Key Legal Issues for Private Equity and Venture Capital Deals in Brazil 28 November 2012

Transcription

1 A Private Equity & Venture Capital inbrazil Webcast Key Legal Issues for Private Equity and Venture Capital Deals in Brazil 28 November 2012 Alexandre Pierantoni, Corporate Finance Partner, PwC Alexandre Simões Pinto, Partner, Trench, Rossi e Watanabe Advogados Vitor Horibe, Partner, BR Opportunities Cristiane Nascimento, Project Manager ABVCAP 1

2 AGENDA M&A Deals in Brazil - An Overview Alexandre Pierantoni, Corporate Finance Partner, PwC Top Key Legal Issues in M&A Deals: Environmental issues, transaction documents and contracts, labor and tax laws Alexandre Simões Pinto, Partner, Trench, Rossi e Watanabe Advogados Case: Flores Online Vitor Horibe, Partner, BR Opportunities 2

3 Mergers and Acquisitions in Brazil September 2012

4 Mergers and Acquisitions in Brazil With 57 transaction announced in September, there have been 590 deals announced in year-to-date 2012, a new record high and an increase of 5.36% over Average of 277 transactions announced from January through September Average of 470 transactions announced from January through September Average of 576 transactions announced from January through September Jan - Dez Jan - Sep 2012 continues to produce high M&A transaction activity with 590 deals announced between January and September projects to have the strongest M&A activity in Brazil s history, reflected in the 5.4% YOY growth in the same 9-month YTD period. M&A activity over the years has been relatively stable but rather volatile month-to-month in For example, 88 transactions were announced in May due to regulatory changes established by CADE; however, transaction volumes have been falling in recent months, marked by a year-low of 57 transactions announced during September. N.B. Transactions disclosed in the press. Does not include e.g. agreements or statements of intent 4 September 2012

5 Mergers and Acquisitions in Brazil Participation by foreign investors has increased sharply, supported by an increasing and balanced participation by domestic investors. National Groups Marked by a volume decline of 1.4% for acquisition of majority and/or minority stakes, national groups continue to lose ground to foreign investors who view Brazil as a safe haven and growth opportunity in the wake of the global financial crisis. Foreign Investors Foreign investor participation jumped 21% to 235 in YTD 2012 through September, up from 194 transactions in the comparable 2011 period % 68% % 72% % % 60% 61% Domestic Foreign 46% 41% 59% 54% N.B. Transactions disclosed in the press. Does not include e.g. agreements or statements of intent 5 September 2012

6 Mergers and Acquisitions in Brazil 55% of all announced transactions featured the acquisition of a majority stake and represented a 3.8% increase in YTD 2012 over the comparable 2011 period. Transactions breakout (jan-sep/2012) 1% 2% 0% 9% Controlling stake acquisitions Minority stake acquistions Joint ventures 33% 55% Mergers Incorporations Disagreements N.B. Transactions disclosed in the press. Does not include e.g. agreements or Nota: Transações divulgadas na imprensa. Não inclui acordos. statements of intent 6 September 2012

7 Mergers and Acquisitions in Brazil Brazil M&A is active across all sectors with strong volume in the IT sector. Banks Transactions by sector-2012 Foods Chem/ Oil % IT Retail Public Services % 7% Private services Public Services Private services Retail IT % 5% 7% 7% 9% Chem/ Oil Foods Banks Others N.B. Nota: Transactions Transações disclosed divulgadas in the press. na imprensa. Does not include Não inclui e.g. agreements acordos. or statements of intent 7 September 2012

8 Mergers and Acquisitions in Brazil Private Equity PE participation (%) %PE 31% 42% 43% 38% 15% 20% Private equity funds continue to be active in various segments of the economy, providing additional resources for companies in need of investment and infrastructure improvement. In Brazil, transactions involving private equity increased by 16.5% from 2009 to 2012, in the periods January September. 38% of transactions announced in 2012 thus far involved the participation of private equity funds 8 September 2012

9 Mergers and Acquisitions in Brazil Private Equity Some transactions that involving private equity funds in the quarter: July August September BTG Investiments in a partnership with AGN created B&A Mineração; Venture Partners acquires stake in brazilian Bionexo. J.P Morgan invests $ 45 million in the Brazilian e- commerce website Dafiti; Carlyle buys a 24% stake in Orguel for $200 million. Carlyle Group announces the purchase of a 60% stake in Tok & Stok for $ 700 million; Pátria incorporates MainStay management team. 9 September 2012

10 Contacts Alexandre Pierantoni Luis Madasi Rogério Gollo PricewaterhouseCoopers. All rights reserved. PwC" refers to the network of member firms of PricewaterhouseCoopers International Limited, each constituting a separate and independent legal entity.

