BRAZIL Law and Practice Contributed by: Rafael Lacerda, Eric Nahum, Rômulo Martins and Fernando Oliveira, Lacerda Diniz Advogados
the past three years), and it does not apply to purely domestic Brazilian transactions. 6.6 Break Fees In Brazil, the payment of break fees in favour of the seller is relatively uncommon, being more frequent in initial or competitive transactions. Typical triggers include: • termination of the transaction without cause by either party; • failure to obtain essential regulatory approvals; or • breach of important conditions precedent. These fees tend to disappear in advanced stages of negotiations, especially after the signing of definitive agreements. Brazilian law does not impose specific restrictions, but the amounts must be reasonable and proportional to the risk of the transaction. They can usually be stipu - lated as a specific penalty related to the costs incurred to date or as a percentage of the acquisition price, which usually varies between 1% and 5% of the trans - action value. Reverse break fees are even rarer, but may be applied in specific situations, usually ranging between 4% and 6% of the transaction value. 6.7 Termination Rights in Acquisition Documentation For the buyer, the most common reasons for termina - tion include: • failure to obtain essential regulatory approvals; • material breaches of the target company’s repre - sentations and warranties; or • significant adverse changes in the business that substantially affect the value of the transaction. For the seller, termination is more limited, relating to the buyer’s failure to comply with representations and warranties or conditions precedent, such as approval by governing bodies. The deadline for fulfilling the conditions precedent or closing the transaction is typically set between 90 and 180 days after the signing of the purchase agreement, depending on the complexity of the transaction and
the need for regulatory approvals. In more complex transactions or those subject to multiple regulatory agencies, the deadline may be extended, by agree - ment between the parties, to accommodate reason - able delays without automatic termination. 6.8 Allocation of Risk In Brazil, the allocation of risk in private equity trans - actions is generally more structured and predictable than in corporate deals, reflecting the need for pri - vate equity funds to safeguard returns for their inves - tors. The prevailing approach is the “your watch, our watch” model, under which the seller bears respon - sibility for liabilities arising prior to closing, while the buyer assumes responsibility for post-closing events. In corporate transactions, risk allocation is often more flexible and subject to strategic negotiation. In con - trast, private equity deals place greater emphasis on limiting the seller’s post-closing exposure and pro - viding predictability regarding indemnification obliga - tions, with mechanisms such as caps on liability, claim periods, deductibles, exclusions of indirect losses, and insurance coverage. Furthermore, private equity funds typically prefer more straightforward consideration structures and formal dispute resolution mechanisms where future metrics are involved, reinforcing a disciplined approach to risk allocation compared to purely corporate transactions. 6.9 Warranty and Indemnity Protection In Brazil, private equity sellers often limit their rep - resentations and warranties to typical fundamentals, such as ownership of shares, capacity and authority. When the seller is a buyout fund, it is common for it to provide basically the same warranties as other share - holders, who generally rely on the warranties provided by the managers. However, the fund does not assume joint liability with other shareholders, avoiding any obligation that could be interpreted as a guarantee in favour of third parties. Typical limitations of liability in transactions include: • indemnification cap;
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