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Mergers and Acquisitions 2013
Paraguay – South America
1. Has the level of M&A activity increased, slowed, or remained flat in 2012 as compared to
2011, and what are conditions like today? In general terms, what level of activity is foreseen for
Paraguay has remained largely unscathed by the financial and economic crisis of the last few
years. This has allowed investment in the form of direct acquisitions and joint ventures (typically
50/50) to continue to flow. Considering the developing nature of its economy, M&A operations
have been essentially strategic in nature, in key sectors such as agribusiness, banking/finance and
pharmaceuticals, for example.
In 2012, we have seen the closing of major M&A transactions in the pharmaceutical, banking and
agribusiness sectors. The investors have been typically major foreign players in their respective
sectors, with local sellers.
Despite the country’s political challenges (2013 is an election year), we estimate that key private
sector segments will continue to grow, including by acquisitions. As the country’s macroeconomic
variables continue the pace of the last 10 years (single-digit inflation, fiscal responsibility, low level
of foreign debt, extremely strong hard currency reserves (more than twice the amount of foreign
debt), market conditions will remain positive for M&A and other forms of investment.
2.Which industries do you expect will see the most M&A activity in 2013?
We expect to see M&A activity, either through share or asset deals or through joint ventures,
mainly in agribusiness and in real estate related sectors (hotels, shopping centers and estates).
Paraguay’s agribusiness is one of the most technologically developed and fastest growing in the
world, with the top international firms having a very strong presence (ADM, Noble, Cargill, Louis
Dreyfuss, etc). There are opportunities in this sector for both real estate and asset acquisitions,
and from what we have seen in 2012 and the growth expectations in 2013,we expect more M&A
transaction in this sector.
3. What types of deals do you expect to see?
Based on recent experience, we would expect to see whole takeovers and relevant stake
acquisitions (30 per cent to 70 per cent) in the financial sector.
In the agribusiness sector we expect to see straight asset acquisitions or joint ventures. The latter
are implemented through joint venture agreements combined with medium – long term financing
with producers, silos, etc, on the one hand, and relevant international players (like those
mentioned above) on the other.
Recently as well we have received a mandate for what will be the first full private equity fund in
Paraguay. The fund’s investments will be in commercial and micro finance, infrastructure and
Finally, infrastructure is expected to be very relevant as the growth of the country has made
infrastructure investment by the Government and the private sector very necessary.
4.Discuss the level of M&A activity you have seen over 2012 and expect to see in 2013 of: (i)
pure domestic deals; (ii) deals in your jurisdiction involving a domestic target and foreign acquirer
from Latin America, or a foreign acquirer from outside Latin America; and (iii) deals involving a
domestic acquirer and foreign target in Latin America or a foreign target outside Latin America.
Due to the excellent economic situation of the country, we expect to continue seeing strong levels
of investment both from local and foreign players. Regarding M&A transactions in particular, we
have seen the largest acquisitions being done mainly from European jurisdictions (Spain and
France) as well as from Latin America (mainly Brazil, but also Uruguay and Argentina). Considering
the growth in other South American economies, we expect to see further investments from
Colombia and a presence from Peru.
Taking the precedents into consideration, we expect continued investment from companies in
these jurisdictions (mainly from South America, but also from Spain) as acquirers. Based on our
experience, the types of deals expected are whole takeovers and 50/50 joint ventures.
Outside the financial sector, local players have yet to tread more steadily in the acquisition of
companies. There are purchases of foreign subsidiaries and of other local companies from time to
time (share deals), but asset deals are somehow more limited in that there is a specific law with
cumbersome requirements regulating transfer of going concerns.
5.What is the level of private equity activity? Are domestic or international funds involved?
What kinds of deals are they doing?
As mentioned above, recently as well we have received a mandate for what will be the first full
private equity fund in Paraguay. The fund’s investments will be in commercial and micro finance,
infrastructure and agribusiness. Considering that the local capital markets are essentially debt
based and the public equity offering through listings is limited mainly to preferred stock, the
participation of private equity in the M&A market has so far been non-existent. Paraguay is in this
sense a net receiver of investment, although a consequence of this fund will likely be participation
by local investors in this type of vehicle.
6.Is acquisition financing available for deals? For strategic buyers? For private equity buyers?
From domestic or international sources? What amount of debt equity leverage are you seeing in
private equity transactions?
As acquisitions in the Paraguayan market are of a strategic nature (ie, they are very long term
investments, not made with the expectation of a listing or secondary buy-out down the road in a
few years), the acquirers, especially foreign ones, typically fund the acquisitions themselves or
obtain financing in their own jurisdiction.
