Cross-Border M&A: Doing Deals in Latin America

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I'm doing well. Thank you for having me.

Thank you for hosting me live here in Manhattan at White Case's office over here.

Have a great view here. Welcome and happy to be here.

And taking a break from doing deals to have this conversation.

So on a Friday afternoon. So for sure. Why not?

I'm getting— maybe we should start off. This is a disclaimer. None of this is interpreted to be any kind of legal investment advice. You're just a friend on the personal opinions. You're sharing some thoughts.

That's great.

Can we kick things off a little bit about your background?

I'm originally from Mexico, grew up in Mexico, and I started my practice in Mexico City a little bit more than 25 years ago. I wanted to be an M&A lawyer. That's something that I knew from a very early stage in my career.

You grew up wanting to be an M&A lawyer?

Well, you know, when I went to law school, I knew that I wanted to be an M&A lawyer. Like, I had a lot of friends that wanted to be in litigation and, and all that, and I just wanted to do deals. As a matter of fact, at some point I thought about going to business school, but I ended up going to law school. And in doing so, I was naturally inclined to all the subjects that have to do or had to do with economics and financials. And, and that's what actually planted in me the seed to do M&A. And so I did. I started practicing in a very large firm in Mexico City and doing deals for multinationals that were coming into the country. And when I was doing that, I remembered that I was impressed by the deal proficiency and the professionalism of all the US lawyers that I was working on. Not that my Mexican colleagues weren't as professional as the US lawyers, but it was very interesting to see how the US firm would take the lead in structuring the deal, and the negotiating it and just mapping in the transaction from the outset. And the firms, the local firms will do more like the execution, but I always like the strategy behind it. And that's actually what prompted me to come to the US and go to law school here. In the early 2000s, I went to Northwestern in Chicago, and when I graduated, I got a job offer from a firm in Houston and I took it. And that was 21 years ago, 22 years ago. Here we are. In New York.

That's a lot of deals across your career.

Yeah.

Do you have a tally somewhere of—

I, well, I can tell you that, yes. So we keep a record of everything that we do as lawyers should. If you think about it, we probably do 20, 25 deals a year. Maybe half of those close, the other half they die in the process. But we touch a lot of transactions. So multiply that times 20.

So you have worked on hundreds of deals.

Yes, for sure. Absolutely. Yeah.

That's why I found that fascinating.

It is.

How many lawyers are good both in-house and external? One obviously costs a lot more.

Yeah. I think so.

But you get your money's worth.

That's, that's what I like to think. Yes. Yeah.

Because you've worked across all these deals and situations.

Yep.

So that's what we're paying for.

That's right. And I will say my focus is Latin America. So I've done deals from Mexico to Argentina and back, every single country that you can think in the region with, you know, I've had a chance to work on a deal. In that country.

So can we be like a little hypothetical just to set the tone here?

Sure.

Let's pretend I got a business here in the US and I want to go expand in Latin America. I'm very familiar with the data room industry because I've worked in that space before. If I had a company here, like my company Dealroom that I'm involved with, and I wanted to go buy a business in Latin America, I just tell you that. Walk me through what actually happens.

Sure.

Like, how does that ultimately— what goes down?

And the approach depends on whether you're on the buy or the sell But let's say that you're on the buy side, you want to go buy a company in Colombia or Peru or Mexico.

All of them sound great. Let's do one of each.

Right. The first step is understanding the country risk, understanding the political environment. So like here in Weil Case, for instance, we have a very strong international arbitration and disputes practice. So when we get a call from a client that wants to buy a company in a jurisdiction in which they don't have a presence, this is going to be an entry transaction for a client, the first thing they ask us to do is to explain to them what is the treaty network of that country and what investment protections they have as a foreign investor. So a lot of these countries, they have treaties in place with other countries where if you are an investor coming from one of those countries, you will be afforded the investment protections that are in that treaty. In case something goes wrong. So if you're deploying a billion-dollar capital into an infrastructure project in Country X, you want to make sure that you have the protections needed so that if the government, the host government, eventually takes any action that is adverse to your business, that is illegal or goes against the treaty, that you're going to have adequate protection for your investment. So the first step is looking at the country from what protections do I have, understanding how the rule of law works in that country, efficiency and efficacy of the legal system and just having a, a very detailed understanding of, of the law.

Before I go look for companies to buy.

I'm talking about like mainly infrastructure view. Most of our clients also, I will say a lot of them already know or are familiar with the country. Those days where a multinational was coming into a country for the first time, as we reflect in our practice, like 25 years ago, you still had some of that, but we are now at a point in globalization that most of our clients already have a presence in this country. So these type of analysis are less common nowadays, But nonetheless important so that if you're gonna be making the decision of deploying that much money into a country, you wanna understand what the legal framework looks like and what are the protections that you have as a foreign investor. And then once you do that, which is more, I will say, a pre-investment committee discussion, this is just essentially for you to get comfortable with the idea of going to that country. Then the process is run, the M&A process is run very much the same as in the US. You have a data room if it is an auction process, as most of these deals are now run by Bankers through auctions, then there will be a process letter that you will review, and then you will sign an NDA. They will give you access to the data room, non-binding offer. If you are one of the highest offers, then they will probably ask you for a binding offer and a markup of the SPA. You will do that, and if you're selected, then you will go to exclusivity, and then you will do your confirmatory diligence and access all the information in the data room. That's, I will say, the typical process for M&A transactions nowadays.

What if I don't want to do auction? I like proprietary Wanted to get a sense of how that would play out, highlighting the differences between domestic deals that I'm familiar and used to and doing this in Latin America.

