Acquisition Finance in Latin America: Navigating Diverse Legal Complexities in the Region

Private equity and strategic investors continue to demand loans with "certain funds" or "SunGard" limited conditionality to finance their M&A activity in Latin America. Having survived many geopolitical challenges in 2018, the M&A market in Latin America should improve in 2019 from greater political stability, accompanied by other local trends that suggest increased opportunities for investors and lenders financing M&A activity in the region.

For any acquisition finance transaction in Latin America, the parties will need to consider country-specific concerns, including guaranty limitations and security steps and timing, applicable withholding tax regimes and exchange control regulations, to determine the optimal structure and lender syndicate composition for such transaction.¹

M&A in Latin America

Latin American M&A in 2018 included 600 announced deals for a total of US$72.6 billion of value, which was a decrease in value of 25.3% in comparison to 2017 and the lowest total deal value on record since 2005.² In Latin America, 2018 was plagued by domestic and cross-border political and economic uncertainty, including seven presidential elections (in Brazil, Colombia, Costa Rica, El Salvador, Mexico, Paraguay and Venezuela) and two transitions to power (in Chile and Cuba), trade wars and corruption scandals, among other challenges. Despite the unstable geopolitical environment, the total number of Latin American M&A deals in 2018 was only 54 below the 2017 level (600 in 2018 as compared to 654 in 2017).³ Also, there were bright spots as 2018 set a number of records for Latin American M&A activity. The industrials and chemicals sector set a new record, closing the year with US$23 billion worth of deals, which was nearly 2.5 times the value registered by this sector in 2017 (in part due to a single US$15.3 billion acquisition of Fibria Celulose in Brazil). The deals in 2018 also included the second-highest total deal value on record in the technology sector with US$2.4 billion (double 2017's US$1.2 billion) and record deal counts in the construction sector (with 30 transactions worth US$2.3 billion) and in the pharmaceuticals, medical and biotech sector (with 69 transactions worth US$1.8 billion).⁴

For 2019, the International Monetary Fund is forecasting that the GDP in Latin America and the Caribbean will grow by 2.2%, with country-specific variations (Argentina: a decrease of 1.6%; Brazil: an increase of 2.4%; Chile: an increase of 3.4%; Colombia: an increase of 3.6%; Mexico: an increase of 2.5%; and Peru: an increase of 4.1%).5 The Intralinks Deal Flow Predictor report predicts that through Q1 2019, Argentina is expected to show the highest increase in M&A announcements among the largest Latin American economies, whereas levels of M&A announcements are expected to be flat to declining in Brazil, Chile, Colombia, Mexico and Peru.

¹ We would like to thank the following individuals for their contributions regarding the country-specific legal and market discussions included in this article: with respect to the discussion of Argentine legal and market matters, Juan M. Diehl Moreno, Partner, Marval, O'Farrell & Mairal; with respect to the discussion of Brazilian legal and market matters, Leonardo Baptista Rodrigues Cruz, Partner, Pinheiro Neto Advogados; and with additional input on Brazilian market matters from John Anderson, Partner, White & Case LLP; with respect to the discussion of Chilean legal and market matters, Diego Peralta, Partner, Carey y Cía. Ltda.; with respect to the discussion of Colombian legal and market matters, Juan Fernando Gaviria, Partner, Philippi Prietocarrizosa Ferrero DU & Uría – Bogotá; with respect to the discussion of Mexican legal and market matters, Juan Antonio Martin, Partner, White & Case LLP; with respect to the discussion of Mexican tax matters, Guillermo Aguayo-Garza, Local Partner, White & Case LLP; with respect to the discussion of Peruvian legal and market matters, Carlos Saco-Vertiz Tudela, Partner, BBGS Saco-Vertiz & Landerer Abogados; and with respect to the discussion of Peruvian tax matters, Jaime Sabat Pancorvo, Senior Associate, BBGS Saco-Vertiz & Landerer Abogados.
² Mergermarket, Global and Regional M&A Report 2018 (2018).
³ Id.
⁴ Id.

Reproduced with permission from International Comparative Legal Guide to: Lending & Secured Finance 2019, Global Legal Group Ltd, London.

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