BRAZIL Law and Practice Contributed by: Rodrigo Casarotti, Alexandre David, Ricardo Melaré and Gabriela Claro, /asbz
3.3 Impact of the Choice of Listing on Future M&A Transactions Choosing a foreign listing venue does not, by itself, prevent a future sale, but it alters the applicable frame- work. Where the listed entity is a Brazilian companhia aberta (listed corporation) on B3, public tender offers and delistings follow the Brazilian Corporations Law (Law No 6,404/1976) and CVM rules, providing tools – takeover bids, delisting offers and corporate reorgani- sations (eg, mergers or redemptions), with appraisal rights – to move towards high ownership levels while protecting minorities. If the listing vehicle is a foreign company admitted only to a foreign exchange, Brazilian takeover/delist- ing rules generally do not apply at the listed entity level. Future take-private or squeeze-out mechan- ics will depend on the foreign jurisdiction’s company law, securities regulation and exchange rules, with Brazilian law relevant primarily to local subsidiaries. In cross-border structures, acquirers and founders therefore need to take into account, at the IPO plan- ning stage, how the chosen foreign listing regime deals with takeover bids, minority squeeze-out and appraisal rights, as this can introduce additional legal complexity compared with a purely domestic listing. 4. Sale as a Liquidity Event (Sale of a Privately Held Venture Capital- Financed Company) 4.1 Liquidity Event: Sale Process Sales of privately held, venture-backed technology companies may be run as competitive auctions or bilateral processes. The choice depends on the target profile, likely bidder universe and investor dynamics. Many mid-market tech deals proceed as limited auc- tions with a small invited group or as bilateral nego- tiations with a strategic buyer with a strong industrial rationale, often organised through drag-along mech- anisms and pre-emptive rights in the shareholders’ agreement. 4.2 Liquidity Event: Transaction Structure VC-backed exits are typically equity deals, either of the Brazilian operating company or an offshore hold- ing vehicle. Asset deals and statutory mergers exist
but are used less frequently for tax and procedural reasons. Buyers generally acquire all or substantially all of the equity, often via drag-along rights. Founders or key managers may roll over part of their stake, but VC funds usually seek a clean exit rather than remain as minority shareholders. Earn-outs may be used along- side negotiated roll-overs for founders and key talent. 4.3 Liquidity Event: Form of Consideration Most technology M&A transactions in Brazil are struc- tured as full company sales for cash. Share-for-share or mixed cash and stock consideration is less com- mon and tends to appear in larger strategic or cross- border deals, or where the buyer is listed. Earn-outs are frequent in tech, although the mechanics are usu- ally simpler than in US practice. 4.4 Liquidity Event: Certain Transaction Terms It is standard for sellers to stand behind representa- tions and warranties and certain identified liabilities through post-closing indemnities. Founders are typi- cally the primary indemnifying parties and, in some cases, early VC investors provide limited represen- tations and indemnities, often with tighter caps and narrower scope. Escrows and holdbacks are customary and well test- ed in Brazil as the main security for indemnities. Rep- resentations and warranties insurance is available and used, particularly in larger or cross-border deals, but is not yet a universal market standard in Brazil.
5. Spin-Offs 5.1 Trends: Spin-Offs
In Brazil, spin-offs ( cisões ) are available and used selectively in the technology sector when there is a clear need to separate businesses, assets or liabilities. Typical drivers include segregating distinct business lines or risk profiles (eg, regulated versus non-regulat- ed activities), ring-fencing contingencies and prepar- ing for a sale, joint venture or financing at a specific business unit level.
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