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OCTOBER 2013
Legal Focus
89 Mergers & Acquisitions -
In the second quarter of 2013 the Americas region ‘led the M&A market, with US$116.2 billion of announced deal activity, representing a 36% market share, up 5.9% year-on-year’ according to the Thomson Reuters Mid-Market and Small-Cap M&A Reviews for Q2 2013. To find out how Chile in particular is faring at the moment and to discuss the legal implications that commonly arise, we speak to Luis Alberto Aninat, Managing partner at Aninat Schwencke & Cia.
What is the current state of the M&a market in your jurisdiction?
The M&A market in Chile is traditionally a very active and diverse market. Transactions range from simple direct purchase of small companies to far more complex operations involving complete holdings, with foreign shareholders, financing schemes and sophisticated tax-efficient structures. Companies are constantly being prospected and not a low percentage finish in successful deals. In summary, the market is active and quite diverse, presenting deals in very different areas and in the most colorful modalities.
What have been the trends in the market across all sectors through the year so far?
On one hand, there has been a tendency to shorten the purchase and merger processes, having limited due diligence reviews and turning to multilateral processes with several bidders, instead of individual and exclusive bilateral transactions. This has caused a necessary redefinition of the paper work related to investments, which must make up for the lack of thorough revision of companies, with strong protections in favor of purchasers and investors, extensive reps and warranties and detailed indemnification provisions.
On the other hand, we have seen a lot of expansion of local companies throughout the region, investing in foreign companies mainly in Perú, Colombia and Brazil. Some of them correspond to local entities and others to Chilean headquarters of foreign international companies that use Chile as a springboard for the rest of Latin America.
What effect did the recession have on mergers and acquisitions in your jurisdiction? Is it now recovering?
Actually the recession did not have a measurable effect in the Chilean mergers and acquisitions market. Though there was some shyness at certain point do to the complex environment, especially in Europe, M&A in Chile maintained a strong deal flow and
transactions kept taking place, notwithstanding the external financial conditions.
What would you advise companies who are looking to merge with businesses in your country?
We understand that is very important to asses and have clarity regarding certain issues before hand prior to embarking in any merger, such as: (i) Testing the quality of current management: Normally in a merger scenario, the management team in place shall be kept, however it is important to determine if such team will be compatible with any new business plans; (ii) Identifying opportunities for profit improvement: Projections may not render as expected, alternative plans should be considered; (iii) Benefit maximization: A simple merger could cause a negative effect on dividend distribution, more sophisticated structures should be considered and studied in order to optimize any benefit and tax considerations; (iv) Housekeeping: An economic attractive opportunity (eg: bankrupt company) may imply material additional expenditure and measures to solve problems. These expenses and measures should be priced and planned, and, in case of a merger taking place, they should be dealt with swiftly.
In addition to the latter, previous business agreements (in the form of term sheets, MOU’s, LOI’s, etc.) should try to cover almost all the issues between the parties, leaving the drafting of the final agreements to a matter of detail and not for negotiation. Potential deal-breakers should be indentified and solved at the beginning of the transaction.
What do you think the next 12-24 months hold for the M&a market?
The local market shall continue its intensive growth, expanding to the most diverse areas and industries. M&A in Chile was initially circumscribed to certain specific areas, now it has reached almost all sectors of business and shall continue expanding. Traditionally Chile has been a target for American and European (mostly Spanish) investments; however Asian investors have been drawn to our country due to its political
stability, legal certainty, lack of corruption and thriving economy. Not only foreign investments shall continue to expand, but Chilean investments abroad, which have been developing fast, will continue to grow within the region and even further.
What, if any, legislative progressions do you see for mergers and acquisitions in the coming year that will affect your country?
There has been a trend in order to modernize and update the legislation on this matter, to facilitate and incentivize investments. Law on corporations has been updated, including new regulations on corporate governance and a general modernization of its general regulations. These improvements have caused an effect on how transactions are being designed, mainly in issues related to duties of managers and directors, transactions with related persons, reporting obligations before the regulators, etc. Additionally, a new law on investment funds, which will probably be enacted during the final quarter of this year, unifying all the current legislation on funds that to this date was divided in several laws (on mutual funds, on investment funds, on foreign capital funds, etc.), it is supposed to provide a new investment platform, increasing the investment alternatives of investment funds, providing tax reliefs and exemptions and simplifying the structures by giving uniform rules for all kinds of funds. LM
contact:
Luis alberto aninat Managing partner aninat Schwencke & cia
Email: laninat@asyc.com tel: 56 2 28872200