M&A activity in Brazil has been constantly increasing over the last two years. The expectations for the remaining of the year 2019 are positive and the outlook for Brazil will certainly be enhanced by the approval and implementation of several reforms proposed by the new Federal Administration, especially the pension system and tax reforms. The prospect of the combination of attractive prices, less expensive credit and international and domestic banks willing to approve financing will benefit the volume of transactions in Brazil.
An important driver for M&A activity in Brazil is the privatization agenda, which is one of the main priorities for the Brazilian Government and aims to attract the private sector to fill infrastructure gaps, especially to industries such airports, ports, energy, railroads, roads and mining. In addition, there are still other industries with growth and consolidation potential (e.g. healthcare and education) that may be further explored as the country’s gross domestic product continues its tendency to grow.
Technology is also a key driver for attracting investment to Brazilian companies. Industries that are extremely important for Brazilian economy such as agribusiness, financial services, education, mobility and health are being benefited and transformed by technology. The Brazilian Federal Administration and Congress have been stimulating initiatives to foster investments in the information technology and the innovation and digital businesses. Among other initiatives it is worth mentioning the following:
Brazilian Data Protection Law (“LGPD”): Driven by the recent increase of data incidents and the enactment of the European General Data Protection Regulation, Brazilian Congress passed a comprehensive data protection law (Law No. 13,709/2018) with detailed rules for collecting, using, processing and storing personal data in Brazil. Any data processing may only be made in accordance with the principles set forth in the LGPD. Failure to comply with the LGPD may give rise to administrative sanctions and fines to the applied by the National Data Protection Authority. As the LGPD did not revoke sector-specific laws that sets-forth on privacy and data protection, certain obligations may continue to apply to organizations based on such laws, in addition to the LGPD.
The Economic Freedom Act: Signed on April 30, 2019 by the Brazilian President, the so-called Economic Freedom Act is an executive order still to be made into law by Congress that introduced certain guidelines to reduce governmental bureaucracy and interference in private party's relations, speeding up the opening and closing of businesses in Brazil and protecting investors from companies failure, all with the purpose of stimulating the entrepreneurial activity in Brazil.
The “Startups’ Act”: With the main purpose of adoption new rules that reduce obstacles for innovation and enhance sustainable growth for emerging companies in Brazil, the Federal Government launched a public consultation related to the legal framework of startups, which main topics, among others, are: the creation of the simplified corporate structure that would benefit from the existing rules applicable to corporations, but in a simplified way, which includes the possibility to have a single shareholder, flexibility on distribution of dividends and on the overall governance of the company ; a simpler tax procedure with cost reductions for making and exiting from investments; flexibility of contracting with the government; and fostering research, development and innovation.
Although still under consolidation, the initiatives above have been hot topics in the Brazilian legal market and reinforce the growth trend of Brazilian M&A and foreign investment activities, especially in the technology industry, which includes the rise and spread of venture and corporate capital investments.
Claudio Oksenberg - Partner at the Corporate and M&A Practice
Paulo Marcos Rodrigues Brancher - Partner at the Intellectual Property and Innovation and Digital Businesses
Camilla Ribeiro Martes – Senior Associate at the Corporate and M&A Practice
Phone: +55 11 3147 7600 (São Paulo - Paulista)