We do a lot of bilateral deals where you have a one-on-one negotiation because you identify a target, you approach that target, you engage in discussions. Those processes still exist as they do in the US. It wouldn't be strange to be engaged as a lawyer for a deal that is negotiated on a one-on-one basis. Not as part of an auction process as we were just discussing, but in those cases, most of those businesses in LATAM, they would be privately owned. Unlike in the US where you have a bunch of portfolio companies owned by PE funds and, you know, have those secondary market transactions happening all the time. In LATAM, you still see a lot of privately owned businesses that you're going to be negotiating with the family. And that could be maybe the patriarch of the family that built that business from scratch and has been operating that business for the last 50 years, every day of his life. And the business is like his family. We see a lot of those. We also see a lot of second generation and third generation businesses that the second generation or third generation, they have other core assets in the family that they want to focus on. And they're selling this either a division or the whole company. So we do a lot of those deals as well. And those are deals that I really like. When you're on the sales side, you get to spend a lot of time with the owners. So you get to know the family, to understand their priorities. To, uh, there was one case, for instance, where the patriarch, the owner, the founder of this company, he was very concerned about his employees and the management team who were not family members. And in order for us to get the deal through, we didn't have to sweeten the deal for him, but we had to come up with a creative solution for the management team and ensure that the management team was going to be retained and was going to have the right incentives to stay in the company after he sold it to our clients. So you see a lot of those type of priorities that may not necessarily focus on an extra dollar of a purchase price consideration, but the softer angle of the transaction where the family will be looking to protect their legacy or maybe ensure that the company will continue to be operated in a certain way. And that the employees and management teams will be taken care of. So it's a very interesting approach when you're working with these private companies, and that requires a lot of time, much more handholding than if you're dealing with a PE fund on the other side or as your client.

Very personal.

Yeah.

We talked before and you mentioned that in those conversations, if you jump too quick to talk about the numbers, it could come off as disrespectful. How do you manage that? How do you get a good balance between getting the relationship, the trust, or working towards getting the deal actionable? But then how we do in America, we just want to get the NDA signed and start sharing some numbers.

Yeah.

Coach me on that because I want to make sure I don't offend somebody.

You just have to read the room. And again, it happens more when you have these privately owned companies and not so much a PE portfolio company and all that. So when you're dealing between two multinationals or two financial parties, It will be very much the same as in the US. You just go straight to the numbers, very professional, very technical, and very objective discussions. When you are representing one of these families, for instance, or a family business, you have to understand that this is their life. If you're representing the family that is selling a business, they've been working on it since they can remember. That's all they know. And if you come in and start lecturing them, you gotta come in humble. You have to understand that they have their own way of doing things. And clearly they've been very successful doing it that way because they built an empire that now you want to acquire. You know, it requires a lot of handholding, as I was saying, and personal time and understanding their priorities, understanding what are their objectives, what do they want to achieve in the negotiation. And also you have to listen and understand the trigger point. I had a situation where I was negotiating a deal. We had a very— one of the largest PE funds on the other side, and they were buying 45% of a company that was owned by two brothers that inherited the company from their father who had recently passed away. These two guys were very smart, mid-40s, valuation was a little bit more than a billion for their business. It was just pure capital and a very profitable business. And the fund, they wanted to buy a minority position. They wanted to get to 49%. They were comfortable with that. They negotiated the deal terms to be 60/40, 60 for the two brothers, 40 for the PE fund. And then the PE fund was trying, I think in a very smart way, to retrade some of the numbers based on some valuation metrics that from the PE fund perspective made sense. But for the two brothers that knew exactly how the business was operated, didn't resonate that much. And even though this deal would've made the two brothers billionaires, in essence, the whole discussion was centered on a couple of points. It was either 40% or 42%. The brothers actually decided not to do the deal. They pulled the plug. They realized that yes, that will be great growth capital to go into the company. But at that point they felt that adopting that philosophy, that they were not the right fit for their partners, and they passed on that opportunity. And 2 years after that, they called me again, they hired me, and we sold the company to another fund that had different counsel and that understood the objectives of the 2 brothers and could relate more on how to get that deal through.

Would you say that the negotiations became for them like a tick for tack? That's what offended them.

It was that it was also the—

I don't want to live with these people if this is how they're going to be.

The numbers retrading, the decrease in valuation came probably like a week before we were supposed to sign. So they felt that that was disrespectful because we had been negotiating for months and those issues never came up. What happened is that the fund probably got a little bit uncomfortable with the valuation. They probably thought at some point that they were paying too much, but they didn't find the right time to actually bring it up to the brothers, discuss it. So it was the timing of it. It was the way that it was presented. It was also that there was a fundamental disagreement on the concept. The fund was actually being very technical about it. And the sellers, the brothers, they were the ones running the business. So for them, it was a non-issue.

If you were the, the principal buyer, what would you have done differently?

Looking at what happened afterwards, in this case, the fund made a mistake. They should have just let the issue go, proceed with the deal under the, the terms that we had previously agreed upon and just close the deal. They would've made a lot of money, I can tell you that, because it was, the business just boomed and they did great. That's an example of, it's very different when you're working with a family or a private or the founders. And we can talk about technology transactions in a bit, but when you're This is for the founders. These are very sensitive issues. And I've been on the capital side multiple times where you think that they actually need the money and they will say yes just because you're showing up with a big check. Although most of the times that's— it's not that easy. Most of the times you just have to listen, not be a lawyer, but maybe just hear them out and understand what are the trigger points and then try to negotiate based on that. That happens a lot in Latin America.

