Our analysis does not encompass hostile takeovers or proxy-fights.
The acquisition of public companies is subject to a variety of regulations not applicable to the acquisition of private companies. The two main examples, as discussed below, concern stake building rules.
Whenever a person or entity, through one or more connected transactions, crosses a threshold, up or downwards, of 5% (or a multiple thereof) of any class of shares of a public company, said public company must disclose a material fact informing, among other things, whether the acquiror intends to acquire the participation for investment purposes only (and not for the acquisition of control) or to appoint directors to the board. As we are not encompassing hostile takeovers, we will not discuss offers for the acquisition of control of a public company — i.e., we always assume there is a controlling shareholder.
Whenever the control of a public company is acquired, in addition to the disclosure of a material fact, the acquiror is obligated to launch a public tender offer to acquire the remainder of the voting shares of the target company for a minimum price of 80% of the price paid for the controlling shares. If the public target company is listed in the upper two premium listing segments of the B3 stock exchange — namely, the New Market (Novo Mercado) and Level II segments —, designed for companies with the highest standards of corporate governance, the price to be paid for the remainder of the voting shares is 100% of the price paid for the controlling stake.
Deals in Brazil, private or public, usually encompass the following documents:
Public deals may additionally encompass the material facts disclosed to the market and to the Brazilian Securities and Exchange Commission, as well as all documents pertaining to the tender offer for the acquisition of the remainder of the voting shares after the acquisition of the control of the company.
If the acquiror does not communicate the target company of any material facts that would require disclosure (as discussed above), the public target company is required to disclose said material facts whenever they come to the company’s knowledge by any means other than the information by the acquiror.
For mandatory tender-offers after the acquisition of control for minority non-selling shareholders, please refer to the first item above for such information.
In Brazil, most share acquisitions are paid in cash, but some acquisitions may be paid in shares or other assets. If the acquisition involves any kind of capital increase to be paid in-kind in a corporation, there is the need of an appraisal by a specialized third party of the assets encompassed in the in-kind payment.
Asset deals of an specific business or going concern (estabelecimento comercial) are specially regulated by the Brazilian Civil Code and its efficacy before third parties depends on its registration before the relevant Board of Trade. The acquiror of the business is held responsible for the business’ debts duly accounted in the books of the target company, and the seller remains joint and severally liable for such debts for the period of one year after the publication of the transfer of the business; if the credits are not yet due, the joint and several liability of the seller applies for one year following the due date. Unless the transfer agreement provides for the contrary, the relevant agreements of the target, if not of a personal nature, are transferred to its acquiror, unless the relevant counterparties to such agreement terminate them for just cause within ninety days from the publication of the business transfer. The credits of the business are transferred along with it. However, the main concern in such deals usually relate to labor and tax liabilities of the seller and/or of the business which may be transferred to the acquiror of such assets/business. There is an automatic period of 5 years of non-competition for the seller of the establishment unless the parties provide to the contrary (please note that this non-compete period does not apply to share deals, unless the parties specifically provide for it).
Mergers in Brazil are usually a merge of one company into another surviving company. They are usually paid in shares, although payments in kind and cash are possible in some specific cases. There should be an independent appraisal of the merged assets before the merge. Shareholders of the merged company that abstained from voting or voted against the incorporation are allowed to withdraw from the company and be reimbursed for their shares, unless the company’s equity is highly dispersed in the market and has high liquidity.
Overall, the vast majority of deals in Brazil are direct acquisitions of the target company or of a new company created specifically for the deal. More recently, there have been a few transactions in Brazil using SPACs (Special Purpose Acquisition Companies), which are public companies with capital raised for the acquisition of companies within an agreed scope.
In Brazil, acquisitions are typically conducted under the true-up regime, whereby differences in net working capital and indebtedness—comparing pre-fixed amounts to actual amounts on the closing date—are factored into price adjustments. Although locked-box acquisitions are rarer, their use has been increasing. In the locked-box regime, the price is fixed at the date of signing or an earlier date, and the typical price adjustments comprise only amounts paid to the seller before the closing.
In the true-up regime, the risk associated with the business between signing and closing is attributed to the seller, whereas, in the locked-box regime, the acquiror assumes that risk. It is not uncommon for acquirors in Brazil to attempt to combine traits of the locked-box regime with the true-up regime, potentially creating an unfair advantage for themselves.
Earn-out provisions are common in deals where there is significant uncertainty regarding the target’s outcome or where the relevant sector is experiencing economic or regulatory changes. Similar to other jurisdictions, these provisions often allow for disputes between the seller and acquiror, and they frequently end up in court or arbitration. To minimize the likelihood of such disputes, counsel representing the seller should aim to limit the scope of changes in the business’s conduct after completion until the earn-out relevant date. However, this can be a challenging issue during negotiations.
In Brazil, there is no specific legislation governing earn-outs. Generally, courts grant buyers broad discretion in managing the business post-closing unless bad faith or a breach of contract can be demonstrated.
