COLOMBIA Trends and Developments Contributed by: Jaime Trujillo, Andres Crump and Natalia Ponce de León, Baker McKenzie
Earn-outs and deferred payments Economic instability and the higher cost of capital have made it difficult to accurately value businesses, leading to an increase in the use of earn-outs and deferred payment mechanisms in M&A transactions. These mechanisms help bridge valuation gaps and mitigate the risks associated with past performance volatility and uncertain future outcomes. However, while earn-outs and deferred pay - ments have facilitated the closing of deals, we anticipate an uptick in disputes and litigation if agreed-upon performance targets are not met or if there are disagreements over the calculation of earn-outs. Artificial Intelligence Identifying how targets are adopting artificial intelligence (AI) has become key when conduct - ing due diligence. It is now important to identify whether a target has incorporated AI tools and applications in its business, and whether the AI tools being used comply with IP regulations, and are not misusing intellectual property rights from third parties. Also, buyers conducting due diligence in IP-related companies are seeking to ensure that the IP rights of the target are properly protected from potential misuses by third par - ties’ AI developments. The adoption of AI by law firms is transforming the M&A landscape, and is expected to continue shaping the M&A market in the years to come.
The dominance of strategic investors in the M&A market has also led to increased antitrust scru - tiny. Regulators are more vigilant about potential anti-competitive effects, which can prolong the deal-making process and lead to more frequent use of carve-outs to address regulatory con - cerns. Trends by Sector The industries that have experienced significant M&A activity in the past 12 months and will con - tinue to do so in the foreseeable future include fintech (due to the ongoing trend in emerging markets toward banking digitisation and democ - ratisation, which was accelerated by the pan - demic, and the continued expansion of platforms that rely on a digital ecosystem) and healthcare, despite regulatory uncertainty in healthcare in anticipation of increased health spending due to demographic factors and the higher prevalence of diseases associated with obesity. Additionally, the electricity segment within energy has been active, despite regulatory and climate uncertainties, due to the impetus for energy transition, and, paradoxically, because there seems to be a greater appetite for purchas - ing existing assets in anticipation of a potential decline in new project development. Trends by Deal Structure Pre-organisation carve-outs Carve-outs have become a prevalent trend in the Colombian M&A market. Companies are increasingly engaging in pre-sale reorganisa - tions to create portfolios that are easier to sell, more attractive to investors, and subject to less regulatory scrutiny. By isolating specific busi - ness lines or assets, sellers can unlock hidden value by excluding underperforming units from transactions and focusing on high-growth seg - ments.
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