Can you outline the primary legal framework governing mergers and acquisitions in Argentina? How does it differ from other major jurisdictions?
The Argentine Civil and Commercial Code, the Companies Act and the Securities Act (when dealing with public companies), govern the main aspects of M&A transactions in Argentina. It is important to note that parties are free to choose a foreign governing law and agree on international arbitration or jurisdiction, provided there is a reasonable point of contact.
Acquisitions of private companies can be structured by way of share purchases or asset purchases: (i) share purchases provide the advantage for the acquiror of having access to a company already structured and operating, only requiring a registration of the transfer of the equity; on the other hand, thorough due diligence is required for the identification and analysis of the assets, liabilities and contingencies of the target. From the point of view of the seller, this type of deal provides certainty as to the taxes applicable to the sale; and (ii) an asset purchase is usually more complex as it requires transferring different types of assets, which have a different tax treatment, and which assignment may require a third party’s consent.
With regards to acquisitions of public companies, the most relevant provision of the Securities Act is the obligation for the purchaser to conduct a mandatory tender offer whenever control is acquired, as well as the disclosure obligations imposed on the target company.
In transactions of economic concentration, authorisation must be sought from the National Antitrust Authority. There are exceptions to this prior authorisation requirement, which should be analysed on a case‐by‐case basis.
Have there been any recent legal or regulatory changes in Argentina that significantly impact M&A activities?
The change of government that took place in December 2023 brought a paradigm shift in the political and social sphere, which is evidenced in several substantial modifications to local regulations that are taking place, with a view to less state intervention, expansion of the scope of individual and market freedoms, and greater administrative and bureaucratic simplification. Several of these modifications have already been implemented during the first quarter of 2024, and additional substantive modifications are expected during the coming months.
In this sense, there is a special interest in regaining the confidence of international markets and attracting foreign investment, so the modifications to current regulations should show – in the short and medium term – greater facilities for carrying out M&A transactions in all of the relevant aspects involved, such as foreign exchange, labour and other matters.
What are the key legal considerations for foreign companies looking to engage in M&A activities in Argentina?
Argentina’s constitution and laws grant equal rights to local and foreign investors, and foreign investment is not generally subject to prior approval by the authorities. Argentina has entered into bilateral investment protection treaties with several countries, further providing for the protection of foreign investments. However, there are several regimes that regulate or limit foreign ownership of certain assets, including rural land and real estate property located in frontier zones (it is noticeable that the rural land regime for foreign acquisition has been preliminarily derogated by way of a recent decree of the president).
For the purposes of holding equity in Argentine companies or opening a branch, foreign companies need to register with the Public Registry of Commerce, by way of appointing a local representative, establishing a local domicile, and filing several documents. Once registered, the foreign company must comply with a regime to provide updated information annually in occasion of its original registration. Branches must file their annual financial statements, as well as comply with this annual information regime.
Foreign companies also need to obtain a local tax ID before the Federal Tax Agency in order to fulfil local regulations applicable to transactions and/or ownership of a shareholding in a local company.
How does the due diligence process in Argentina differ from other countries, and what unique challenges does it present?
Argentine deals require special focus in four areas: tax, labour (especially with regards to employee benefits and unregistered employees), foreign exchange, and customs regulations. Based on the characteristics of target companies (especially if they are new companies), it is not unusual that buyers choose to conduct a red flag due diligence report rather than full‐blown due diligence.
Certain specific areas, such as technology, also require focus on matters like the ownership and proper registration (if applicable) of the company’s IP. In the case of investments in startups, it is not unusual that one or more IP assets have been registered in the name of the founders.
What are the most significant challenges and risks faced by entities in M&A transactions in Argentina?
Extensive foreign exchange controls impact most inflows and outflows of funds in Argentina and are relevant for the conduct of business in Argentina. As regulations are quite extensive, complex and dynamic, and breaches are penalised, counsel advice should be sought before transactions are conducted.
Also, Argentine labour laws contain quite extensive regulations of the employment relationship with a significant pro‐employee bend. Since labour litigation is quite frequent in Argentina, a proper analysis of the employee’s situation is relevant within the due diligence process in order to minimise liabilities in this respect.
For investors inclined to more risky transactions, Argentine bankruptcy law contains certain provisions regarding acquisition of distressed assets that may be of interest and should be analysed for the specific case.
Are there specific sectors in Argentina that present unique opportunities or challenges for M&A activities?
Argentina has a vibrant technology sector, especially in the software, fintech, agtech and primary services areas. In the past few years, Argentina has seen remarkable growth in the private capital sector (it is worth noting that five Argentine technology companies have reached the stage of unicorn).
Argentina also has sophisticated human resources dedicated to the technology sector, which are more cost friendly than those of other countries.
As per the above, the technology sector continues to represent an important portion of the local M&A market, which proved to resist adverse matters that affected both the global and local market.
Based on current economic and legal conditions, what is your outlook for M&A activities in Argentina over the next few years?
It is expected that with the change of administration and the new measures that are being adopted, an ordering of the macroeconomy and, consequently, a notable economic recovery will be in place, which will be more noticeable as from the second half of this year.
Likewise, it is expected that this recovery will make the local M&A scenario more attractive, by way of greater bureaucratic simplification, lower tax pressure, specific incentives for certain activities and, ultimately, greater predictability and legal certainty.
