DEALMAKER INSIGHTS

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Rules and Advantages of using Insurance for M&A Transactions

By Thomaz Kastrup, Partner at Mattos Filho.

Thomaz Kastrup

Transactions involving purchase and sale, incorporations and mergers, generically denominated as mergers and acquisitions transactions (“M&A”), encompass a variety of different structures that, as a rule, involve the transfer of a set of rights and obligations between buyers and sellers, where the risks – despite the sincere efforts of the due diligence teams involved – are not entirely known by the buyers when the transaction contracts (“Contracts”) are executed.

In fact, given the uncertain nature of the business activities, it is possible that even the sellers are not aware of all the factors and events, past and present, which can materially impact the futures of their companies.

Therefore, in order to become predictable, these Contracts use representations and warranties (“R&W”) clauses. A useful mechanism for the sharing of risks inherent to M&A deals, the R&W allocate such risks to those best prepared to support them. In effect, more than in other sections of the Contracts, it is in the R&W that value in M&A transactions can be created or destroyed.

In practice, these kinds of clauses are structured in the form of statements about the company being acquired (the “Target”) which are made by seller and that work as a set of assumptions about the transaction’s economic conditions. In case of any incorrectness or inaccuracy of such clauses, buyer will be allowed to seek for the pre-established contractual remedies.

In this stage, the possible measures/remedies vary as wildly as M&A structures themselves, although the following are almost always included in the Contracts: (i) indemnity assurances through which the seller is obligated to reimburse the buyer for damages resulting from the violation of the R&W in question; and (ii) the contracting of escrow account administration services, through which part of the funds necessary for the completion of the transaction are unavailable to the parties and under the management of an independent banking institution that will either return them to the buyer  – to the extent the R&W are not complied with – or, if they are fully observed, deliver them to the seller at the end of the term agreed to in the relevant Contract.

Representations and Warranties Insurance

The main purpose of the Representations and Warranties insurance (“R&W Insurance”) – the object of this text – is to ensure compliance with the R&W. Such policies can be taken out by either the buyer or the seller side. As an alternative to the remedies above, R&W Insurance presents a series of advantages, namely:

  • during pre-closing, it reduces the distress between buyers and sellers regarding the representations and warranties to the extent the burdens resulting from their violation are supported by the insurer, an independent third party;
  • during post-closing, if the buyer and seller remain in contact, whether because it was not a full sale, or because the seller continues to participate in the Target’s management, distress is avoided as any R&W violations will be dealt with through the insurer and not between the parties;
  • speeds up indemnity payments, mainly because these payments made through insurance are typically less susceptible to litigation than if they were made directly between the parties;
  • buyers are able to access better financing conditions to the extent that the Target’s activity is subjected to less unexpected events;
  • ensures that R&W violations are indemnified regardless of the seller’s financial condition;
  • allows buyers and sellers to cut ties faster – whether through indemnity agreements or the establishment of escrow accounts, after closing the seller is typically prohibited from freely accessing the funds resulting from the transaction; this situation can be especially inconvenient for investment funds with defined duration term or to any party wishing to use such funds for other purposes; and
  • with the trend of decrease of the interest rates, depending on the seller’s capital cost, taking on a R&W Insurance policy can be more financially advantageous (with the resulting improvement of the RoR of other investments) compared to keeping large sums deposited in an escrow account.

Created in 1997 in the US, R&W Insurance took a while to gain market, but it has grown significantly in recent years. In 2017, for example, 34% of the M&A transactions with values between US$ 25 million and US$ 1 billion counted with R&W Insurance, while the corresponding figure for 2016 was 20%.

Still in 2017, R&W Insurance policies were taken out in 75% of M&A transactions where private equity funds figured as buyers [1].

In addition to the larger market penetration, over time, R&W Insurance products have become more flexible. In principle, insurers offering these products were quite reticent when the policy holder did not maintain part of the risk, in such a manner that R&W Insurance would cover only  the excess of the limits of the indemnity agreements executed by seller. However, in the US it is currently possible to find policies without such limitations, although the premiums for these products are, of course, higher.

In the US, R&W Insurance premiums vary, on average, between 3% to 8% of the insured capital (which is proportional to the value of the transaction), which can make it less attractive for smaller transactions due to the high subscription costs, especially related to qualitative analyses carried out by insurers on the due diligence processes carried out by buyers [2].

In Brazil

The products available in Brazil normally cover: (i) the amounts payable to  buyers  as penalties or indemnities under the terms of the Contracts entered into with the sellers due to violation of the R&W; and (ii) the defense costs relating to suits filed by third parties as a result of R&W violations.

