Number crunching: Brazil
6 February 2012 | By Ruth Green
While the world was still reeling from the impact of the economic crisis, Latin America was thriving. Brazil in particular has experienced an enormous surge in growth in recent years and was recently named the sixth largest economy in the world.
The Lawyer consulted M&A data from Thomson Reuters which showed that, of all the transactions across Latin America in 2010 and 2011, approximately a third took place in Brazil.
Prior to 2004, seven international firms had a presence, whether independently or through an association with a local firm, in Brazil. By the end of 2010, this had grown to 21. A futher four opened offices in 2011, while other firms such as Dewey & LeBoeuf have plans to open an office later this year pending approval from the Brazilian Bar Association.
Note that there were a significant number of deals where the advisers were not disclosed. The data also does not include capital markets, project finance or other key non-M&A work, which are much of the bread and butter work in the current Brazilian market. As a result, firms such as Milbank Tweed Hadley & McCloy, which opened an office in São Paulo in 2010 and has a strong capital markets practice, fail to make the deal list.
Nonetheless, notwithstanding the general dip in M&A deals in 2009-11, there is a strong correlation between international firms setting up shop and their activity levels growing. Simpson Thacher & Bartlett established an office in São Paulo in 2009. The data shows that between 2007-08 the firm acted on no M&A deals but handled at least seven in 2009 and at least six in 2010. Skadden Arps Slate Meagher & Flom also set up shop in 2008 and worked on at least four deals in 2009, 10 in 2010 and four in 2011.
Although there are clear advantages to having a presence on the ground, it is not a prerequisite to success in the Brazilian market. Cleary Gottlieb Steen & Hamilton has been active there for many years, but did not establish a local presence until 2011. In 2010 the firm acted on at least seven M&A deals and also advised Brazilian oil and gas giant Petrobras on its $70bn (£44.6bn) record-breaking share offering.
Competition is fierce in the Brazilian market. Many local firms still rule the roost in many respects and are increasingly wary of international firms taking both their work and their partners. Although it has provoked controversy (see box, below left), another strategy adopted by international firms is to create an association with a local firm.
Since 1959, Baker & McKenzie has operated in Brazil in association with Trench Rossi e Watanabe Advogados. The longstanding association has paid dividends, with the firm handling at least 38 deals over a five-year period. Similarly, Linklaters opened an office in 2001 in association with Lefosse Advogados and has ramped up at least 44 M&A deals.
Key issue: alliances
Brazilian regulations state that foreign-qualified lawyers are not permitted to offer advice on Brazilian law, nor are they allowed to work in firms that employ local lawyers. The São Paulo chapter of the Brazilian Bar Association decreed in 2010 that formal alliances between foreign-trained and local lawyers violated its rules. This is under review elsewhere in the country and may affect firms including DLA Piper, Linklaters and Mayer Brown, which all have associations with local law firms.
Top three M&A deals 2010
- In 2010, Cravath, Uría Menéndez, Cuatrecasas and De Brauw advised Telefónica on the acquisition of a 50 per cent stake in joint venture Brasilcel from Portugal Telecom for $9.3bn. Skadden and Brazilian firm Souza Cescon advised Brasilcel.
- In 2010, Sullivan & Cromwell, Brazilian firm Pinheiro Neto and Chilean firm Claro y Cia advised Chilean airline LAN on its merger with Brazilian air carrier TAM. Clifford Chance advised TAM alongside Brazilian firm Machado Meyer Sendacz & Opice and Chilean counsel Cariola y Cia Abogados.
- In 2010, Vinson & Elkins advised Sinopec on the buy of a stake in Repsol YPF Brasil for $17.1bn. Latham & Watkins advised Repsol.