A lot of emphasis on building a relationship, building trust, setting tone for relationship. Is that consistent across all of Latin America or do you see that fluctuate between countries?

It is. And also in the US, by the way. So it's not something that is foreign to the US M&A practice. The best counterparties I've had are the lawyers that are very patient and the worst counterparties I've had are the lawyers that want to just get the deal as quickly as possible and they don't have any patience. You have to understand that M&A and negotiations is a dance. You're dancing. The music may get a little bit faster and then you have to dance faster, but it's a dance nonetheless. And you have to go through the whole process and be patient. That's what I tell to my associates. That's what I tell to my clients is don't get offended. Don't take it personal. The lawyer and the other guys, they're doing their jobs. That's what they're getting paid for. Let's listen. Let's see what we can accommodate. What's an issue? What's not an issue? And then we'll just focus on the big things and let's get the deal through. And that's how I approach things. And when I do deals in the US, which I do a lot of those as well, it's kind of the same. It's just patience.

You're a patient lawyer.

I guess I am.

You match well with other patient lawyers. If you were an impatient lawyer, then would you match better with other patient lawyers?

No. And I've had a few of those and it's just that they get more frustrated because they're expecting you to react. There was one occasion where I actually reacted to a very rough circumstance where the other lawyer, the— he just grabbed the documents we were about to sign. It was like 4:00 AM in the morning. He realized there was something wrong in the documents that he drafted, my counterparty. And then he just grabbed the documents and ripped them apart. And it was like 4:00 AM and we were like ready to sign. We needed to close so we could get the money wired from Europe. So we were approaching the cutoff hour for the transfer in Europe. So we needed to sign ASAP. And then he realized that he had made a mistake in a paragraph and he just ripped everything and made this tantrum. And then it was one of those situations where I was like, okay, You can't do that. So there are rules here and this is not right. And then he apologized and he reprinted the documents and we closed.

This is where your patience becomes important. Yeah, right, right. I would not have been able to take that well.

We're paid to be patient, but I guess, but that's a crazy situation.

I would've had a very different way of reacting to that. I would've probably had some more—

You can't lose your cool.

I would've had more legal repercussions as a—

I hear you.

There's a lot of relationship building piece of it. There's the regulatory piece of it where you want to first understand the country risk. You mentioned the treaty network, what's already generally accepted and the stability of country you're going to be transacting in. It's like anti-competitive, a big emerging thing like in Europe. It's like every country is just coming up with all kinds of regulations and having full control over the M&A activity that happens.

And LATAM is well known for having very low money thresholds for pre-concentration notices and consents. So in the US, for instance, the way the HSR process works is that you sign, you give notice, and then you have a waiting period. If nothing happens during that waiting period, you can proceed to close the transaction. In LATAM, it's actually a consent system where you have to file and you cannot close until you get the deal approved by the antitrust regulator. And that could take from 3 to 9 months. There's a lot of nationalism sentiment going around in LATAM nowadays where a lot of these agencies are paying closer attention to their foreign investment and antitrust and competition rules. That's probably a reaction of what we're seeing to some extent also in the US. But in my experience, if you structure the deal appropriately and you map out the competition risk right from the outset, such that you get a better, like a good understanding of and a good assessment of how this deal is going to be perceived by the regulator, you can actually get the deal through. It just takes time and it requires a lot of analytic thinking and strategy, making sure that you have the support of the right constituencies, particularly in infrastructure deals where you're going to be deploying a very large amount of capital into a country You have to be thinking about social issues and the impact of that project in the local communities, where and when and how is going to be taking that deal to the regulator for approval. And something that probably 10 or 15 years ago will not be that relevant, for instance, what firm do you use locally to help you push the deal forward with the regulators, that is now super important. You want to make sure that you're selecting a firm as local counsel that not only has the expertise on the subject matter, but also that has a good working relationship with the regulators. Now, doing diligence on your local counsel is way more important than it used to be before, because now you have to check not only the experience and the credentials checkbox, but also the, the working relationship with the regulators. That's very important.

What's the parameters you have to do the consent? Are there deals small enough to go below the radar?

It changes on a country-by-country basis. For instance, In Mexico, you have to look at the size or the value of the assets in Mexico and the value or the revenue or assets of the parties to the transaction. So it's a twofold analysis. You look at transaction value and then the combined revenue or asset value in Mexico of the participants in the transaction. If you hit those thresholds or you exceed those thresholds, then you have to take the transaction to file for a pre-concentration approval. Peru has a similar system, but in Peru, the thresholds are a little bit lower than Mexico. And they also look at what's the effect, the competitive effect that the transaction will have. And then you have two regimes or two levels of approval in Peru, like a phase one approval, which is faster than the phase two. The phase two is a deeper analysis by the antitrust authority, and they, that takes usually longer than the phase one approval. Chile is the same. Brazil has its own systems. When it gets actually very tricky is when you have a multi-jurisdictional acquisition. So when you're buying a company that has business operations in all these countries, you have to do this analysis for each of the countries, and oftentimes you have to file in each of the countries, and then you can't close until you get all the approvals. And oftentimes we have staggered closings depending— you can close for one country if you get the approvals here and wait until to close for another country when you get the approvals in that other country. But as you may expect, when you have those staggered closings, those SPAs or merger agreements can be very complicated because you have different moments in time when you close the acquisition. But yeah, those are like in Wine and Case, for instance, we are built for those deals. So we have a very large international footprint that allows to represent clients on those multi-jurisdictional deals very efficiently. If we are doing a deal that where the target has assets in Mexico and in Brazil, for instance, then our Mexico City office will get involved. And then in Brazil or in Colombia or in Chile, we will use local counsel, but we will coordinate the whole process and just get the deal approved.