The following are exclusions and events of loss of rights typical of these kinds of insurance products:

  • R&W explicitly identified by the insurer as not being covered or only partially covered (in the extension of such non-cover);
  • all R&W violations, or facts that could reasonably result in R&W violations, over which the buyer either had knowledge of or should have had knowledge of, when signing or closing the transaction, as the case may be, and that were not disclosed to the insurer before such dates;
  • fines and penalties of a criminal nature;
  • non-compliance by the insured (buyer) of its obligations, as established in the Contract; and
  • negligence by the insured (buyer) in immediately communicating to the insurer any R&W violation or fact that could reasonably result in a R&W violation or any aggravation in the risk of a R&W violation.

The first product of this kind was only marketed in Brazil in the 2014 year by AIG Seguros Brasil S.A. With a product solely available for the buyer side and with a capped cover of US$ 25 million (per transaction) [3], it is clear that the R&W Insurance market in this country still lacks the diversity and flexibility of the North American market. Even so, according to Marsh Corretora de Seguros Ltda., R&W Insurance demand in Brazil over the first half of the 2018 year grew by 35%, compared to the same period in 2017 [4].

Conclusion

Beyond the long term trends (Brazil has been seeing a significant increase in the volume of M&A over the past two decades[5]), the imminent approval of an agenda of legislative reform and the start of a new cycle of prosperity in the country are setting the expectation for a rapid increase in the volume of M&A transactions and, consequently, of contracting of R&W Insurance.

Bearing in mind that the national market for this kind of insurance remains unexploited, this favorable economic scenario represents a unique growth opportunity for insurers. Meanwhile, for those involved in M&A deals (especially lawyers), the handling of this product will represent an important competitive edge, to the extent it will undoubtedly add significant value to the transactions they deal with, as already happens in more mature markets.

[1] Seen on April 23 2019, at 9:00 pm: https://www.aon.com/m-and-a-riskinreview/index.html

[2] Seen on April 23 2019, at 9:10 pm: https://www.mofo.com/resources/news/representation-and-warranties-insurance-a-new-strategic-negotiation-tool-for-dealmakers.html

[3] Seen on April 23 2019, at 9:30 pm: https://www.aig.com.br/seguros/seguro-m-and-a

[4] Estadão. Procura por seguro para fusões e aquisições aumenta 35% no Brasil. Available at: https://economia.estadao.com.br/blogs/coluna-do-broad/procura-por-seguro-para-fusoes-e-aquisicoes-aumenta-35-no-brasil/.

[5] https://www.pwc.com.br/pt/estudos/servicos/assessoria-tributaria-societaria/fusoes-aquisicoes/2018/fusoes-e-aquisicoes-no-brasil-dezembro-2018.htmlhttps://www.pwc.com.br/pt/estudos/servicos/assessoria-tributaria-societaria/fusoes-aquisicoes/2018/fusoes-e-aquisicoes-no-brasil-dezembro-2018.html

Regras e vantagens do seguro para operações de M&A

Por Thomaz Kastrup, sócio do escritório Mattos Filho.

As operações de compra e venda, incorporação, fusão de empresas, dentre outras, genericamente denominadas fusões e aquisições (mergers and acquisitions – “M&A”), abrangem uma variedade de estruturas diferentes que, em regra, importam na transferência de um complexo de direitos e obrigações entre alienantes e adquirentes, cujos riscos – apesar dos esforços sinceros das equipes de due diligence – não são inteiramente conhecidos pelos adquirentes no momento da assinatura dos contratosda operação (“Contratos”).

Em verdade, dada a natureza incerta das atividades empresariais, é possível que nem mesmo o vendedor tenha ciência dos fatores e eventos, presentes ou pretéritos, passíveis de impactar materialmente seu negócio no futuro.

Assim, a fim de se tornarem mais previsíveis, os Contratos se valem das cláusulas de declarações e garantias (representantions and warranties – “R&W”). Mecanismo hábil à repartição dos riscos inerentes às operações de M&A, por meio das R&W é possível aloca-los àqueles melhor equipados para suportá-los. Com efeito, mais do que em outras seções dos Contratos, em meio às R&Ws pode-se criar ou destruir valor nas operações de M&A.

Na prática, as cláusulas desse tipo são estruturadas na forma de assertivas sobre a empresa a ser adquirira (“Target”) feitas pelo vendedor e funcionam como um conjunto de premissas das condições econômicas da transação, cuja eventual falsidade franqueia ao comprador acionar os remédios contratuais preestabelecidos.

