Mergers & Acquisitions: Business Value Maximization

An M&A (mergers & acquisitions) transaction is the acquisition, merger, division or corporate restructuring between two or more companies. It comprises defined phases: target identification and approach, NDA execution, non-binding offer or LOI, due diligence, negotiation of the agreement (SPA, Share Purchase Agreement, or APA, Asset Purchase Agreement), signing, conditions precedent (including FNE clearance where applicable), closing and execution of earn-out or post-closing adjustments.

The Competition Defense Law (DL 211, as amended by Law 20.945) requires mandatory prior notification to the National Economic Prosecutor when the parties exceed the sales thresholds set annually by the FNE. Notification suspends closing until the FNE approves, conditions or rejects the transaction. Closing without notifying when required can invalidate the transaction and expose parties to fines.

Legal due diligence on the target covers: corporate structure and corporate books; capital, shareholders and shareholder agreements in force; material contracts (clients, suppliers, financial); intellectual property and licenses; labor and social security compliance; tax compliance and contingencies; regulatory permits and authorizations; litigation and judicial contingencies; environmental compliance where applicable; and criminal compliance (Law 20.393) and economic crimes (Law 21.595). Findings translate into price adjustments, conditions precedent or representations and warranties in the SPA.

The critical clauses are: price and adjustment mechanism (locked box vs closing accounts); conditions precedent (FNE clearance, third-party consents, MAC); representations and warranties; indemnification regime (caps, baskets, survival of reps); non-compete and non-solicitation clauses; escrow account handling; earn-out where applicable; and governing law and dispute resolution (CAM Santiago or ICC arbitration is standard).

Law 21.713 (2024) strengthens the general anti-avoidance rule, recharacterizes corporate reorganizations lacking a business reason other than tax, and amends the market-value rules under Article 64. In M&A transactions, this requires commercially justifying pre-closing restructurings, supporting the price before the SII and designing the transaction considering the risk of challenge. The M&A team works integrated with the tax compliance practice to manage this perimeter.

In a share deal the buyer acquires the shares of the target company, assuming all its assets, liabilities and contingencies. In an asset deal the buyer purchases specific assets and selects which liabilities to assume. Share deals are faster and typically preserve contracts, authorizations and labor relationships, but transfer the entire tax, labor and litigation history of the company to the buyer. Asset deals isolate inherited risks and allow a step-up in the tax basis of acquired assets, in exchange for greater operational complexity, the need to assign contracts individually, and potential VAT or income-tax impact on the sale. The choice depends on the risk profile, financing structure and tax objectives of buyer and seller.

A typical M&A process in Chile takes between four and nine months from NDA signing to closing, although complex or large transactions can extend beyond a year. Key milestones: identification and NDA (1 to 2 weeks), non-binding offer or LOI (2 to 4 weeks), due diligence (6 to 12 weeks), SPA negotiation (4 to 8 weeks in parallel with due diligence), FNE notification when applicable (Phase I of 30 business days, Phase II of up to 90 additional business days) and closing. Timelines extend when there are material third-party consents, conditional bank financing or coordination with sectoral regulators (CMF, ANCI, Subtel).