Luciana Felisbino, Machado Associados, Sao Paulo, Brazil: M&A in ...

M&A
GENERAL OVERVIEW
November/2012

MAKING AN ACQUISITION IN BRAZIL
DUE DILIGENCE: SIGNIFICANT ISSUES TO ANALYZE
Due to the complexity of Brazil’s legal systems, it is important to:
• Verify the fulfillment of the main and accessory tax obligations of federal, state and local
taxes;
• Obtain tax clearance certificates in all levels of taxation, as well as any and all Judiciary
clearance certificates (such as: labor, civil and criminal);
• Identify possible labor and social security contingencies;
• Review corporate documents, agreements, real estate, intellectual property and
environmental and regulatory registrations and licenses;
• Identify possible competition/antitrust impacts.

MAKING AN ACQUISITION IN BRAZIL
DUE DILIGENCE: SIGNIFICANT ISSUES TO ANALYZE
The scope of the due diligence must be carefully defined, based on the specific characteristics
of the target company and its shareholders;
Independent auditor and legal consultant to identify or confirm company’s liabilities which may
be an obstacle for closing the transaction: legal succession risk; and
Due Diligence results can impact the purchase price, as well as indemnification obligation in
relation to past contingencies and collaterals (such as escrow accounts and holdbacks, among
others).

MAKING AN ACQUISITION IN BRAZIL
DEFINITION OF THE ACQUISITION STRUCTURE:
Asset deal:
• may not be tax efficient mainly because tax losses accumulated in the target company
cannot be used by purchaser;
• may not avoid legal succession.
Share deal:
• tax losses may be used in the future even after the acquisition;
• If any premium is paid, such premium can be used for tax deduction purposes if certain
requirements are met – there are rumors a new regulation will pass and might change
existing rules .

MAKING AN ACQUISITION IN BRAZIL
BRAZILIAN CENTRAL BANK: PROCEDURES APPLY
Foreign capital entering Brazil: required to have special registration that varies depending on
its purposes. The Brazilian Central Bank (BACEN) is the authority in charge of foreign capital
registration through the electronic declaratory registry (RDE).
The registration of the foreign investment with BACEN reflects the foreign currency employed
by a non-resident investor and is a requirement for future capital repatriation, remittance of
dividends and reinvestments.
It is also important for tax purposes once capital gains on disposition, repatriation and
liquidation of the Brazilian entity by a foreign investor will probably take into account the
registered amount within BACEN and will be taxed at 15%, in most cases.

MAKING AN ACQUISITION IN BRAZIL
COMPETITION RULES:
NOTIFICATION THRESHOLDS: transactions in which the involved parties, or their respective
economic group have achieved, in the previous year, the minimum revenues in Brazil for
mandatory notification (R$750 million on one side and R$75 million on the other side) –
must be submitted to merger control if certain requirements are met.
CONCEPT OF ECONOMIC GROUP: Companies under the same direct or indirect control, or
those of which at least 20 per cent of the share capital is held by a company under direct or
indirect common control. Private equity funds, managing funds, investment funds which are
under the same management and those in which their shareholders have a minimum of 20
per cent stake are part of the same economic group. This also includes the portfolio
companies whose share capital is held by a private equity fund at a interest of 20 per cent
or more.

MAKING AN ACQUISITION IN BRAZIL
REMARKS:
This presentation contains general, broad and very preliminary information relating to an
acquisition process in Brazil and is intended to provide the audience with some general,
broad and very preliminary comments and highlights;
Considering the limited scope of this presentation, certain issues that might be relevant for
an acquisition in Brazil may have not been covered herein. In fact, relevant matters, issues
and questions are expected to arise during an acquisition process;
We make no representation or warranties, either in writing or orally, as to the accuracy,
completeness or sufficiency of this presentation and shall have no liability for any
inaccuracy, incompleteness or insufficiency of this presentation, which is not exhaustive
and/or conclusive, therefore, this presentation shall not be considered a legal opinion for
any particular case.

Luciana Felisbino
lfelisbino@machadoassociados.com.br
BRASIL
Av. Brig. Faria Lima,1656 – 11º andar
01451-001– São Paulo – SP
Tel. +55 11 3819 4855
Fax +55 11 3819 5322
www.machadoassociados.com.br
Rio de Janeiro
Av. Rio Branco, 85 - 8º andar
20040-004 - Rio de Janeiro / RJ
Tel.: +55 21 3216 2450
Fax: +55 21 3216 2455
Brasília
SHS, Quadra 06, Conjunto A, Bloco A
Sala 808, Complexo Brasil XXI
70316-100 - Brasília / DF
Tel.: +55 61 3039 8082