BRAZIL Trends and Developments Contributed by: Diana Henne, Machado Meyer
Vendor Due Diligence As noted above, the increased cost of capital and per - sistently high interest rates are reshaping the Brazilian M&A landscape. Investors are adopting more strin - gent criteria for the analysis and valuation of potential investments and seeking a deeper understanding of risks and liabilities involved in each transaction. In this context, it is also important for a seller to map the contingencies of its company in advance to sup - port a better negotiation position, including with respect to pricing and deal structure. This can be achieved through vendor due diligence, which is a comprehensive risk assessment conduct - ed by law firms, auditing companies and/or financial advisers engaged by the seller to evaluate the com - pany’s financial, accounting and operational condi - tions, and legal compliance prior to a potential M&A transaction. Vendor due diligence helps identify potential risks and anticipate issues that may be raised by the potential bidders during their due diligence of the company, reducing information asymmetry and minimising the likelihood of price reductions or contractual mecha - nisms unfavourable to the seller, such as escrows, holdbacks, warranties and indemnities. Another benefit of the vendor due diligence is allowing for a more efficient due diligence by potential bidders. In the context of the vendor due diligence, the target is required to select and organise its documents and information and prepare the data room. As referred to above, through the vendor due diligence, the target can map potential issues and resolve or mitigate them prior to their identification by the potential buyers. This prior organisation and risk assessment reduces negotiation friction between the parties involved in the transaction. Additionally, vendor due diligence has the by-product of incentivising the participation in com - petitive M&A processes of investors with less appetite for long diligences, allowing a quicker and cheaper diligence by potential investors and increasing the competitiveness of the sale process.
Reverse IPO Since December 2021, no Brazilian company has con - ducted an initial public offering (IPO). One alternative that has been used by Brazilian companies to gain access to capital markets is the so-called reverse IPO or reverse takeover. A reverse IPO typically involves a private company becoming a public and listed company through the acquisition of, or merger with, an existing publicly traded “shell company”. This structure offers a sig - nificantly shorter execution timeline and reduced transaction costs when compared with a traditional IPO, which is subject to extensive regulatory review, underwriting procedures and market conditions. As a result, reverse IPOs may provide an attractive solution for companies seeking access to capital markets in a constrained equity issuance environment. However, although reverse IPOs are a legitimate type of transaction, they raise a number of legal, regula - tory and governance considerations. Unlike traditional IPOs, reverse IPOs do not involve the same level of scrutiny by regulators, analysts and underwriters prior to listing. As a result, concerns may arise regarding the adequacy of disclosure, transparency standards and investor protection. In addition, the acquiring company inherits the liabili - ties of the listed shell entity, including those that are contingent or undisclosed. This reinforces the impor - tance of conducting, prior to the completion of the reverse IPO, a careful and complete due diligence, not only from a financial and legal standpoint, but also in relation to compliance, tax, labour and corporate governance practices. Accordingly, while reverse IPOs present a viable alter - native to traditional IPOs in the current market con - text, their successful execution requires careful struc - turing, robust due diligence, and close attention to governance and disclosure practices to ensure market credibility. Conclusion During the World Economic Forum in Davos, Itaú BBA estimated a 10% increase in M&A activity for 2026. However, Brazil continues to account for a smaller
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