That's how I was curious. Like, it's gotta scale out if you're gonna do the multi-jurisdictions. Exactly.

They're also a lot of fun, but we're, I will say we're purpose-built for those cross-border multi-jurisdictional transactions as a firm.

Let's talk about some deals.

Yeah.

What's the diligence process actually look like when you're buying a pipeline in northern Peru versus a midstream asset in Texas?

That's actually a good one. The availability of public records is probably the main difference. In the US, you can access property records. First, in the US, you will use a title company to do title searches, and then the lawyers will review only the title reports. Maybe you will look at some of the title documents if something pops up by reading the title report. In LATAM, we don't have that. Let me just share with you some interesting data point for Latin America, for your listeners. So in, in Latin, we have notary publics. In the US, you have notary publics, but anybody can be a notary public in here. In Latin America, a notary public is a licensed attorney. It's a practicing lawyer. And in most of the countries, you can only have one notary public per certain number of inhabitants. Like in the city, you probably have a handful of notaries that can have the public faith and attestation authority Real estate transactions in most of these countries, they have to be attested by a notary public. So you cannot do a deal unless the notary public gives public faith and does that. So when you're researching title on property that you want to acquire, you have to go through a notary public. The notary public will do the searches in the registry. You got to pay fees to that notary public, which again is a licensed attorney, and they will give you a stack of deeds of title that he obtained by just getting photocopies in the public registry, and then you have to review everything. And oftentimes those documents go back maybe 100 years or more. Imagine that for— you're building a pipeline for hundreds and hundreds of miles of land that you want to acquire or get an easement on. The diligence process is very tedious, way more than it would be in the US. Not to take any merit from my US real estate partners, which are great. This actually requires a lot of physical work and review of physical documents. And then you have surveys that were put together maybe or produced maybe 25 years ago, and then you look at the survey and you have gaps between the survey and the deeds because it's not as sophisticated as it is in the US. That's one aspect of diligence that I will say will require more time and probably more careful review in LATAM than in the US. But another point that is actually very interesting is that LATAM has a very— and this is from Mexico to Argentina— has a very employee-friendly legal regime. So the concept that we have in the US of employment at will, for instance, that doesn't exist in these countries. You cannot fire people unless there's cause. There's this principle of job stability that was adopted by all these jurisdictions 100, 120 years ago. And they have a very employee-friendly legal regime. I will say one of the most important aspects of diligence is labor and employment. You have to understand how that works in each country. You have to make sure that you're fully compliant. And if you are thinking about redundancies or reductions in force post-closing, you gotta be very thoughtful and really map them out and model that because it may require paying large sums of money As these countries have statutory severance where there's no employment at will and you can only terminate with cause. If you fire someone without cause, then you'll have to pay statutory severance. And then you have to calculate that statutory severance for everyone that, if you're thinking that maybe you need to shut down that facility after the closing, or as part of the integration, you're going to have to reduce your employee force by X%, then that could carry a very high cost. I've had cases where the client comes to me and whoever represented them in the acquisition didn't fully explain the implications of this. And when they call me, I have to give them the bad news. It's like, well, guess what? Argentina has this law that you can fire people without paying this much, and Mexico and all that.

This is big in the interviews I've done. I've mentioned I've done a number of them in Europe.

Yep.

And it's like a huge thing for every country. You have to think this through ahead of time. Very similar at Latin America. You don't have time to hunt through generic resources or wait for the next conference. The M&A Science Intelligence Hub gives you battle-tested playbooks from over 400 dealmakers instantly tailored to your role and deal stage, whether in diligence, integration, or anywhere in between. Get the framework that fits right now. Ditch the boring panels. Get answers that fit your deal. Learn more at mascience.com. Again, that's mascience.com. Don't ask me how I know, but I heard that you had to deal with the situation with a union leader, like, literally hours before you closed the deal.

Oh, yeah.

Can you tell me that story?

Sure. Well, I had to get on a flight and go down to Juárez, Ciudad Juárez. It's a border town. My client was actually buying an industrial company that had a couple facilities in northern Mexico. I don't know if you know this, but the border, that's where most of the manufacturing activity happens for a lot of multinationals because of it's right there. So, and you probably heard about this on the news, but all these manufacturing facilities are right on the Mexican border and that's to facilitate trade, right? So some products actually have to go back and forth the US-Mexico border maybe 100 times before they can be finally imported, the final product imported into the US or Mexico. So that's how these production chains are integrated. But anyways, so we were buying a company that had two facilities in Ciudad Juárez, and I had to fly down there because one of the closing conditions was actually shutting down one of those facilities. We needed to make sure that we closed one facility and then move the employees of that facility into the other facility. And then we had to actually deliver the company to the buyers with that other facility actually shut down and no contingencies. In order to do that under the collective bargaining agreement, we needed to run it by the union. I mean, if we had done this without having the union support, we probably risk having a strike or the employees actually filing or initiating proceedings to complicate the whole transaction process. So we needed to make sure that we had the buy-in of the union. So I flew down to Mexico, to Ciudad Juárez, Sat down with the union leader for about 6 or 7 hours listening to his objectives and what he needed to do, what were the concerns of the employees, and just to find a way to get this through. And also giving him the assurances that we were going to take care of those employees, which by the way, my client actually wanted to take care of these employees in a way that wouldn't be detrimental to them, but also that will make economic sense in the context of the whole transaction. We spent a lot of time talking about kids and his family and mine and what he liked to do during the weekends and his personal hobbies. And we had a very nice meal. We then walked back into the facility. He introduced me to a few of the employees there. And then at the end of the day, he told me exactly what he wanted to do. He said, I'll sign off to this deal if you can ensure that this is going to happen and that my employees are going to get these protections. I took it back to my client and at the end we had to sever and pay statutory severance to some of these employees. We actually ended up giving them a very nice deal and then we got the deal through and we closed. I think that if we had not tried to do that deal without spending that time with the union and the employees and showing them that we cared, would've been a bad idea. I look back at that deal and I think that actually taught me a very important lesson in life, which is It's not only about the equity owners. You have a lot of constituencies involved in M&A transactions and you just have to be mindful of that. Sometimes the interest of those other constituencies and the equity holders may be at odds and you cannot reconcile them. But if you're thoughtful, it just gives you another edge.

