BRAZIL Law and Practice Contributed by: Rafael Lacerda, Eric Nahum, Rômulo Martins and Fernando Oliveira, Lacerda Diniz Advogados
The most significant contingencies in Brazilian prac - tice typically arise in the tax, labour, social security and environmental areas. While some buyers may consider vendor-prepared reports, it remains stand - ard market practice for acquirers to engage their own counsel and for advisers to conduct a full independent review of the target’s documentation and liabilities. In regulated industries, an additional layer of analysis is required. Change-of-control approvals and regula - tory notifications must be carefully sequenced with CADE’s merger control clearance and the mechanics of closing, to mitigate interim operating restrictions and avoid gun-jumping risks. Ultimately, the topics outlined above are illustrative rather than exhaustive. The scope and depth of the due diligence review, as well as the identification of material risks, will vary depending on the target’s industry, which may require enhanced scrutiny of specific technical, operational or regulatory matters. 4.2 Vendor Due Diligence Vendor due diligence is not as prevalent in Brazil as traditional buy-side due diligence, but it has become increasingly visible in structured processes, particu - larly where sellers aim to prepare the company ahead of an M&A transaction and to set a clear valuation framework for prospective buyers. In these situations, the exercise is commonly referred to as “preliminary due diligence”, with legal and financial advisers engaged by the seller to prepare summary reports or fact books highlighting key risks, potential liabilities and mitigating measures. Despite these efforts, buyers in Brazil rarely rely exclu - sively on vendor due diligence. Market practice is for sponsors and strategic investors to conduct their own independent investigations to validate the seller’s findings, ensure accuracy and address any potential information asymmetries. This reflects both the risk- averse nature of the Brazilian legal environment and the importance of tailoring diligence to each buyer’s investment thesis and governance requirements. In competitive auction processes, vendor due dili - gence reports are usually provided on a red-flag basis, designed to accelerate the timetable and reduce
execution risk. These reports are almost invariably accompanied by non-reliance provisions, limiting liability of the seller’s advisers. Buyers therefore rely on vendor reports mainly as a process management tool – helping to focus confirmatory diligence efforts, guide Q&A sessions and frame disclosure schedules – rather than as a substitute for their own analysis. While vendor due diligence can be useful to streamline negotiations, it does not eliminate the need for com - prehensive buyer-led diligence in Brazil. Ultimately, reliance on seller-prepared materials remains limited, and confirmatory due diligence continues to be viewed as essential for proper risk allocation, negotiation of warranties and indemnities, and overall deal certainty. In Brazil, the vast majority of private equity acquisi - tions are executed through privately negotiated share or quota purchase agreements. This structure offers flexibility in negotiating purchase price, payment mechanisms and protective provisions, while also ensuring confidentiality. Mergers, incorporations or court-approved reorgani - sation schemes are less common and are primarily employed in take-private transactions of listed com - panies or in more complex corporate restructurings. Tender offers (OPAs) are mandatory when acquiring control of publicly held companies and must comply with strict CVM requirements regarding pricing, timing and equal treatment of minority shareholders. 5. Structure of Transactions 5.1 Structure of the Acquisition Privately negotiated deals allow for tailored structures and greater flexibility, whereas auction processes are characterised by standardised terms, compressed due diligence periods and heightened competitive pressure, often resulting in higher valuations. Irrespec - tive of the structure, it is market practice to include investor protections such as material adverse change clauses, price-adjustment mechanisms and post- closing governance arrangements to safeguard inves - tor rights and ensure alignment with management.
38 CHAMBERS.COM
Powered by FlippingBook