M&A, legal certainty, and academia

Over the past two years, the Brazilian M&A market has maintained a respectable pace, even in the face of stubbornly high interest rates and in contrast to a stalled IPO market. Strategic repositioning, asset divestitures and the drive for scale in the infrastructure and energy sectors continue to bring buyers and sellers together. But one of the most important factors that keeps deals happening is the fact that the architecture that supports legal certainty – laws, regulatory guidance, sophisticated contract drafting and arbitration – has been quietly strengthened over many cycles. This long-term effort is far from eliminating all uncertainty, but it has narrowed the gap with mature jurisdictions enough to underpin today’s activity and provide a clear path forward.

The strongest signal comes from the deal flow itself. A series of multibillion-dollar divestments by domestic conglomerates, large foreign acquisitions of transportation and logistics concessions, and strategic combinations in energy and technology have all closed, despite Brazil’s changing political climate. Cross-border participants have returned in force, accounting for about half of all announced transactions. Bank advisors attribute this resurgence less to a sudden appetite for risk than to a growing sense that core legal risks – antitrust clearance, enforcement of purchase price adjustments, protection against undisclosed liabilities – can be modeled with increasing certainty.

Legislative and regulatory changes support this trend. The Economic Freedom Law, enacted in 2019, amended the Civil Code to instruct judges to respect negotiated risk allocation and intervene in contracts only in exceptional circumstances. The tax reform, approved in 2023 and now being phased in, promises to replace Brazil’s notoriously fragmented goods and services tax system with a single value-added tax. The transition period is likely to raise questions of interpretation, but the prospect of fewer overlapping assessments will certainly help reduce tax uncertainty in M&A transactions.

In addition, Brazil’s regulatory institutions with the most direct relevance to M&A – the antitrust authority (CADE) and the securities regulator (CVM) – have been making procedural and substantive updates in recent years that reflect international best practices and enhance legal certainty for M&A transactions. CADE now reviews most merger applications on a predictable timetable, approving the vast majority without remedies and reserving thorough scrutiny for a handful of complex mergers each year. CVM functions as a pragmatic arbiter of shareholders’ rights. The institutional stability and professionalism of CADE and CVM are now often cited by practitioners as strengths of the Brazilian M&A environment.

At the same time, contract drafting has become more sophisticated. It is now common for share purchase agreements even in the mid-market sector to feature broad, technically refined seller indemnities covering pre-closing liabilities. Transactions now often include mechanisms that were previously less common in Brazil, such as break-up fees. Warranties‑and‑indemnities insurance, while still at a rudimentary stage in Brazil and used only in a limited set of transactions, has begun to attract growing interest – particularly in competitive situations where sellers seek a cleaner exit. Coverage is narrower than in mature markets and policies typically exclude known contingencies, but specialised tax and environmental policies are starting to appear. As underwriting capacity and local experience improve, many advisers expect this instrument to feature more prominently in the next deal cycles, complementing traditional escrow accounts and holdbacks.

On top of this, almost every significant Brazilian M&A agreement now contains an arbitration clause. This preference is driven by the fact that arbitral tribunals, composed of corporate law specialists, render quick, technically sound awards, reducing the prospect of non-specialist judges reviewing commercial transactions.

However, because arbitration awards are confidential, Brazil relies heavily on informal channels to share knowledge and build consensus on the legal framework for M&A transactions. Legal academia and professional institutes have taken on an extensive role in disseminating insights from past deals and disputes. And this is probably one of the key factors explaining the recent positive developments in legal certainty in the Brazilian M&A landscape. Leading law firms, as well as legal scholars who advise on complex transactions, routinely provide in-depth analysis on the details of regulatory standards and contractual mechanisms. The debate continues in roundtables and colloquia organized by well-established institutions that combine academic rigor with practical experience. In these settings, practitioners, judges, and regulators sit side by side, discuss new opinions, and, when consensus emerges, translate the result into contract language and guidance. High-quality doctrinal analysis thus fills the void of public case law and gradually anchors market expectations.

This process ensures that even in the absence of a public database of arbitration awards, market participants converge on a common set of expectations. Where ambiguity looms – material adverse change clauses during the pandemic, or the appropriate scope of post-closing price adjustments – contract language rapidly adapts across the market once a critical mass of practitioners accepts a particular interpretation. Over time, the cumulative effect resembles a de facto body of precedent, albeit one maintained by private actors rather than the state.

Of course, the model has flaws. Participants without access to high-quality legal advice may remain unaware of the latest shifts in risk allocation, and conflicting interpretations occasionally circulate before consolidation occurs. Nevertheless, the academic side of M&A legal practice has proven surprisingly efficient at integrating scattered insights into coherent practice, arguably more quickly than formal case law could achieve. For the time being, this is a valuable safeguard of legal certainty in the Brazilian M&A market. This channel for achieving common standards will become even more important as far-reaching – and controversial – reforms of the Civil Code move forward. A clear, well-reasoned consensus forged in this environment can hopefully steady the market through legislative turbulence and keep transactions on predictable ground.