There's some trust. I like your style. Like you're— this is how I like to approach deals.

Thanks.

Does tequila help influence?

Yeah, but yeah. I'm a big tequila lover. I can tell you that. It's my favorite drink.

Have you done deals? Have you worked with any of the tequila brands?

Yeah.

Oh my God.

So I actually—

So when I'm ready to private label, you can help me out.

This is actually public, but I represent— one of our deals is we did the, an investment into the first non-alcoholic tequila in Mexico. We partnered with Lewis Hamilton, the Formula 1 driver. Wow. It was very nice to negotiate that deal with that. So look it up and try it. It's good.

I was actually surprised at the non-alcoholic wine I tried in France.

Yeah.

I don't know the ones here, but in France—

This is good. This is good stuff. You should check it out. I like it. I have a couple of bottles in my house and I use it a lot for cocktails. So it's good. You can have as many as you want because it has no alcohol.

So that's good. Maybe we'll try both. We'll do some regular compare. For sure.

For sure.

Transaction insurance, better known as reps and warranties.

Oh yeah.

You heard of it?

Yeah. All the time.

What does that look like when you do deals in Latin America? It's cool to see the insurance company be very innovative and come up with another product to sell everybody, but just to see how it's widely adopted and it does make a lot of sense.

Yep, it does. And when you're in an auction, if you're a bidder, you cannot show up to that bid without it.

It's that accepted in Latin America.

Is that because of the influence of bankers that's saying, hey, we are an international bank and this is Again, Latin America is now a relatively mature M&A market where you're now seeing a lot of these very interesting targets coming up for sale as part of the natural capital recycling process of PE funds. So the companies that were acquired maybe 10 years ago, 8 years ago by some of these funds, now they're coming back to market as the funds try to sell them down because that's what they do. It's capital recycling. You start seeing a lot of those coming in, and for the same reasons in the US, the practice is actually trending towards having non-recourse M&A transactions where the sellers, they want a clean exit. They'll give you the reps and warranties that you need on your purchase agreement, but they're expecting you to be insured just as the US. So that's becoming the norm for M&A deals in LATAM. The only requirement that we're seeing is that the, the transaction has to be governed by New York law. That's one of the requirements that we see a lot of these insurers to actually impose in order for them to insure the deal. Although the market is now developing to a point where they are starting to get comfortable with local law M&A deals. We've gotten a couple of Mexican law deals insured recently, which is good because it demonstrates that the insurers are getting more comfortable with the local law risk. And also a few of deals under Brazilian law getting insured.

So widespread now.

It's, it is. And as I said, when we were on the sell side, it makes a lot of difference. If you have an offer for X millions and it's an insured deal, then that's probably better than another offer for the same amount of money where you have to stand behind the reps and warranties and give indemnity to the—

Yeah. Have a holdback.

Yeah. Or the holdback and all that.

I'll tell you, Rodrigo, I was not a believer in the beginning, but after I've seen payouts on that policy, then it's like, yeah, it's actually a pretty good thing to have.

It is, as long as you don't get a total loss situation.

But that's—

and there are also situations where it makes a lot of sense. So when you're making a partial acquisition, for instance, and you're buying about 50-60% interest in a company, and then the seller is going to be your partner in that business, you don't want to sue your partner. Because there was a breach of reps and warranties. Maybe the relationship at that point is going to be sour anyways, that suing your partner probably erodes more value than, than anything else. So having insurance just gives you the ability to recover for a breach of reps and warranties from the insurance company instead of having to go and sue your partner. That happens a lot. Also now with when we are on the sell side with families, they like the idea of having no recourse against them. They will push for the buyers also to have transaction insurance. And by doing so, you are facilitating the negotiation process because now, because there's no recourse against the seller, now they feel more comfortable giving you the set of reps and warranties that you need as an investor coming in.

Yeah.

It translates into them having to do a deeper sell-side diligence exercise and also for the buyer to actually having to spend more money doing diligence because insurers They want to see a robust diligence report before they can insure a deal. But at the end of the day, it just facilitates the whole negotiation process and prompts a more candid discussion of, I need these reps and warranties, I need all this information. The incentive for you to be open and transparent is that the more information you give me, the easier for me to get insurance. And make this a non-recourse deal. Of course, insurance will not cover anything that is known and existing liabilities and all that, but it is getting to a point where people start appreciating the value of having non-recourse deals, and that's facilitating the negotiation process.

