Political stability and sustained economic growth have turned the region into an active M&A player. However, the smaller countries within the Latin American markets have long recognised their dependence upon foreign trade. In recognition of this fact, in the 1990s they began a process whereby they adapted their legal structures to fit with international standards through the continued promotion and later subscription to bilateral investment treaties and free trade agreements (BITs and FTAs). Today, the countries of the region are among those in the world with the most executed and approved BITs and FTAs; also, Central America is one of the few regions, if not the only one, that has negotiated and successfully concluded – as a 'group' – FTAs with the USA and Europe. The adoption of common trade principles with strategic trade partners and the overall harmonisation experience has made the area an attractive place to do business. It is not surprising then that two of the region’s countries are within the top five most competitive in Latin America, as reported in the 'Global Competitiveness Report  prepared by the World Economic Forum.

Transactions 

There are many notable deals, most of which have already been publicly reported. There are two trends worth mentioning: firstly, vigorous intra-country and intra-regional M&A activity, and secondly, the active participation of Colombian purchasers in the market.

The latest transactions show a diversity of buyers from different nationalities, from the largest multinationals to small and mid-sized companies, with the interest in industries ranging from country-specific to those which encompass the entire region. Key common sectors include infrastructure, telecommunications, energy, public concessions, financial services, retail, manufacturing, and food and beverages; country-specific sectors include mining in Honduras, Nicaragua, Guatemala and Panama, advance manufacturing in Costa Rica, textiles in Nicaragua and Honduras, tourism in Costa Rica and Panama, and services in El Salvador, Costa Rica and Panama.

Regulatory 

Aside from the areas that traditionally affect M&A work, the three areas that require special attention are tax, competition and administrative law. Most of the countries in the region have plans for tax changes or are in the process of a tax reform. Understanding the interaction of the tax rules in the various countries, particularly in the case of regional deals, is essential in envisioning the acquisition structures, and the particular impact to each party. Competition laws are relatively new in most of Central America. Costa Rica and Panama were the first countries to enact specific legislation in the late 1990s, while Honduras, El Salvador and Nicaragua have only recently followed suit. Guatemala still has no competition legislation. Administrative law and procedure is indispensable when looking at tax and competition laws, and is also of great benefit when considering government-related deals such as infrastructure, public concessions and mining.

Outlook 

M&A activity is expected to remain vigorous in Central America for years to come. Once a forgotten market, and sometimes operated indirectly by foreign companies (i.e. through agents and distributors), it has now become a new and interesting arena in Latin America. For local investors, the region brings the opportunity of a larger market, interconnected by history, culture and FTAs, as well as a chance to gain the confidence needed to jump outside of Central America. For foreign investors, the region will continue to offer an opportunity to keep up on their global growth and expansion pace, even in times of world economic crisis, with probably less financial exposure (considering that the size of the investment required is usually not as high as in other parts of the world, including other countries of Latin America). And in many cases, even when the target company only has a presence in one country, the buyer uses the acquisition as a gateway to conquer the entire regional market. Appropriate local advice for Central America M&A work today goes beyond understanding the standard process of a single country transaction; in order to add value, it means having 'hands-on' knowledge (being one organisation with a direct operation in the market), and also having a clear concept of what an effective M&A Central American legal practitioner entails.

About the firm

CENTRAL LAW is the leading regional law firm advising clients on corporate law in Central America and the Caribbean.

With 11 offices in the countries of Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama and the Dominican Republic, CENTRAL LAW has helped develop domestic and foreign corporations as well as financial institutions in the countries  where the firm's offices are located.

International directories such as Chambers & Partners, Legal 500 and IFLR 1000 have recognized CENTRAL LAW´s lawyers as prominent professionals in the fields of Corporate Commercial, Corporate Commercial Dispute Resolution, Corporate Finance and Corporate M&A.

The firm also ranks among the leading law firms in Latin America in the areas of Banking & Finance, Energy & Infrastructure, Energy and Natural Resources, Insurance, Intellectual Property, Labour & Employment, Real Estate and Tourism and Shipping.

For more information contact CENTRAL LAW at [email protected]