12 Top Legal Issues for M&A deals in Brazil Alexandre Simões Pinto November 28, 2012

13 KYC Know your counterparty KYC Know your counterpartym&a Transaction Documents and Contracts in General Many Brazilian local companies operate with a great deal of informality. Any purchaser should carry out not only a legal due diligence but also a strong accounting and compliance due diligence to find in advance any compliance issue. 13

14 M&A Transaction Documents and Contracts in General M&A Transaction Documents and Contracts in Brazil has a civil law system in which several principles and public order rules prevails General over the wording of the contract. Accordingly, a party often cannot infer the full range of its contractual rights and obligations only by reading the four corners of the agreement. Brazilian courts are slow. As a general rule, it is advisable to provide for arbitration in M&A transactions and important contracts. Business may be quite personalistic in Brazil. It might be crucial to have a non-compete from sellers rainmakers and to have retention agreements with key personnel. In case of family owned business, retaining sellers in the management of the target company may help buyer to continue the business shortly after closing, but right incentives and control mechanisms need to be in place. Some specific agreements are subject to specific rules, rights and obligations that cannot be waived by the parties. Exit Rules must be carefully considered in the agreements. 14

15 Environmental Environmental rules are strict and the Federal Union, the member-states and the city authorities all have the power to regulate certain specific issues. It is important to have a complete environmental due diligence and, if necessary, technical due diligence, including phase 2. In case there is environmental contamination, purchaser may require the target to implement remediation measures and/or enter into an agreement with the environmental authorities. There is no statute of limitation for environmental claims. 15

16 Labor Brazil s labor law is very protective to the employee and quite inflexible. Some Brazilian companies do not fully comply with those rules, especially as regards payment of overtime and other labor benefits as well as health and safety requirements. It is not unusual for a Brazilian company to have a labor claim per each employee dismissed in the past few years. Everyone who is subordinated to the company shall be treated as employee. Therefore, many people who is supposedly a services provider might qualify for labor benefits. Certain highly paid officers might be deemed to be employees and qualify for labor benefits, including expatriates. Labor claims cannot be settled out of the labor court. 16

17 Tax Tax It is not unusual for Brazilian targets to be involved in tax evasion or failure to comply with tax obligations. Brazil has a complicated tax system, with more than 40 different taxes. For instance, there are taxes equivalent to VAT on a federal (IPI), state (ICMS) and local (ISS) levels, sometimes with overlapping triggering events and creating tax wars between states and cities to attract investments. Tax requires comprehensive due diligence not only from legal but also from accounting and compliance perspectives. Attention must be paid as to whether the Brazilian target is rightfully using tax benefits and credits. Implement asset deals, rather than share deals, might be worth to turn the tax liability from primary into secondary, as long as the seller (primary debtor) stays solvent and remains in business with the same or a different activity. 17

18 Other Comments Other Comments The New Competition Law: Change in the filing requirements thresholds but closing of the transaction will be subject to the prior approval by the Brazilian antitrust authorities in the cases where the filing is required. Don t overlook the red tape: Doing business in Brazil requires special attention to legal requirements and bureaucratic procedures. For instance, inflow and outflow of funds to Brazil require registration investment with the Central Bank and some exchange controls apply. Bringing foreign workers is subject to limitations and requires visas. Complying with tax ancillary obligations and accounting bookkeeping demands several hours of work per year. 18

19 Other Comments Contact Alexandre Simões Pinto

21 UPCOMING EVENTS 30 Dec. New Registration Rules in CADE - Implications for the PEVC Industry São Paulo 05 Dec. ABVCAP Update: Trends, Challenges and Perspectives - São Paulo 11 Dec. Venture & Seed Export Forum São Paulo 2013: Apr. ABVCAP Annual Conference São Paulo abvcap.com.br/atlas In-depth details about the Brazilian PEVC Players. Qualified Investors Have Premium Access! 21 21

22 A Private Equity & Venture Capital inbrazil Webcast Key Legal Issues for Private Equity and Venture Capital Deals in Brazil Thank you! Alexandre Pierantoni Alexandre Simões Pinto Vitor Horibe Cristiane Nascimento abvcap.com.br / brazilprivateequity.com.br 22