diligence in respect of certain areas where liabilities will most likely be ascertained, such as tax and labour. Recently, Brazilian and foreign investors in M&A have been paying more attention to another area of concern: liabilities arising from acts of corruption. The world’s business and political sectors have had Brazil under the spotlight for a while now, scrutinising developments in big cases relating to corruption, such as those involving state-owned oil and gas company Petrobras.

Complex tax system

Brazil is already well known for having a complex tax system, involving a heavy tax burden and bureaucratic tax ancillary obligations and procedures. Advisory companies estimate that a Brazilian company spends an average of 2600 hours on this ‘tax bureaucracy’. Furthermore, Brazil is currently changing the system of ancillary tax obligations, which may expose companies to even more potential tax contingencies if their professionals are not ready to comply with such rules. This is because obligations are gradually being switched to the public system of digital bookkeeping known as SPED, which is an instrument that unifies the activities of receipt, validation, storage and registration of records and documents that form part of companies’ commercial and tax bookkeeping duties into a single, computerised flow of data. In view of the above, professionals involved in preparing financial statements and calculating taxes are required not only to be aware of the exhaustive federal, state and municipal tax regulations, but also of new rules regarding ancillary tax obligations, thereby avoiding the omission of data or the submission of incorrect information and, consequently, potential tax liabilities.

Labour liabilities

As far as labour liabilities are concerned, since Brazilian labour laws are very much geared toward employees’ rights and Brazilian labour courts are very protective of employees, almost every company in Brazil faces a considerable number of labour claims in which the risk of loss is probable. Additionally, although it is possible to hire someone as a service provider or consultant, if, in practice, such an individual renders services meeting all the conditions established by law for an employment relationship (such as subordination, regularity, etc.), this individual may claim for all the benefits to which they would be entitled as an employee. Such labour liabilities may carry significant costs, since late payment of labour may subject a company to heavy fines and interest on arrears.


Finally, the Brazilian Anti-Corruption Law establishes strict liability (i.e., regardless of wilful misconduct or negligence/malpractice) of the legal entity itself if there is proof that one of the acts of corruption listed in the law has been committed for the interest and benefit of the company. Fines may reach 20 percent of the company’s latest annual gross revenue (or R$60,000, if it is not possible to ascertain the annual gross revenue), in addition to other types of penalties, such as being prohibited from performing its activities, mandatory dissolution of the company and prohibition from receiving any kind of governmental incentives. Furthermore, in accordance with the Anti-Corruption Law, if the competent authority considers that the target company adopted an effective compliance programme (i.e., an ongoing training programme for employees and suppliers/partners, an anonymous report channel for employees to report any unlawful or irregular acts to higher levels within the company and the implementation of internal codes of ethics and conduct, for example), the applicable penalties may be reduced.

In light of the foregoing, an effective legal due diligence exercise should definitely be conducted to ascertain all the target company’s liabilities, its potential risks and the impact it may have on the transaction. When dealing with corruption liability, mainly involving companies acting in the public sector, the due diligence must also include a review of the compliance programme. Furthermore, it is also essential to discuss and define the best way of structuring the deal (equity or asset deal) in advance and carefully negotiate the main clauses of a sale and purchase agreement, such as indemnity and warranty provisions. If the transaction is closed, purchasers should further consider implementing a post-acquisition integration programme to put a stop to any unlawful acts and to meet the abovementioned recommendations of the law.


Evy Marques is a partner and Vivian Tito Rudge is an associate at FELSBERG Advogados. Ms Marques can be contacted on +55 11 3141 9172 or by email: Ms Rudge can be contacted on +55 11 3141 3614 or by email:

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Evy Marques and Vivian Tito Rudge

FELSBERG Advogados

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