Nesse passo, as medidas/remédios possíveis são tão variados quanto as estruturas de M&A, dentre as quais, no entanto, destacam-se pela quase onipresença: (i) os acordos de indenidade firmados nos Contratos, por meio dos quais o vendedor se obriga a ressarcir o comprador dos prejuízos decorrentes da violação de determinada R&W; e (ii) a contratação de serviços de administração de conta vinculada (escrow account), por meio dos quais parte dos recursos necessários à concretização da operação ficam indisponíveis às partes e sob a gestão de instituição bancária independente, que os devolverá ao comprador na medida em que as R&W venham a ser descumpridas, ou os entregará ao vendedor após o decurso de prazo contratualmente determinado dede que não haja violação das mesmas.

Seguro de Representantions and Warranties

O seguro de declarações e garantias (“Seguro de R&W”) – objeto deste texto – tem por finalidade principal garantir o cumprimento das R&W, podendo ser contratado tanto pelo comprador (buyer side), quanto pelo vendedor (seller side). Como alternativa aos remédios acima, o Seguro de R&W apresenta uma série de vantagens:

  • no pré-closing, reduz o desgaste negocial entre comprador e vendedor acerca das declarações e garantias, na medida em que os ônus decorrentes de sua violação serão arcados por seguradora, terceira à relação;
  • no pós-closing, caso o vendedor e o comprador mantenham relações, seja porque a venda não foi integral, seja porque o vendedor compõe a administração da Target, evita o desgaste, na medida em que quaisquer violações às R&W serão tratadas com a seguradora, e não entre as partes;
  • agiliza o pagamento das indenizações, em grande medida porque o pagamento das indenizações por meio de seguro tem menor litigiosidade do que por meio de cobrança direta entre as partes;
  • viabiliza melhores condições de financiamento pelo comprador, na medida em que a atividade da Target fica sujeita a menos imprevistos;
  • assegura que eventuais violações das R&W sejam indenizadas a despeito da situação financeira do vendedor;
  • permite que comprador e vendedor se desvinculem mais rapidamente: seja por meio de acordos de indenidade, ou do estabelecimento de contas vinculadas, a vendedora, após o closing, não pode/deve livremente dispor dos recursos decorrentes da venda, o que pode ser especialmente inconveniente para fundos de investimento com prazo determinado de duração ou qualquer um que deseje destinar os recursos para outra finalidade; e
  • com a tendência de queda dos juros (taxa básica), a depender do custo de capital do vendedor, a contratação de Seguro de R&W pode vir a ser financeiramente mais vantajosa (com a consequente melhora na taxa interna de retorno do investimento) do que a manutenção de vultuosas quantias em conta vinculada.

Criado em 1997 nos Estados Unidos, o Seguro de R&W demorou a se difundir, mas, nos últimos anos, tem se expandido rapidamente. Vinte anos depois, em 2017, dentre as operações de M&A ocorridas nos Estados Unidos com valor compreendido entre US$ 25 milhões e US$ 1bilhão, 34% contaram com a contratação de Seguro de R&W, contra somente 20% em 2016.

Ainda em 2017, houve contratação de Seguro de R&W em 75% dos M&A’s nos quais fundos de private equity atuaram como compradores[1].

Além da maior penetração no mercado, com o passar do tempo os produtos de Seguros de R&W têm se tornado mais flexíveis. Em princípio, as seguradoras que operavam esse tipo de produto eram muito reticentes em segurar as R&W em operações nas quais o segurado não retivesse parte do risco; as coberturas de R&W eram feitas somente em excesso aos limites dos compromissos de indenidade assumidos pelo vendedor. Hoje, nos Estados Unidos, entretanto, já é possível contratar coberturas desse tipo mediante proporcional majoração no valor do prêmio a ser pago, é claro.

No mercado norte-americano, os prêmios dos Seguros de R&W variam, em média, entre 3% a 8% do capital segurado (que é proporcional ao valor da operação), o que pode torná-lo pouco vantajoso para operações menores devido aos elevados custos de subscrição, mormente relacionados às analises qualitativas conduzidas pelas seguradoras com relação aos processos de due diligence realizados pelos compradores[2].

No Brasil

Os produtos disponíveis no mercado brasileiro, normalmente, cobrem: (i) os valores a que os compradores façam jus a título de multa ou indenização, nos termos dos Contratos firmados com o vendedor, em virtude da violação às R&W; e (ii) os custos de defesa relacionados a ações ajuizadas por terceiros em decorrência da violação das R&W.