I like that perspective that if it's an ongoing partnership, that could help alleviate some friction. I never thought about that. We should start a company and sell reps and warranty insurance for marriages.

Yeah. How about that?

Because maybe it could be like the same thing. You know, you get a point, you just sue, you know, we'll give you some recourse here. The auction process you talked through, was there any difference between running a sell-side auction process in Latin America between there and the US? Obviously we talked about some regulatory checkpoints. We talked about the employment considerations. Anything else like process-wise?

It's pretty much the same, but the product is, or the, the whole construct of running auctions is relatively newer for Latin American corporates, but they understand that you have to do that to maximize value. Also, there's a very clear and common understanding that by running an auction, you are opening the universe of potential buyers significantly. So if you have a bank running that process, that target may be marketed or presented to more potential bidders than if you just want to go out and look for a one-to-one bilateral potential buyer. Particularly LATAM corporates are understanding the value of those auction processes more and more. And now I think that's probably the norm for processes in LATAM. So this year or last year, I would say that maybe 80% of my deals were auctions. Wow. And 20% were bilateral. And those bilateral were like companies that had a preexisting relationship. They knew each other and they somehow were maybe a supplier or a distributor, or they knew each other because of their normal dealings. That's how those deals came to be.

That's interesting. I would expect the other way around. There'd be a lot more proprietary deals.

A lot of auctions. Yeah.

Are closing parties different than US and Latin America?

They're the same.

More tequila.

More tequila. More tequila. And very good food. I was going to say Latinos are by nature like people that like to celebrate. They like celebration a lot. Not only that, they have signing parties and signing dinners and milestones. Something happens and the client celebrates more milestones throughout the process. It's a— they even sign an LOI to celebrate.

Even signing an LOI, you could go celebrate that.

Probably not that much. So I'm in Houston most of the time, and Houston and Mexico City are very well connected. And I have a lot of clients in Mexico City. And they will call me like, hey, can you come over? We're going to get together with the management team and we want to talk about this opportunity. And can you be at this restaurant by 7? And it will be like 10 AM in the morning. And then I'll say, okay, sure. And then I'll go to the airport, get on a plane, fly down to Mexico City, and I'll just have dinner with these guys. And it would be something that we can perfectly discuss on the phone. There's a value from their perspective for me to be there in person. And it's a, 1.5-hour flight or 2 hours, so it's not that much, that big of a deal for me, and I'll just get on the plane and go there. In Latin America, there's still a lot of value in being face-to-face with clients and connecting in person. And it's the same not only in Mexico, but our Colombian clients, Peruvian, in Chile is the same. Brazil is even more. So yeah, for those reasons, I personally still spend a lot of face-to-face time with clients throughout the region.

Can we talk about Argentina?

Is coming back online. So Argentina, it's a great country, great jurisdiction. When I started my practice, I was doing deals in Argentina. So they defaulted in 2001, and then the economy started to pick up after that crisis. M&A activity and capital markets activity started to pick up again. And then it wasn't that vibrant. Argentina was still in the M&A map. And then in 2014, I can recall, I think it was 2014, they defaulted again. On sovereign debt. So for many years, you couldn't really do much in Argentina until very recently where the new president was elected. A week after he started his administration, he and the party that also won the majority of Congress, they passed this legislation that changed everything. I think that was needed in terms of the seismic change that the economy and the politics in Argentina actually needed because You had a wonderful country with all these natural resources, very smart people, strategically positioned in Latin America to be a superpower that for many years was subject to these very populist policies that didn't work out. And the effect of that was to essentially eliminate Argentina from the map for a few years until this happened. And now with this new administration and these legislative changes, our clients are looking back at Argentina and they're calling us and okay, so what are the opportunities? What can we do now in Argentina? There's a chronic underinvestment in infrastructure.

Exactly.

For the last 20 years, they have to catch up and naturally they don't have the money, the resources to do it themselves. So they're gonna have to open those economies to private investment. It's just a matter again of having the right legal framework. Remember the, uh, when we started the conversation that when you're coming in, you have to understand what treaty protections you have and what's the legal framework that will be regulating your investment. Once that happens, and I think it's actually getting towards that point, once we have all these legislative changes in Argentina, that's going to create a lot of opportunities for our clients and for investors. And I'm optimistic about what's going to happen in Argentina.

Love to see it. Anything that could progress economy benefits all the people.

Would be great.

FinTech. We haven't talked a lot about tech.

Oh yeah.

You've worked on tech deals too.

Yeah. I love those deals.

Yeah. Tell me why they're great deals.

You're with the founders. These kids are just amazing, very smart people.

What I like about it, it's like we talked a lot about very asset-heavy transactions. You talk about examples when property's included and there's more of that real footprint where I feel like these tech companies tend to be people, just people at the end of the day.

Latin America is actually becoming a hotbed for startups. You have a very young demographic. The population in Latin America is probably one of the youngest in average around the world. So the rest of the world is aging, but Latin America, the median age is 32.9 years old. You have a very young set of population and then you have a constant increase of the middle class. So more people are actually growing into the middle class as compared to any other part of the world. You have an emerging middle class combined with a very young population that are eager for faster and better services for more functional infrastructure and that are very comfortable using cell phones and accessing services, working on tablets and cell phones because that's how they grew up with those devices. So the adoption of new technologies in Latin America is actually happening at a very fast pace. And then think about fintech, financial services. This is a stat that actually blew my mind and I was looking at it It was a couple years ago when I read it, but I think more than half of the transactions happening in LATAM every day are cash-based transactions. Imagine that. Wow. So in the US, you can go for weeks without going to the ATM and having cash in your— I mean, you pay everything with your phone or a credit card. In Latin America, at least the last time I checked, I don't know where the stat is today, but half of those transactions every day were happening in cash, people paying cash. So imagine if you're a fintech company, if you're a founder, all the opportunities that you have when you have a young demographic, a growing middle class, an underserviced population from a banking perspective, and people that feel very comfortable doing transactions on their phones. That has created all these startups and all these very interesting companies that are reaching unicorn status, raising a lot of money from VC funds. And, and we're actually doing a lot of those deals, not only on the fundraising side, but the M&A market consolidation and also companies realizing that in order for them to be successful, they have to secure that they have access to these technologies. So we're doing a lot of that work.

