PUERTO RICO Law and Practice Contributed by: Fernando J. Rovira-Rullán and Andrés I. Ferriol Alonso, Ferraiuoli LLC
other than the requirements under federal securities laws and regulations. 5.2 Market Practice on Timing There are no general statutory disclosure triggers applicable to privately held companies in Puerto Rico. For specific transactions that require certain disclo - sure, the law or regulation that requires such disclo - sure will establish the timing in which said disclosure must be provided. For example, regulatory approv - als for financial institutions may take several months, depending on the complexity of the transaction and The scope of the due diligence review will depend on the complexity of the transaction and the target company’s corporate structure and operations. A comprehensive legal due diligence review will include an investigation and analysis of the target company’s business operations, corporate governance, material contracts and agreements, real estate, employee mat - ters, labour or litigation disputes, tax structure, tax fil - ings and compliance, environmental licences and per - mits, liabilities and intellectual property, as required. Given Puerto Rico’s labour regulations as discussed in 2.5 Labour Law Regulations , Puerto Rico labour and tax due diligence tends to differ from USA mainland transactions. In recent years, cybersecurity practices, data privacy compliance and the status of Act 60 tax decree compliance have become increasingly impor - tant diligence items. the completeness of the filings. 5.3 Scope of Due Diligence As indicated above, the vast majority of M&A transac - tions in Puerto Rico involve privately held companies. A comprehensive due diligence review of the target company is required for the purchaser to validate its valuation of the business and its structure for the transaction, to assess particular risks and to ascertain Given the limited number of publicly traded compa - nies in Puerto Rico, standstill agreements are not seen in local M&A transactions. However, exclusivity provisions are fairly common in local M&A transactions. The purpose of these provi - the viability of the proposed deal. 5.4 Standstills or Exclusivity
sions is to prevent a target company from seeking additional purchasers after it has entered into a non- binding letter of intent or has agreed to be acquired by the purchaser. A typical exclusivity provision prohibits a target company, its owners and related parties from engaging in the solicitation of other acquisition offers, providing information or engaging in discussions with other potential purchasers during the due diligence process and up until the acquisition closes or nego - tiations are terminated. Some transactions may also include break‑up fees or expense reimbursement pro - visions to protect the purchaser’s investment in the process. Additionally, escrow arrangements and hold - backs are common tools for allocating post‑closing risk. 5.5 Definitive Agreements The overwhelming majority of M&A transactions in Puerto Rico involve the purchase and sale or con - solidation of privately held companies. The definitive agreements generally are stock or membership inter - est purchase agreements, subscription agreements, asset purchase agreements, or merger or consolida - tion agreements with their ancillary agreements and documentation. Tender offers are issued in the context of publicly traded companies and thus are not usually seen in Puerto Rico. 6. Structuring 6.1 Length of Process for Acquisition/Sale The due diligence review is generally a transaction’s most time-consuming phase. The investigation and assessment of areas such as taxation and labour require an in-depth review of company records, given Puerto Rico’s complex tax and labour laws and regu - lations. Although each transaction is inherently dif - ferent, purchasers and vendors can typically expect the whole process from initial term sheet to closing to take anywhere from two to eight months. In larger, complex and multiparty transactions, the process may exceed the eight-month mark. Transactions involving regulated industries or extensive third‑party consents may require additional time.
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