Em tempo, são exclusões e hipóteses de perda de direito típicas de produtos de seguro desse tipo:

  • as R&W expressamente identificadas pela seguradora como não cobertas ou como parcialmente cobertas (na extensão de sua não cobertura);
  • todas as violações de R&W, ou fatos que possam razoavelmente resultar em violações de R&W, sobre as quais o comprador tinha conhecimento ou deveria ter conhecimento no momento do signing ou closing, conforme o caso, e que não tenham sido informadas à seguradora antes dessas datas;
  • multas e penalidades de natureza criminal;
  • descumprimento pelo segurado (comprador) de suas obrigações, conforme estabelecidas nos Contratos; e
  • desídia pelo segurado (comprador) em comunicar à seguradora imediatamente acerca de qualquer violação das R&W ou fato que razoavelmente possa acarretar uma violação das R&W ou agravamento desse risco.

O primeiro produto do tipo somente veio a ser lançado no país em 2014 pela AIG Seguros Brasil S.A. Sendo comercializado somente na modalidade buyer side e com valor máximo de coberturas de 25 milhões de dólares (por operação)[3], o mercado brasileiro de Seguro de R&W ainda não possui a diversidade e flexibilidade do norte-americano. Apesar disso, segundo a Marsh Corretora de Seguros Ltda., entre os meses de janeiro a junho de 2018, a demanda pelo Seguro de R&W no Brasil cresceu 35%, em comparação com o mesmo período de 2017[4].

Conclusão

Para além das tendências de longo prazo (o Brasil vem experimentando um aumento significativo no volume de M&As nas últimas duas décadas[5]), na iminência da aprovação de uma agenda legislativa reformista e do início de um novo ciclo de prosperidade no país, a expectativa é que haja um rápido aumento no volume de operações de M&A e, consequentemente, de contratações de Seguro de R&W.

Em vista do quão inexplorado é o mercado nacional de seguros desse tipo, essa conjuntura econômica favorável representa uma oportunidade única de expansão das carteiras das seguradoras. Já para os operadores de M&A (especialmente os advogados), o manuseio desse produto representará relevante diferencial competitivo, na medida em que certamente agregará imenso valor às operações por eles conduzidas, tal como já ocorre em mercados mais maduros.

[1] Visto em 23 de abril de 2019, às 21:00: https://www.aon.com/m-and-a-riskinreview/index.html

[2] Visto em 23 de abril de 2019, às 21:10: https://www.mofo.com/resources/news/representation-and-warranties-insurance-a-new-strategic-negotiation-tool-for-dealmakers.html

[3] Visto em 24 de abril de 2019, às 21:30: https://www.aig.com.br/seguros/seguro-m-and-a

[4] Estadão. Procura por seguro para fusões e aquisições aumenta 35% no Brasil. Disponível em: https://economia.estadao.com.br/blogs/coluna-do-broad/procura-por-seguro-para-fusoes-e-aquisicoes-aumenta-35-no-brasil/.

[5] https://www.pwc.com.br/pt/estudos/servicos/assessoria-tributaria-societaria/fusoes-aquisicoes/2018/fusoes-e-aquisicoes-no-brasil-dezembro-2018.htmlhttps://www.pwc.com.br/pt/estudos/servicos/assessoria-tributaria-societaria/fusoes-aquisicoes/2018/fusoes-e-aquisicoes-no-brasil-dezembro-2018.html

DealMaker Q&A

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Eduardo Peláez

TTR DealMaker Q&A with UNE Asesores Financieros Partner Eduardo Peláez

Eduardo Peláez

Eduardo Peláez is Partner of UNE Asesores Financieros, an M&A advisory boutique focused in Latin America Small/Mid-Market. Eduardo Peláez has conducted many transactions in diverse sectors including tourism, chemicals, real estate and agriculture. Previously Eduardo was associate of Miranda & Amado Abogados and Hernández & Cía. Abogados. Also, worked in Lindley. 

He is Lawyer from Pontificia Universidad Católica del Perú and holds a MSc Management from Alliance Manchester Business School.

TTR: What’s your general outlook for the M&A market in Latin American this year, and specifically, in Peru?

EP: We believe the Latin American M&A market is experiencing a quite dynamic phase. Notwithstanding, the particular circumstances of each country in terms of macroeconomic conditions and political environment lead to diverse possibilities and projections. 