That said, again due to the extraordinary growth of the Paraguayan economy and the excellent
performance and supervision of the banking/financial sector, credit for business is readily
available, including to finance growth through acquisitions. In this sense, local corporations have
since 2011 successfully issued private bond offering under Rule 144 and Reg S (including the
largest ones advised by our Firm). We expect to see a lot of this type of issues going forward,
signaling a new source of financing.
7.How open is your country to investments and acquisitions by foreign buyers? Is there a level
playing field when foreign and domestic bidders compete to buy the same domestic target
Paraguay has a very transparent and open economy. In the banking and financial sector, the
Central Bank is an independent and very efficient supervisor which ensures that M&A transactions
involving financial institutions comply with the high standards required to operate in the country;
there is no difference between foreign or local participants. In other sectors of the economy
(unregulated) the participation of local and foreign investors is subject to the same standards and
obligations. It is advisable for foreign investors to retain skilled and knowledgeable advisors to
take advantage of all the opportunities and protection available in in the country, in order to have
a successful M&A experience.
8.Do you expect more M&A activity involving financially troubled companies?
As Paraguay has largely avoided the financial crisis of the past few years, there has not been a
wave of distressed M&A deals, and we expect this to continue to be the case. However, there is a
special procedure for financial entities in which we have participated, and which sets the
benchmark for this type of transaction, done under the supervision and mandate of the Central
Bank of Paraguay. In other sectors of the economy, there is no specific regulation other than the
bankruptcy law to consider; in this respect, reorganisation or bankruptcy rather than M&A are the
typical alternatives for financially troubled companies.
9.Does your country’s bankruptcy law permit the reorganisation of the debtor as a going
concern, and the acquisition of the entity out of bankruptcy?
Paraguayan bankruptcy law certainly permits the reorganisation of the debtor as a going concern,
and the acquisition of the entity out of bankruptcy. This procedure is not specifically foreseen in
the law, yet it is certainly an alternative that may be approved within the insolvency procedure in
settlement with creditors (with the legally required minimum approvals and other legal
formalities). Under Paraguayan law, there are two alternative solutions in a bankruptcy procedure.
The first one is reaching a settlement between creditors and debtor, the second one is liquidation
of the debtor company. This settlement would need the approval of the bankruptcy judge to be
valid. The procedure would imply the restructuring of the company’s debt in bankruptcy, during
the settlement process. The proposed debt restructuring would then be voted by the debtor’s
creditors and approved by the bankruptcy judge.
The actual sale of the restructured company would proceed after bankruptcy has been exited and
would be done within the scope of the Civil Code.
10.More generally has there been any increase in hostile takeovers and shareholder activism?
What defences and responses are target companies using?
The Paraguayan capital markets are essentially focused on debt issues. The listing of stock is
limited, with the exception of preferred shares. For this reason, our market does not present
issues of corporate law related to hostile takeovers and shareholder activism. All transactions are
private and of a voluntary nature. No one can be “squeezed out”, although there is a right for
minority shareholders to be bought out in certain circumstances.
11.Have directors, management and controlling shareholders changed how they conduct
themselves in M&A deals? What kind of fiduciary duties do directors, management and
controlling shareholders have under the laws of your jurisdiction? From your experience, are
directors, management and controlling shareholders more diligent today in their review of M&A
transactions and other matters?
As foreign investment has increased in the past few years in the form of acquisitions, we have
noticed a progressive sophistication in directors of mid to large sized companies in our market.
This includes directors of both local and foreign entities. Directors increasingly rely on precise
advice from their counsel in all steps of the acquisition process in order to ensure that they comply
with their duties to their company and shareholders. This is also seen in representatives of foreign
acquirers, where there is a heavy reliance on their local counsel to help them bridge the cultural
gap in undertaking the transaction in our jurisdiction.
Concern today for directors lies mainly with dealing correctly with regulatory supervision in those
deals where there is such a presence. As it happens, several of the main deals in the past few years
have been in the banking and financial sector, a sector in which Paraguay is regulated. The Central
Bank of Paraguay is a very efficient, independent, transparent and sophisticated regulator, so
deals in this sector are very well scrutinised. This process implies a very active participation by
directors and their advisers in explaining the transaction, its causes, justification and potential
effects in the market. It is of great concern therefore for directors to avoid running foul of both
law and regulation, and take great care in receiving complete explanations on what is expected of
them and how they must act. Fiduciary duties obligate directors to be well informed of the
transaction to be undertaken, to avoid related party transactions or disclose them, and to amply
document their decisions in order to be fully covered in the event of future judicial scrutiny.
12. Should directors, management and controlling shareholders be more concerned today about
negative publicity, shareholder criticism, regulatory pressure and liability from potential
Directors and shareholders are subject to public scrutiny in those areas of investment which have
a socially sensitive aspect, like the sale of an industry which is the mainstay of a community, or the
investment or transaction involving environmental issues (like the envisages USD 4 billion
investment by Rio Tinto Alcan). This however is not a general rule, it only happens as mentioned in
socially or environment sensitive transactions.