Antitrust approval is necessary whenever the economic groups of acquiror and target have annual revenues of at least R$ 75MM and R$ 750MM. With regards to investment funds, Brazilian laws consider to be part of the same economic group (i) the economic groups of any quotaholder holding, directly or indirectly, individually or jointly through quotaholder agreements, at least 50% of the fund’s quotas, and (ii) companies controlled by the fund or those in which it directly or indirectly holds at least 20% of equity or voting rights.
In general, it is also necessary to obtain prior approval for the change of control in certain economic areas of great public relevance, such as telecom, printed media, ports, airports, highway, and railroad concessions, as well as mining, energy and the finance industry.
Material Adverse Change clauses are commonly used in favor of the acquiror as a way out for the deal. It generally encompasses changes that singularly affect the businesses of the target´s company disproportionally in comparison to its competitors. However, if you are acting as the acquiror’s counsel, you may wish to include any change in the economic environment, such as covid-like events, and general downturns in the economy of the seller’s country.
In Brazil, break-up fees — which allow a party to exit a transaction under certain conditions and upon payment of a fee — are relatively uncommon, whereas penalty fees for refusal to close are more frequently adopted. Penalty fees should be explicitly justified in contracts, ideally supported by clear criteria for calculating amounts and assessing damages, as such provisions are often subject to review by courts and arbitral tribunals.
In Brazil, there is no statutory definition of materiality or knowledge qualifiers in the context of representations and warranties. Consequently, it is incumbent upon the parties to a Share Purchase Agreement (SPA) to define the thresholds for materiality and to establish what constitutes “knowledge” for the purposes of the agreement.
Typically, counsel representing the acquiror will seek to broaden the scope of the knowledge qualifier to include constructive knowledge. This may encompass what the sellers—or their board members or officers—should have known through the exercise of reasonable due diligence. Under such a definition, a breach of representation involving constructive knowledge could trigger indemnification.
Conversely, counsel for the seller will usually aim to narrow the definition of knowledge to actual knowledge of the seller or its directors, thereby reducing the likelihood of post-closing liability.
The same dynamics apply to materiality qualifiers.
In Brazil, it is common for Share Purchase Agreements (SPAs) to include bring-down provisions for representations and warranties (R&Ws), ensuring their continued accuracy as of the closing date. Typically, the parties execute a bring-down certificate at closing, affirming that the R&Ws made at signing remain “true and accurate in all material respects.” This mechanism offers the acquiror an additional layer of protection by allocating most of the risks arising between signing and closing to the seller.
However, in response to the growing demand for faster and more streamlined legal due diligence processes and transaction timelines, it is becoming increasingly common to see bring-down provisions limited to breaches resulting in a Material Adverse Effect (MAE). This narrower approach reflects a shift toward balancing thoroughness with transactional efficiency.
Brazilian law does not expressly regulate sandbagging provisions, and their enforceability is often a subject of legal debate. Nonetheless, such clauses have become increasingly common in recent SPAs, as buyers are typically unwilling to forgo indemnification for issues merely because they were disclosed or otherwise known prior to closing.
In general, sandbagging provisions are enforceable under Brazilian law, provided they do not conflict with the principles of good faith that underpin contractual relations in Brazil. If the buyer’s conduct violates the duty of good faith—either during negotiations or in the performance of the contract—the enforceability of the provision may be challenged.
In Brazilian SPAs, payment guarantees for the purchase price can be difficult to secure, particularly when the seller belongs to a financially robust economic group or when there is a reasonable assurance of third-party financing. In such cases, buyers may accept joint and several liability from the parent company of the seller’s group as sufficient security. Alternatively, the presence of financing arrangements—even if not fully binding on the lending banks—may be deemed acceptable, depending on the circumstances.
Ultimately, the level of assurance regarding price payment is subject to negotiation and reflects the relative strength of the parties, the credibility of the financing sources, and the perceived risk profile of the transaction.
A common strategy for guaranteeing payment of indemnifications, provided that the seller retains part of the target’s equity, is the fiduciary assignment (alienação fiduciária) of the shares or quotas that remain with the seller. Under this structure, ownership of the shares or quotas is transferred to the acquiror/creditor on a fiduciary basis, while economic and voting rights typically remain with the original owner/seller unless default occurs. This arrangement offers creditors greater efficiency in enforcing their rights compared to traditional pledges, as it facilitates quicker and more direct foreclosure procedures.
Another possible guarantee, especially with regards to joint ventures, is the withholding of some or all dividends of the target payable in the future to cover either possible liabilities pertaining to the share or quota purchase agreement or part of the price.
Lastly, indemnification is usually guaranteed either by means of a price retention or an escrow account where the seller or the acquiror deposits part of the price
It is increasingly rare in Brazil to see M&A transactions not subject to indemnification, a practice that was more common until the mid-1990s. At that time, acquirors typically relied solely on their own due diligence, and representations were generally limited to the existence of the shares, the absence of liens or encumbrances, and confirmation that the target was not subject to special creditor regimes, such as judicial reorganization or bankruptcy.