In the region there are markets like Venezuela, a country with enormous potential but absolutely isolated, but also the case of Chile, a nation with very stable economy and government, but with less opportunities for high returns. Also, there are some up-and-coming countries like Paraguay that has established favorable market conditions through a pro-investment regulatory and tax set of rules. 

The case of Peru is very particular. Despite of the political turbulence and the scandals of corruption, the economy is stable and the National Central Bank maintains its growth´s projections around 4%. The last two years have been marked by iconic transactions led by strategic investors pursuing market consolidation, such as the acquisition of the pharmacy chain MiFarma by Intercorp and the recent acquisition of Intradevco by Alicorp.

TTR: What are the primary factors influencing M&A decisions in the current economic climate? How do these economic fluctuations affect investment priorities?

EP: In the last decade, Peru has grown consistently. Even though the pace slowed since 2014, the Peruvian market maintains healthy indexes and presents opportunities for high returns, making it one of the most attractive markets in Latin America. 

Likewise, the Private Equity industry is taking more prominence in Peru, generating more dynamism in M&A activity. Global funds like Advent and Carlyle are already active investors in the Peruvian market. Also, there are other relevant players specialized in the mid-market such as HIG, L Catterton, Southern Cross and Victoria Capital Partners, that are exploring opportunities in Peru. 

From the sell-side standpoint, the political instability could make some businesses owners’ deciding to sell. Also, the new M&A regulation that will go into effect next year could accelerate the velocity of transactions and increase the volume of deals in the following months.

TTR: What is the state of the capital market in Perú? How has the country evolved in this respect in recent years? What is your forecast for the near-term?

EP: Peruvian capital market is still in an embryonic stage, characterized by low activity and hardly influenced by a few institutional investors. The exclusion of Credicorp from the FTSE Emerging Markets index is symptomatic. 

There are some significant efforts of developing the MAV (capital market for mid-size companies with less than S/. 350MM of annual revenue), but the results are modest, with just 13 listed companies since its inception in 2013. 

In this context, the recent creation of FIRBIs and FIBRAs, vehicles that have similarities with the American REITs, could represent a great opportunity to attract retail investors and increase the activity and liquidity of the capital market.

TTR: How difficult is it for corporates to access financing from local financial institutions in the current environment? What are the main barriers? How is financing structured?

EP: We have experienced a significant evolution in the volume of Peruvian companies accessing to the banking system in the past few years, going from 25% in 2014 to 40% in 2018, according to ASBANC. 

The big challenge is the inclusion of the majority of small and medium enterprises that currently have very few options. The fintech market represents a very interesting alternative for this type of businesses, particularly in the way of factoring platforms. 

Also, the increasing presence of foreign debt funds, especially Chilean, are becoming key participants, even in the small-and-mid size market. For example, recently we helped our client Llaxta Inmobiliaria y Constructora to obtain a US$ 10.5MM loan from Volcom Capital Chile for a real estate project in Piura, part of the social program “Techo Propio”.

TTR: Finally, we would like you to share with us your opinions and forecasts about the opening of the Peruvian market with other countries

EP: The Peru market presents many opportunities for all types of international investors, from strategic regional players to family offices and private equity and debt funds. 

Beyond the usual M&A activity in the mining sector, we see interesting opportunities of consolidation in the agricultural business. For example, there is the case of Hortifrut that became the leading berry producer in the world after the acquisition of El Rocío. Likewise, last year we had the opportunity to advise the British trader Wealmoor and Limones Piuranos in the acquisition of the mango and avocado´s exporter Sunshine. Also, recently we led the sale of the mango´s exporter Dominus to the Peruvian-Danish joint venture Danper. 

On the other hand, the real estate market still presents superiors return rates compared with other countries in Latin America, attracting global and regional real estate funds. 

Finally, considering the current development of modern retail, we believe Peru represents an interesting possibility for regional companies dedicated to services related with cold chain and specialized storage.

DealMaker Q&A

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Aitor Cayero Barayazarra

TTR DealMaker Q&A with IMAP Albia Capital Director Aitor Cayero

Aitor Cayero Barayazarra
Aitor Cayero

Aitor Cayero is a CFA charterholder. He obtained his business administration degree from the Deusto University and continued his studies at Instituto de Empresa within its Program for Direction in Corporate Finance.

He began his career at PwC, where he remained for 5 years and oversaw projects for clients mainly within the Banking and Private Equity sector’s. In 2010, Aitor joined IMAP Albia Capital, and is currently an M&A Director. While at IMAP Albia Capital, he has been involved in over 30 M&A, valuation and refinancing projects, with an emphasis on cross-border engagements.

