Navigating an emerging market as M&A deal activity continues to rise in Latin America
- Spike in Latin America deal activity in the first quarter of 2016, with inbound values rising 70 percent over the same period in 2015
- Dealmakers need to know their jurisdiction and take a tailored approach
- Handbook provides insight from a global and local perspective, covering seven jurisdictions
At a time with M&A deal activity continues to rise in Latin America, Baker & McKenzie has released its first edition of its Latin America M&A Handbook to provide an overview of the key legal considerations for dealmakers. Despite fluctuations in exchange rates, commodity price adjustments and political changes, Latin America saw a spike in deal activity in the first quarter of 2016, with inbound values rising 70 percent over the same period in 2015.
Activity has been driven largely by a strong US dollar — with investors seizing opportunities to acquire assets at good prices — and the reorganization in the oil and gas sector that came about as a result of lower commodity prices.
“Whether these drivers continue to fuel deal activity in the region remains to be seen. What’s clear is that Latin American markets are continuing to evolve, and offer opportunities to investors taking the long-term view,” says Jaime Trujillo, Chair of Baker & McKenzie’s Latin America M&A and Private Equity Practice.
For investors willing to take the long view, compliance has become a major concern given Latin America’s struggles with corruption. Buyers are placing much greater emphasis on compliance due diligence and the risk of succession liability has scared off some investors altogether.
“In Brazil, compliance is the name of the game at the moment,” says Anna Mello, an M&A partner at Trench Rossi e Watanabe, a Brazilian firm with a cooperation agreement with Baker & McKenzie. “We have to structure deals in a way that mitigates compliance risk, which is not easy to do and makes the transactions more complex.
Subsequently, private equity firms are likely to drive more deals in the coming year, as they are often willing to assume more risk than other acquirers.
“We view private equity as a countercyclical factor in Latin America because they are serial dealmakers, with finite investment periods, who are obligated to do deals one way or the other. In a region as diverse as Latin America, there’s no one-size-fits-all approach to doing deals. A tailored approach with a thorough understanding of your target, the jurisdiction you invest in, the counterparties you deal with, and the local rules, business and cultural nuances, come into play — these make all the difference,” Mr Trujillo adds.
The Latin America M&A Handbook provides insight from a global and local perspective, covering seven jurisdictions where the Firm has local teams with extensive expertise and a nuanced understanding of local business law.
While Brazil and Mexico had the highest number of inbound deals in 2015/16, the Handbook highlights that free market policies are in place in Chile, Colombia and Peru, while Argentina is headed in a similar direction, with Mexico’s regulatory reforms encourage deal activity. Industrial and commercial activities in Venezuela may be carried out in virtually any form, ranging from an individual entrepreneur to all forms of legal entities. The higher spending power of a growing middle class has fuelled investments in consumer-facing industries, while opportunities arise in the infrastructure sector as some countries modernize their infrastructure.
“We understand the factors that contribute to or impede deal success and can help simplify complexity in financing, execution and post-deal integration. With more than 160 M&A lawyers in the region, we have a proven track record in achieving results on complex cross-border M&A deals even under tight time constraints, in sectors including consumer products, energy, financial services, healthcare, insurance, mining, retail, telecommunications and others,” added Mr Trujillo.
To obtain a copy of the Latin America M&A Handbook, please click here