13. Are there major differences in how domestic and cross-border deals are being conducted?
For instance, does the type of purchase agreement used in your jurisdiction differ significantly
from the international style of agreement? If so, which type is being used more often?
As in other jurisdictions in the world, Paraguay has also adapted to the Anglo-Saxon transactional
model, with the adaptation to the size and sophistication of transactions done locally. Share
purchase agreements, asset purchase agreements and joint venture agreements largely follow the
schemes of their Anglo-Saxon counterparts. M&A transactions with a foreign element (typically a
foreign purchaser) in all events follow this international pattern of agreements. For local deals, it
largely depends on the size of the transaction; transactions of a certain amount (for example US$5
million upwards) will normally involve more experienced counsel and therefore agreements which
follow the international style.
That said, in our experience we have been realistic in “pruning” or adapting the international
agreements to correctly address the business reality of our economy and market
(“tropicalization”). There is no virtue in necessarily maintaining language and stipulations which
are not of application or relevance locally.
14. For international buyers and investors looking at deals in your jurisdiction, what are the
three most important pieces of advice you have and what are the pitfalls that should be
The first and main piece of advice that we would give to a foreign investor in Paraguay would be to
retain trustworthy and reliable local counsel which meets the following two requirements: strong
international track record; and very strong local base and presence. A local firm should provide the
foreign investor with the comfort and ease to bridge the cultural gap, provide sophisticated advice
and navigate the local scene successfully. The flip side of this coin is omitting the necessary
research to select adequate counsel. The wrong type of counsel can in the best case fail to grasp
the expectations of the foreign investor and in the worst case cause material and reputational
damage to the investor.
The second piece of advice would be to negotiate and obtain arbitration as a means of dispute
resolution. Paraguay is party to several treaties which recognise arbitration as a valid and binding
dispute resolution method, duly approved and incorporated into our legal system, including intraMercosur treaties). Additionally, the arbitration forum need not necessarily be international; local
arbitration is quite satisfactory. This is in order to avoid, if it comes to litigation, the local courts,
dealing with which can be a very unpredictable and time consuming exercise.
The last piece of advice concerns the country itself. Paraguay is a country with excellent
opportunities for investments through M&A and other forms. We recommend foreign investors to
approach with an understanding of the extraordinary growth opportunities in a market where the
private sector matches the level of preparation and effort of developed markets and where the
public sector is making serious efforts in making the economy and local markets attractive to the
world. We believe that there is a great business environment in a market where there is
reasonably inexpensive, young and prepared labour force, a very low tax pressure (10 per cent on
average as a maximum) and a very strong and well regulated financial/banking system which
provides credit, combined with access to local and foreign capital debt markets. Finally, it should
also be noted that Paraguay is party to several investment protection treaties, both by itself and as
a member of Mercosur (including with Germany, Belgium,Spain, Great Britain,France,
Netherlands, Corea, the US, Portugal, Netherlands, among others, and of course with most Latin
15. Have there been changes in the process for how M&A transactions are conducted in your
Yes, there have been changes in the way transactions are conducted. International-style
agreements have been incorporated for M&A deals of relevance. The expectation and demands
from foreign investors, along with the foreign training in universities and international firms of
local lawyers (and their subsequent return to our jurisdiction) have caused a shift in the way deals
are conducted. In the end, grasping the nature of a deal, of the business involved, negotiating,
drafting and closing documents, will depend a lot on the skills of the lawyers involved; however,
there is a new crop of lawyers who understand the demands and expectations of foreign investors
and international counsel. This has resulted in M&A transactions (as well as financing and capital
markets transactions) having a reasonable and predictable element to the foreign eye.
16. Have there been any significant developments in the regulatory area – your country’s
security exchange commission, antitrust regulators, etc?
An antitrust bill is currently under study in Congress. Although all political and economic actors in
general support the bill, there may be debate and eventual delays in its approval this year. This bill
is expected to be approved either this year or the next.
17. Describe recent and forthcoming regulatory developments that affect M&A, whether
involving the securities and markets regulator, competition agency or other regulatory agencies
that review deals?
Paraguay does not have a central body which regulates fairness in the markets at present. An
antitrust regulation continues to be under study in Congress and would be expected to pass in the
near future, although the vicissitudes of political life preclude us from providing an estimate of the
enactment of this statute.
Currently, deals fall under regulatory review depending on the business sector where the deal
takes place. Areas such as banking, telecommunications, infrastructure and capital markets have
an essential regulatory component and deals in each of these areas are subject to review by the
corresponding regulatory authority. The banking and securities regulators are in particular highly
competent and sophisticated, operating with high levels of independence and transparency. They
are constantly innovating and normally remain ahead of the curve in their areas.