TTR: As an expert in Corporate Finance/M&A, how would you characterize M&A activity in Spain Year-to-date?

ACB: Despite an interannual slow-down in the M&A market in Q1 2019, presumably produced by some uncertainty looming in the overall macro landscape, our perception of the mid-market M&A is that activity is healthy and will continue to be so for the coming months. Specific circumstances for M&A activity are favorable: Spanish economic backdrop is robust, interest rates remain low and valuation spread between demand and supply in the M&A Mid Market is narrow. What is obvious, though, is that economy has been expanding for several quarters since the last crisis, and M&A activity has accompanied, so it does seem advisable for anyone thinking of entering the M&A market that he or she should do so while circumstances continue to be favorable.

TTR: IMAP Albia Capital advises on many sell-side mandates. Are these transactions typically structured as competitive processes? What level of appetite are you seeing in these targets?

ACB: In most cases, yes, processes are competitive. We have been involved in cases in which conversations have been exclusive from the beginning, but usually only when deal structure and terms are broadly agreed upon from the get-go and a framework of sufficient trust is established between buyer and seller, the latter a factor in which we as advisers frequently intervene.

Regarding appetite, demand really picks up when deals are above the €20 EV area. That’s where private equity usually comes into the picture, and, we all know what the dry powder status is in Spain and internationally; just check the last Bain and Co. Global Private Equity Report. So, sure, sell-sides that are sufficiently sizable, offering an attractive project and niche products, and with management teams willing to lead the project and reinvest, are hot products right now. 

TTR: Which funding resources are preferred by potential buyers seeking to acquire at present?

ACB: To be truthful, most buyers are still not that sophisticated in terms of funding sources: equity and basic amortizing bank loans basically cover most funding resources in Spain. Larger deals in which we have intervened have been structured using non-bank loans, such as mezzanine, unitranche, bullet structures, etc., currently being offered by debt funds, but this isn´t the typical Mid Market M&A deal in Spain today. We at IMAP Albia think the Spanish market will eventually end up resembling the US and UK markets, which are markets in which M&A transactions are mainly non-bank loan funded. Of course, we offer our buy-side clients the possibility of using more complex funding structures, and value creation that these structures add for their shareholders; some flatly dismiss the possibility, and others are open to at least exploring the possibility. It´s part of our role as advisers to let our clients know how to financially improve transaction structures.

TTR: To date, IMAP Albia Capital has advised on many industrial acquisitions. Which segments of the industrial sector are currently most attractive to investors?

ACB: I don´t see specific industrial sectors as being attractive as a whole. Some companies are in apparently unattractive industrial sectors, but are just in the right place within their value chain, with a niche and resilient product, and others are in trendy industrial sectors but don´t have the right elements in place to even be sustainable in the long term. Companies with competent management teams, a clear strategy and a powerful product offering will in most cases be successful, whether it´s one industry or the other.

However, I wouldn´t want to avoid directly answering your question, so I will say, just to name a few, that electronics, animal nutrition, industrial material additives, and non-combustion engine car part suppliers are four industries that are attracting attention.

TTR: As a local player, what are your thoughts on the current M&A market in Basque Country?

ACB: It is true that we originally started our activity in the Basque Country 15 years ago, and it is truly one of our main geographical markets. However, since joining our previous international organization 7 years ago, and especially since joining IMAP 3 years ago, our geographical reach in Spain is all over the country. IMAP is present in 39 countries with over 500 professional M&A advisers on our team. We currently have offices in Bilbao, Madrid and Barcelona, and most on-going mandates are nationwide.

Regarding the Basque Country, precisely on this topic we published an article in February of 2018, in which we indicated that Basque company’s offer skilled and productive workforces, high quality niche products, strong supplier networks, proximity of public administration, etc., which are all factors that make it the leading industrial hub in Spain. However, the one element Basque companies are improving, and need to continue improving, is size. They need to continue investing in other geographies, not only to become more attractive more financial and / or industrial investors, but also to guarantee long-term sustainability.

DealMaker Q&A

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Alberto Rebaza

TTR DealMaker Q&A with Rebaza, Alcazar & De Las Casas Partner Alberto Rebaza

Alberto Rebaza
Alberto Rebaza

Alberto Rebaza is founding partner and managing partner of Rebaza, Alcazar & De Las Casas law firm. Partner leads to mergers and acquisitions and corporate areas. In addition to his masters, he has studies at Georgetown University and England. He has also been director in several companies and organizations such as Edegel (Energy), Rigel Peru (Insurance), Liderman (Services), Amrop (Services), IPAE, Pesquera Alexandra (Fishing), YPO, among others.

