Company Acquisition in Brazil: when does it make sense?
Acquisitions can represent an excellent opportunity for expanding your company, as it can act as an alternative to organic growth. In Brazil, a company acquisition can make sense, since it is a profitable and quick solution to expand your business.
Below, we invite you to explore additional arguments on the advantages of increasing your company’s asset portfolio by acquiring a local business, and understand if it could be a viable alternative as compared to opening a subsidiary in Brazil.
This way, as there are many possibilities in an expansion process, we hope to facilitate your evaluation on what is best for your company.
What is company acquisition?
A company acquisition – also known as a company takeover – is the process in which one company purchases a part, or the totality of the shares of another company. As a result, the company that undertakes the acquisition becomes the owner or a majority/controlling shareholder, depending on the case.
Before considering the best way to acquire a company, it is essential to understand the challenges of taking your chances in Brazil – as this will greatly influence your decision as to whether an acquisition is indeed your best option, or whether e.g. it may be favorable to go the route of incorporating a subsidiary.
Brazilian business environment
Understanding the Brazilian business scenario, and considering cultural differences is essential to know what is the safest way to invest and be successful.
For example, the Brazilian tax system is one of the most complexes in the world. Accordingly, tax compliance is a difficult task, and the system undergoes constant changes related to a wide range of federal, state, and city taxes.
Acquiring an already established company means you must be sure they complied with tax law in the past. However, acquiring a well-functioning company is a viable way of doing business in Brazil as it may be a fast way of acquiring talent and an already established customer base, and may help overcome some of the legal, and regulatory barriers existent in this market.
Other reasons that justify a company acquisition in Brazil include:
– Acquiring technologies or patents;
– Reducing market competition;
– Increasing market share;
– Saving costs (under certain circumstances).
Hot sectors to invest in
According to Forbes magazine, in 2020, five sectors were expected to show the strongest growth. Namely, they are:
1. Transport – delivery service, mobility, and deliverance;
2. Agrobusiness – agritech, exports/imports;
3. Education – online offerings;
4. Health – pharmaceutical and preventive care;
5. Financial – fintech and payment solutions.
How to minimize risks from company acquisitions in Brazil
If you are considering acquiring a company in Brazil, it is essential to minimize all risks involved in this transaction. In order to do so, some aspects should be taken into consideration, such as:
– The number of similar targets in the segment;
– The perspective of a positive Return-On-Investment (ROI);
– The similarities related to the business profile and culture between the companies involved in the acquisition operation;
– The reputation of the target and its owners / C-Levels.
In accordance to the aspects above, the usual steps involved in the acquisition process are:
- Market study: before any offer, you should study the market thoroughly, evaluate all other options and seek to understand if the target is aligned with your business culture;
- NDA signature: a confidentiality agreement is signed, and the company’s purchase process is started. Confidential data, accounting, and financial information must be shared by the target company;
- Modeling and valuation: with all information in hand, it is possible to create a financial model for the company valuation;
- Non-binding offer for acquisition: the potential value of the company is estimated. In other words, this stage includes the presentation of a “non-binding” offer that will only be confirmed after due diligence;
- Due diligence: if the “non-binding” offer is accepted, the company’s legal, financial, and operational data are checked. The objective is to confirm the data and the main risks;
- Binding acquisition offer: in this phase, a final offer becomes official;
- Signature of the purchase and sale agreement: the terms of the purchase and sale agreement are settled.
We hope that this article has helped you to broaden your understanding of the Brazilian business environment and practices regarding acquisitions.
Feel free to contact our team to learn more about the expansion process to the Brazilian market.