HOW TO INVEST IN BRAZIL VIA M&A?

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Many investors ask themselves how to start a market in Brazil but for many reasons, they stop their process way before they start.

This following text will guide you to answer the question of how to invest in Brazil via M&A.

Brazil is at the same time a country full of opportunities and risks for investors, so before action, attention must be paid because the process of Culture and behavior in this country is very particular and if these specific items are not considered a lot of money could be through away.

First of all, these following questions have to be answered, than the risks can be calculated:

1 – What are the main sectors with the best opportunities?
2 – Organic Grows x Inorganic Grows (M&A) In Brazil?
3 – How relevant is FDI (Foreign Direct Investments) in Brazil and what are the unknown challenges in this process that nobody tells you?
3 – How is the Brazil M&A process and the Legal duties that must be respected?
4 – Why is the “Market Phase” is the Key? What are the options? Is the culture really something important to understand for the process to be succeded?

If you want to start to understand a little bit of the process of M&A in Brazil this article will help you by starting to answer these questions. We wish you a good read.

1 – What are the main sectors with the best opportunities?

Huge Economy and Size of the internal market: With a 2017 GDP of 2,06trilion (according to World Bank) Brazil is the 8th biggest economy in the world and the 5th in terms of both surfaces (8,52 million sq Km) and population (210 millions of inhabitants);
Gate of Latin America:
São Paulo City is the main financial and business hub of both Brazil and Latin America;
Consolidate Democracy and rule of law;
Rich natural resources;
rightly develope industries;
infrastructure opportunities;
growth opportunities;

2 – Organic Grows x Inorganic Grows (M&A) In Brazil?

Challenges to invest in Brazil are many because of law, culture, and bureaucracy. That’s why many say that Brazil is not for amateurs.

Some of the challenges follow arread:

Brazil’s tax system is one of the most complexes in the world, being ranked by Forbes as “the most time-consuming tax in the world”. Tax compliance is not easy due to numerous federal, state and municipal Overlanding and constantly changing rules of taxes;
Despite the recent labor Reform and the Law of Economy liberty is still complex to hire and maintain compliance. Also Brazils labor litigation level is the worldwide outlier;
On top of this depending on the segment, there can be also several regulatory and environmental obligations which can greatly delay an organic market entry;

3 – How relevant is FDI (Foreign Direct Investments) in Brazil and what are the unknown challenges in this process that nobody tells you?

Foreign investments are welcome, especially if they bring new technologies, create new jobs, develop agriculture, increase exports and decrease imports;
Local and foreign investors are generally treated equally in regard to incentives and tax concessions;
There are programs of the federal government created to encourage regional development, including SUDENE, which operates in the Northeast, and SUDAM, covering the region of the Legal Amazon (North). Both ensure benets to investors with tax cuts;
In general terms, the total ownership by foreigns is possible;
Generally, Brazil has attractive investment opportunities for companies interested in:
Taking advantage of the abundance of raw materials and natural resources;
Using the workforce in growth;
Produce items that are currently imported;
Using Brazil as a base for export, taking advantage of the benets of the MERCOSUL agreements and the opportunities for its members;
To improve the country’s infrastructure by investing in railways, highways, ports, airports, water and waste treatment, power generation;
Taking advantage of the massive investments that are expected with oil reserves in the pre-salt areas;
Foreign specialized in real estate and management of private equity funds have the opportunity to buy holdings in ventures, such as real estate developers and construction companies, to sell later at a prot, taking advantage of the currently low prices to cast o ventures with discounts (distressed investments);
Taking advantage of the political and economic climate of the country, in particular the increase of the dollar against the real and rising interest rates, which makes the cap rate more attractive to make acquisitions in the real estate market.
4 – Why is the “Market Phase” is the Key? What are the options? Is the culture really something important to understand for the process to be succeded?

The market Phase is the key to analyze the market of interest and map and scream and prioritize its target.

Compliance in Brazil is more complex than in other countries. Therefore starting a Deal phase with the right target is a must. For this phase, you can either hire a strategy consulting firm or a top M&A advisor to help and guide you in this process. Nevertheless, there are several advantages of hiring the later: investments, incentives, and know-how preservation.

The “Deal Phase”, as in other countries is comprised of NDA signing, target Valuation, Negotiation, Non-Binding Offer, Due Diligence, Final Binding Offer and closing signing. Valuation, negotiation and Due Diligence are crucial in Brazil to success os the transaction.

The M&A process, including market phase and deal phase itself, is not technically different than the other countries but there are some specific country challenges to overcome including:

complex tax labor;
complex tax law;
changing economic valuation conditions;
the law that permits the government to evaluate the company if it’s not at the social contract of the company;
complex bureaucracy terms to open a company;
specific rules to deal with partners inside of the company;
different law types of company to choose with different consequences when opening a business;

Thus counting with the local expertise and network of a local law firm is the key for the success of the transaction.

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