TTR: Mr. Rebaza, firstly we would like to get your expert opinion, in a brief analysis, on the progress of the Peruvian M&A market in the first four months of the year.

AR: The Peruvian legal market has experienced an unusual volume of M&A closings in 1Q19 for all type and sizes of transactions. From the small/medium size deals with a strong strategic focus, to the multimillion dollar/cross-border deals that cover most of our newspapers. Our team has participated in 7 closings in 2019 so far (including strategic deals such as the sale of Papelsa to Grupo Gloria, the sale of Holding Plaza to Parque Arauco or the purchase of Duraplast and Novatec by Wenco). We are thrilled and have high expectations with our pipeline of transactions for 2Q19.


TTR: According to our data, Peru allocated a significant part of its investments to other Latin American countries, mainly Colombia and Chile. What attracts the interest of Peruvian investors? 


AR: There are several factors that may explain this phenomenon. First, Colombia and Chile are two countries with lots of social, historic, cultural and legal similarities with Peru. A regional expansion within those countries is normally catalogued as a soft landing for foreign investors.

Second, since the launching of the Pacific Alliance (Latin American trade bloc, formed by Peru, Chile, Colombia and Mexico) in 2011, Peruvian investors are taking a close look to the participant countries of the Pacific Alliance to diversify or expand their businesses. It is worth noting that, despite certain tax benefits (agreements to avoid double taxation or tax reductions, among others), the founding members of the Pacific Alliance executed an agreement to abolish all tariffs of merchandise trade by January 2020, making this integration a unique Latin American marketplace for producers.


TTR: Similarly, Colombia appears so far in 2019 as one of the main investors in the country. How do you think this reciprocal business relationship between the two countries will evolve? How does it benefit their economies?


AR: Colombian investors have been major players in the M&A industry in the recent years and I wouldn’t expect that to change in the near future. They are the third major foreign investors in Peru, after Spain and Chile.

Back in 2018, the Colombian Business Council in Peru announced fresh investments for over US$ 2B in Peru for the years 2018 and 2019. Their main focus is on projects related to the infrastructure, electricity, hospitality, transport and in the cosmetic industry.

In addition to the investment projections of Colombian players, I think the real deal will come once the corruption crisis in Peru is overcome. The Colombians experience in public-private partnerships and Public Works Tax Deduction projects will for sure contribute our economy in a positive way. Their input and investment will boost public projects (and therefore our economy) and increase our employment rate considerably.


TTR: Meanwhile, transactions in Agriculture, Agribusiness, Farming and Fishing have increased in Peru, compared with previous years when that subsector wasn’t as prominent. What could you tell us about that? Do you think the tendency will remain?


AR: The fishing industry in Peru is now consolidated, however, the government has been debating the last months certain legislative modifications that may heavily impact the industry, such as the increase of the fishing rights.

On the other hand, we have viewed a transactional boom related to shrimp-based business like the purchase of La Fragata by Marinazul (affiliated to Grupo Camposol).

Furthermore, the agricultural-related industries are facing an unusual increase in their sectors due to the international demand for agricultural products. We have notice the peculiar interest of foreign investments funds and, particularly, private investors from Chile in the purchase of estates in the north of Peru to develop agribusiness and farming companies. Peru is a privileged country for the agribusiness, making it one of the most suitable natural producers. The progressive increase of the worldwide demand, followed by a friendly legal framework that includes income tax reductions and special depreciation conditions are the perfect match for this boost.


TTR: Lastly, Peru has recently suffered and been involved in certain corruption scandals. How do you think those scandals affect the country’s economy today? What is your outlook on the matter?


AR: Thankfully, the political crisis experienced in Peru last year and the current corruption cases have not prevented the unstoppable growth of our economy and, specifically, of the M&A players’ appetite.

However, it is important to note that all major infrastructure projects have been stopped and their continuity is under analysis. This has deeply affected our economy and the governmental stability, lowering the Peruvian employment rate. I believe this corruption turmoil may only be disregarded by a strong political force that needs to convey economic trust and decision-making features. Furthermore, we are now facing an exchange in the players or the main public projects. The typical powerful Brazilian and local companies are been replaced by international actors of various backgrounds.

Should the current government be unable to revert this situation, I believe the presidential elections in 2021 will be the right moment to overcome this scenario.

