Mergers and Acquisitions: Legal Complexities

The first half of 2019 was very busy in the scenario of M&A (Merger and Acquisition) in Brazil. The highlights were the Mergers and Acquisitions announced by major Brazilian companies. This confirms the importance of this strategy for expanding business, increasing results and reducing competitive risks.

Among the confirmed mergers and acquisitions transactions this year is the purchase of North American Avon by Brazilian cosmetics manufacturer Natura. The operation will result in the creation of the 4th largest pure play beauty group in the world and number one in direct consumer relations. The combined gross revenue is over $ 10 billion. Another deal that has secured valuable media time in recent months was the purchase of Netshoes. The dispute was fierce between Centauro and Magazine Luiza, which eventually made the acquisition official for $115 million. The most recent deal was confirmed on June 25th. With the approval of the shareholders, Sonae Sierra Brasil was acquired by Aliansce. The conclusion of negotiations to join activities will give rise to the second largest shopping center conglomerate in the country. The transaction is still awaiting the approval of the Administrative Council for Economic Defense (CADE).

Expansion of mergers and acquisitions

These operations strengthen the expansion of M&A operations in the country. The monthly M&A report from the Transactional Track Record technology-financial platform reveals the volume of transactions involving Brazilian companies. The $100 billion mark was reached between January and May this year. There were 453 operations, most of which were in the Technology segment – 114 operations. That was a 15% increase over the same period last year. After the Tech segment, the Financial and Insurance (56) and Real Estate (39) sectors followed.

The motivations for this type of operation are diverse. “Most of them are transactions led by companies that are market leaders already. They seek consolidation and almost absolute control of their niche. Alternatively, companies that want to diversify their activities acquire companies from other branches to expand their market niche,” exemplifies lawyer Guilherme Nagel, founding partner of Sotto Maior & Nagel, headquartered in Florianópolis and São Paulo. The firm specializes in M&A projects, combining activities ranging from auditing and negotiations on behalf of clients to the preparation of documents and contracts required to formalize the operation.

Business Valuation

One of the most important parts of an M&A process is Valuation, which means ‘Business Valuation.’ This is a comprehensive technical study of a company to determine its true market value. Experts use a set of methods for pricing companies which consider equity value, cash flow, annual revenue, among other factors. “It is essential that entrepreneurs have a real awareness of how much their company is worth to position themselves correctly in an M&A process,” emphasizes lawyer Guilherme Nagel.

In this process, legal advice is essential to ensure the safety and transparency of the operation. Some issues considered in the process are the current legislation of the companies´ home countries; the requirements of regulatory agencies, such as CADE in Brazil; scenario analysis; and investor interests. “In the context of Mergers and Acquisitions operations, it is essential to perform the risk assessment according to good compliance practices,” adds Guilherme, referring to corporate legal and regulatory responsibility, including compliance with national and international corporate ethics and anti-corruption rules.

Sotto Maior & Nagel Advogados has professionals with extensive experience in M&A and corporate restructuring projects. The activities range from auditing, evaluation and negotiations on behalf of of clients, to the preparation of documents and contracts necessary to formalize the operation. The practice also includes representation of foreign investors and the review and implementation of global Business Compliance programs.

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