Today, it has become standard practice in Brazil for SPAs to adopt a “my-watch/your-watch” allocation of liability—where the seller retains all risks related to the business up to completion. Furthermore, SPAs now routinely include detailed representations and warranties, and provide for indemnification in the event of their breach, giving the purchaser additional post-closing protection.
Indemnification provisions in Brazilian Share Purchase Agreements are typically subject to several negotiated limitations that reflect both market practice and risk allocation considerations.
Caps on Seller Indemnity
It is standard practice to include a cap on the seller’s indemnity obligations. While a cap equal to 100% of the purchase price may be contractually possible, in practice, the cap is usually negotiated based on the due diligence findings and the likelihood of the identified contingencies materializing into actual losses. This approach aligns the indemnity ceiling with the risk exposure identified during the pre-signing phase.
De Minimis
A de minimis clause establishes a threshold below which individual claims cannot be brought. In Brazil, this typically ranges from R$ 50,000 to R$ 1 million, depending on the overall deal value and the parties’ negotiation leverage. The rationale is efficiency—claims below this level are often not worth pursuing due to the administrative cost outweighing the potential recovery.
Deductibles and Baskets
Two main types of baskets are prevalent:
Exceptions to Indemnity Limitations
Brazilian SPAs commonly exclude certain matters from indemnity limitations, notably breaches of fundamental representations and warranties (e.g., corporate existence, authority, capital structure), as well as losses arising from fraud or bad faith. Importantly, under Brazilian law, any contractual limitation on liability is unenforceable in cases involving fraud or bad faith, even without an explicit contractual carve-out.
Exclusive Remedy Provisions
Exclusive remedy clauses, which aim to limit the buyer’s remedies solely to the indemnities detailed in the SPA, are increasingly common. However, Brazilian courts have occasionally cast doubt on the enforceability of these provisions, particularly when losses stem from willful misconduct or bad faith
Indemnification provisions in Brazilian Share Purchase Agreements are typically subject to several negotiated limitations that reflect both market practice and risk allocation considerations.
Caps on Seller Indemnity
It is standard practice to include a cap on the seller’s indemnity obligations. While a cap equal to 100% of the purchase price may be contractually possible, in practice, the cap is usually negotiated based on the due diligence findings and the likelihood of the identified contingencies materializing into actual losses. This approach aligns the indemnity ceiling with the risk exposure identified during the pre-signing phase.
De Minimis
A de minimis clause establishes a threshold below which individual claims cannot be brought. In Brazil, this typically ranges from R$ 50,000 to R$ 1 million, depending on the overall deal value and the parties’ negotiation leverage. The rationale is efficiency—claims below this level are often not worth pursuing due to the administrative cost outweighing the potential recovery.
Deductibles and Baskets
Two main types of baskets are prevalent:
Exceptions to Indemnity Limitations
Brazilian SPAs commonly exclude certain matters from indemnity limitations, notably breaches of fundamental representations and warranties (e.g., corporate existence, authority, capital structure), as well as losses arising from fraud or bad faith. Importantly, under Brazilian law, any contractual limitation on liability is unenforceable in cases involving fraud or bad faith, even without an explicit contractual carve-out.
Exclusive Remedy Provisions
Exclusive remedy clauses, which aim to limit the buyer’s remedies solely to the indemnities detailed in the SPA, are increasingly common. However, Brazilian courts have occasionally cast doubt on the enforceability of these provisions, particularly when losses stem from willful misconduct or bad faith.
Although Brazilian courts have been accepting the choice of foreign law in Brazilian agreements, this decision only makes sense if there is corresponding choice of foreign courts or foreign arbitration chambers.
For a foreign court decision to be enforceable in Brazil, it must first undergo a homologation process by the Superior Court of Justice (STJ). This procedure ensures that the foreign judgment complies with Brazilian legal standards and public policy. The STJ does not reassess the merits of the case but verifies specific criteria: the decision must have been issued by a competent authority; the parties must have been properly summoned or legally declared in default; the judgment must be effective in its country of origin; it must not conflict with Brazilian res judicata (final and unappealable) status; it should be accompanied by a certified translation into Portuguese; and it must not violate Brazilian public order or sovereignty. Once homologated, the foreign judgment gains the same legal standing as a domestic decision and can be enforced in Brazil
Brazilian courts can take easily 5 to 10 years to reach a final decision, and under some circumstances, even longer. It being so, arbitration quickly rose to prominence and took the stage as the most common choice in M&As in Brazil. However, after its initial impact, arbitration experienced a slight backlash due to increasing costs and controversial outcomes in proceedings handled by smaller or less experienced arbitration chambers. Nowadays, it is common for smaller deals and middle market transactions to provide for the choice of judicial courts, notably in cities with specialized courts such as São Paulo.
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Cascione Advogados
Av. Brig. Faria Lima, 4.440
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CEP 04538-132
São Paulo, Brazil
Tel: +55 11 3165 3000
Torre do Rio Sul
Rua Lauro Müller, 116
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Tel: +55 21 3289 0930
Luiz Eduardo Corradini
Partner
Email: lcorradini@cascione.com.br
Call: +55 11 3165 3004