DealMaker Q&A

Posted on
Luiz Nicolau

TTR DealMaker Q&A with Ritch Mueller Partner Luis Nicolau

Luiz Nicolau
Luis Nicolau

Luis A. Nicolau has been a partner at Ritch Mueller since 1990. He specializes in mergers and acquisitions, debt and equity capital markets transactions and banking and finance. He is a leading expert in assisting underwriters and issuers in debt and equity offerings in Mexico and abroad. He has participated in many of the largest public Mexican M&A transactions and advises foreign and domestic private equity funds on a regular basis. He has assisted numerous international financial entities in setting up their Mexican operations, including Scotiabank, JPMorgan, Credit Suisse, Santander and Morgan Stanley.

He currently maintains several board memberships, including at Grupo Posadas, Coca-Cola FEMSA, the public equity fund IGNIA, Morgan Stanley Mexico, UBS Asesores, KIO Networks,  Grupo Cementos de Chihuahua, Gentera, and of the investment committee of Promotora Social México; former President of Fullbright Mexico’s Governing Body, former member of the board of directors of Papalote Museo del Niño, former member of the board of directors of the Indian Mountain School and former member of the Supervisory Board of the Mexican Stock Exchange.

Mr. Nicolau graduated from the Escuela Libre de Derecho in Mexico City in 1986. He obtained a Master in Laws from Columbia University in 1988, where he was a Fulbright Scholar. Before joining Ritch Mueller, he was a foreign associate at Johnson & Gibbs, Dallas, and at Shearman & Sterling in New York. He joined Ritch Mueller in 1990 and has been a partner since then, except for the years 2001 and 2002, when he was the Chief Financial Officer of Vitro.

TTR: To begin, we would like you to give us a brief overview of the course of the first four months of the year in the Mexican M&A market. 

LN: The Mexican market for M&A transactions has been particularly slow for two (2) specific reasons. The first relates to political uncertainty and the lack of visibility in respect of prospects of the Mexican economy. The second, because the aforementioned factors have affected multiples applicable to M&A transactions involving Mexican companies. The good news is that the Fintech market is showing a significant level of activity, given the approval of the new Fintech Law and the fact that the period to obtain licenses under the Fintech Law has commenced. In addition, many Mexican families are showing interest in diversifying holdings and selling stakes, coupled with a different perception of political risk by foreign investors.


TTR:  Year-to-date, the number of transactions in the Internet subsector has increased, compared to last year; what can you tell us in relation to this data? What other sectors do you think will emerge during 2019?


LN: The reality is that generally the technology sectors have shown a substantial level of activity, fueled primarily by dedicated funds with excess liquidity, multiples used in other jurisdictions and the generalized underservice of the Mexican market.

¿Qué otros sectores, cree que, despuntarán a lo largo de 2019? As indicated, the Fintech sector has continued to show dynamism. In addition, the financial services industry has shown signs of further consolidation and there is continued interest in the pharma industry.


TTR:  In relation to the previous question, the majority of investments in the technology sector were from Venture Capital. What place do entrepreneurs and new companies occupy in the country?

LN: Although specific market data is not generally available, this is a sector of special interest, as a result of the new Fintech Law that has provided certainty to the industry, together with the fact that Mexico continues to be underserved from a technology perspective.


TTR:  Meanwhile, according to our records, although Mexico usually allocates a large part of its investments to Latin American countries, it does focus them in the country itself. Why does this unilateral relationship occur? 

LN: Again, this question is difficult to answer without the aid of economic data. However, there has been renewed and ongoing interest by Latin American investors in Mexico, in the Mexican oil and electricity sectors. Real estate and Fintech have shown some dynamism (see the examples of Mercado Libre and Rappi). It seems, however, that the Mexican market is larger, slightly more complex and subject to more competition, and that interesting opportunities remain in existence in several markets in Latin America.


TTR:  Continuing with the same topic, in the medium term, what Latin American countries do you think have the greatest potential to establish new trade links with Mexico and why?

LN: Difficult question to answer and will be dependent upon the desire to diversify, the availability of accretive multiples, competitive financing and the existence of liquidity. Larger Central American groups are likely to continue to look at Mexico as a stable hub, together with Colombia and Peru that are going through stable processes, and of course Brazil with its economic might and better skills to adapt to a large market as Mexico.


TTR:  Apparently, the beginning of the year has not been as economically positive as expected. However, you can see many local businesses in expansion and with the intention of entering new markets. Do you think that this situation could be improved?


LN: It is hard to see significant economic improvement this year, notwithstanding the efforts of private sector groups, because of remaining uncertainties in respect of economic conduction. The end of the year may bring a surprise or two, if the economy remains stable.