Huge potential.

A huge potential. And I like those deals because I think that's the future. We're also doing a few AI transactions and you'll be surprised of the things that are happening, not only in LATAM, but the rest of the world. It's just the pace of how AI is evolving and the potential of it is just, it's amazing.

I agree.

It just blows your mind.

I agree. Like you can't get away from it.

You can't get away from it. You go and talk to these founders and they're like in their mid-20s, early 30s, and super smart guys being around them and hearing them actually being that sounding board. When they come to you with ideas and they want to do this, and then you just guide them. I have a lot of clients that actually I represented in the fundraising stage and not yet on the M&A side, but all of them, they are eventually thinking about exiting via M&A or an IPO. But in the process, after they raise the money and the day-to-day business, they call me and they ask for questions. It's a very interesting perspective of that, all the potential growth and opportunities in the technology sector. I like those deals.

I like how you keep up with it. It's a lot. I feel like I get overwhelmed by so many. Everybody you talk to, it's like, I'm using this app and this app and this app.

I'm like, I use AI a lot for everything. I'm a big believer in the technology and it's going to transform the world. And I play with it all the time. It's very powerful. And what's coming in is going to change the world. But anyways, that's for another discussion.

I'll save that for a whole other AI rant. Can we talk a little bit about the National Venture Capital Association? Oh yeah, because I think you had a take on this where we've obviously published a lot of standardization for fundraising documentation.

Yep.

Which is a good thing.

Helpful, particularly for these companies that have limited resources and they can't spend a lot of money with lawyers and being creative.

Early stage. And then it helps you learn. Your take as a lawyer, is it less back and forth? And now there's a lot of standardization.

So you just go with those forms. And when you're actually on the investor side, That's the expectation is that you're going to use those forms and it just saves you a lot of time.

How is that panning out when it comes to M&A? Why can't we do that in M&A? Why isn't that standardized?

I got to tell you that because those forms, you'll see those forms being adopted by Delaware corporations most of the time, but they also in Latin America is very common for those holdcos to be set up in Cayman for a number of tax reasons. What we're seeing is those MVCA forms being adapted to work with Cayman companies. There are a lot of similarities between Delaware corporate law and Cayman corporate law. So it wasn't intentional, it was more of a coincidence, but you see those NBCA forms actually migrating to be implemented for a lot of Cayman companies, particularly for LATAM deals. Because those documents are essentially drafted and created following a US-style type of documents, it is very common for US counsel to be involved in those M&A transactions because Just the way those documents are structured and drafted, it makes it very natural for the M&A to be also governed by Delaware law. I will say that the vast majority of the deals we do are Delaware now. It's funny because historically in Latin America, you don't see merger agreements that often. The reason being that you don't have a pulverized cap table with option holders and preferred shareholders and common shareholders as you Probably will be more common for a US company or for a Cayman company in that context to have that type of cap table where you, it makes sense to have a merger agreement. You have to get everyone's consent, you know, to get the deal through. So in LATAM, the most common type of acquisition document is just a traditional purchase agreement, a stock purchase agreement where you have a limited number of sellers. But when you have a pulverized cap table, like in these technology companies or startups, then makes sense to use a merger agreement. And that combined with the fact that you have the NBCA forms, which are US-style documents, makes it very natural for those deals to be run by US lawyers in a US kind of way. And that's why we get involved in a lot of those deals as a firm.

So it's helping to set some structure when you have those forms earlier, but you're still Having to bespoke a lot of this stuff for M&A, just the due nature of everything, the business where it's operating out of, et cetera, et cetera.

Exactly. So those forms are, and I know them well, but you have the articles, the preference or the preferred shares, and then you have the voting agreement, investor rights agreement, and the right of first refusal and co-sale agreement. All those documents, which are standard forms. When you are on the fundraising side, try to stick to those documents as much as you can. Why? Because it will make the deal faster, cheaper for everyone. And if you're an investor, you don't want the company reinventing the wheel. You don't want to depart too much from those documents. Because of those documents, now we can execute deals pretty easily and faster and cheaper. When you're going to buy one of those companies, then you have to review all of that. And then it is very natural for US-trained lawyers to actually work through all the dynamics of those documents because those documents were designed to apply to Delaware corporations. So it's, um, yeah, I would say like any other M&A deal, you have to address the specifics and you have to run the whole M&A process. But from a corporate law perspective, it just facilitates things a lot.

I'm happy to hear that. I'm happy to get my legal bill reduced and then it helps you out.

Yeah.

I can work on—

that's the main purpose of them.

Work on the more strategic stuff that's important. Can we sum up what we talked about? I want to sum it up in a form of advice for a company that's contemplating doing an acquisition in Latin America, which we basically started from. And the big thing I took away from this conversation that obviously you got to pay attention to regulatory environment you're getting involved with, what the mechanics of the deal is going to entail. Labor regulations, all those components. But there's a big part of the culture that you really need to respect and embrace. It's like the beauty of doing cross-border deals. That's what makes it fun.

Yeah.

When I think about doing this deal, there's a long tail of integrating the business, and ultimately we always talk buyer-led M&A. It's taking this integration-first approach To Your Deal is ultimately what this book and framework I published was about. When you think about what we talked about and that big emphasis on culture and you going to go meet the union leader and breaking bread and building that relationship, really getting the final buy-in to close the deal, how should somebody think about that when it comes to more of this holistic view? Because once you close the deal, there's a lot more parts because now it's the community, it's still the regulators, it's maybe more union folks lurking around. But how do you think about that? Not only just getting the execution of the deal, but ultimately making this deal successful?

The post-closing integration is probably one of the toughest parts. When you do a deal, you deploy all this massive amount of capital, and then all of a sudden you have a new company in your portfolio with 450 employees and you have to make it work. And if you are a PE fund, then you have 5 or 7 years to actually turn that asset around and make a profit. It's an art, I think, the post-closing integration process. I mean, you touch on all the important points. You have to understand the culture. You have to really follow through your strategy and objectives that you set when you were actually planning the acquisition. But it goes back to my point of being patient. There, there's so many things that can go wrong in a company. And then when you are 1,000 miles away from that asset in the US and you have people in Chile, it makes it more complicated. In my experience, the most successful dealmakers, the secret is in planning and understanding what the objectives are, having a clear view of the nuances and pitfalls before you actually close that deal. That goes to this strategy planning from the outset of the transaction, and then just following through, understanding that it's not going to be perfect, You don't know what you don't know, and there is Latin America. It's a region that has its own complexities and issues, but again, good preparation, solid strategy, understanding the country and understanding the asset from the outset of the transaction is going to give you a lot of visibility planning ahead and implementing your objectives, your goals when you close that deal. You know, I think as an M&A lawyer, most of the times our deal ends on the closing, so we don't get to see how that post-closing integration process actually plays out unless there's an issue. When I talk to clients and a few months or a couple years after we close the deal and I ask them, how was it? The common denominator for those that were successful was just sticking to the strategy and the plans and also being fully aware of what you're getting into, understanding the country, understanding the asset.

Can I add, plan to spend some time in the country that you're acquiring in and hire a good lawyer.

Hire a good lawyer and spend time and understand the culture. For sure.

Rodrigo, what's the craziest thing you've seen in M&A?

Oh, I had a chance to represent a government in an M&A transaction. The craziest was when we were in a room about to sign that deal, and then the undersecretary of the agency that I was working on, he asked everyone to leave the room. I was about to leave and he said, no, no, you, you had to stay here with me. And it was me, her, the lawyer for the other side, and the project manager that was running that deal for the counterparty. Then she laid out the whole strategic value for that government to actually to get this deal done. There were all these different considerations that never crossed my mind. It was a very frank moment where the undersecretary and this executive, where they level set and were looking eye to eye on what the objectives were. At that point, they realized that those objectives were compatible and they did the deal. Then she stood up, She left, they shook hands, they gave me instructions. The guy gave instructions to his lawyer. We drafted the document and 10 hours later we were signing. Wow. Kind of those situations where let's cut it out, let's be frank about it. This is what we need as a government. These are my priorities. Can you deliver? Otherwise we don't have to do this deal. We don't care. Not money. This is, we need this and this and this. For me, that was eye-opening. I understood that there were powers way above negotiation. Yeah. Like lawyers being smart about one clause or another that could be on set. And it was a crazy situation. I never thought that I will be part of. And I was sitting in there like watching these two guys.

That's pretty cool.

It was pretty cool.

That's a unique experience.

It was a very good experience. Yeah.

Things get handled the way it probably should be, but—

Yep.

Rodrigo, this has been great. I appreciate you. Taking time, having a conversation with me.

Thank you for having me here. It's a great conversation.

Yeah, I got a lot of value. If you listen this far, my fellow M&A scientists, love to hear from you. Give me feedback. Tell me if this was worth the billable hour or not. No, this was like all on a contribution to the M&A science community. So I thank you dearly for that. If you do need some deals in Latin America, reach out to Rodrigo. Mention M&A Science. He'll give you 10% off.

We'll make it work.

We'll have an M&A Science discount for 10% off, especially if you're an M&A a Family Science member. Also, I'm on LinkedIn. I dropped my privacy guard, so it's welcome folks in, but put a little note. Say, tell me you listen to the podcast so I'll know, because I get a lot of spam on there. I would love to hear some feedback. If there's any criticism, topics I haven't covered, I'm open to that as well. Till next time, here's to the deal. Thank you for taking the time to explore the world of M&A with our podcast. We love hearing feedback. Tag us on a LinkedIn post, add a review on Apple Podcasts. We'd love to hear from you. If you need help standing up an M&A function or optimizing one that you already have, we're here to help. And if we can't help you, we probably know someone that can. You can reach out to me by email, Kison, K-I-S-O-N, at M-A- science.com, or you can text me directly at 312-857-3711. If you just want to keep learning at your own pace, visit mascience.com for a lot more content and resources. That's where you can also subscribe to our newsletter. Again, that's mascience.com. Here's to the deal. Views and opinions expressed on M&A Science reflect only those individuals and do not reflect the views of any company or entity mentioned or affiliated with any individual. This podcast is purely educational and is not intended to serve as a basis for any investment or financial decisions.