Brazil investing

Private Equity
Review
Seventh Edition
Editor
Stephen L Ritchie
lawreviews
© 2018 Law Business Research Ltd

Private Equity
Review
Seventh Edition
Editor
Stephen L Ritchie
lawreviews
Reproduced with permission from Law Business Research Ltd
This article was first published in April 2018
For further information please contact Nick.Barette@thelawreviews.co.uk

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i
ACKNOWLEDGEMENTS
A&L GOODBODY
ADVOKATFIRMAET STEENSTRUP STORDRANGE DA
ALLEN & OVERY
BAHR
CAMPOS MELLO ADVOGADOS
CAREY
CUATRECASAS
ENSAFRICA
GILBERT + TOBIN
GOODMANS LLP
HAN KUN LAW OFFICES
J&A GARRIGUES, SLP
KING & SPALDING LLP
KIRKLAND & ELLIS LLP
KRAMER LEVIN NAFTALIS & FRANKEL LLP
LEGANCE – AVVOCATI ASSOCIATI
LENZ & STAEHELIN
MAPLES AND CALDER
MCMILLAN LLP
MEYERLUSTENBERGER LACHENAL
NADER, HAYAUX Y GOEBEL, SC
NAGASHIMA OHNO & TSUNEMATSU
The publisher acknowledges and thanks the following law firms for their learned assistance
throughout the preparation of this book:

Acknowledgements
ii
PHILIPPI PRIETOCARRIZOSA FERRERO DU & URÍA
PWC
ROJS, PELJHAN, PRELESNIK & PARTNERS O.P., D.O.O.
SCHINDLER ATTORNEYS
SHARDUL AMARCHAND MANGALDAS & CO
SOŁTYSIŃSKI KAWECKI & SZLĘZAK
TRILEGAL
URÍA MENÉNDEZ
VON WOBESER Y SIERRA, SC
WONGPARTNERSHIP LLP

iii
PREFACE��vii
Stephen L Ritchie
Part I Fundraising
Chapter 1 AUSTRALIA��1
Deborah Johns and Muhunthan Kanagaratnam
Chapter 2 AUSTRIA��10
Martin Abram and Clemens Philipp Schindler
Chapter 3 BRAZIL��18
Marcus Vinicius Bitencourt, Alex Jorge, Renata Amorim, Marcelo Siqueira and
Tatiana Pasqualette
Chapter 4 CANADA��41
Leah Boyd, Resa Jacob and Kenneth Saddington
Chapter 5 CAYMAN ISLANDS��51
Nicholas Butcher and Iain McMurdo
Chapter 6 CHINA��61
James Yong Wang
Chapter 7 COLOMBIA��72
Hernando A Padilla and Pedro Arango
Chapter 8 GERMANY��83
Felix von der Planitz, Natalie Bär and Maxi Wilkowski
Chapter 9 INDIA��97
Raghubir Menon, Ekta Gupta, Deepa Rekha and Srishti Maheshwari
CONTENTS

iv
Contents
Chapter 10 ITALY��114
Enzo Schiavello and Marco Graziani
Chapter 11 JAPAN��129
Keiko Shimizu
Chapter 12 LUXEMBOURG��138
Frank Mausen, Peter Myners, Patrick Mischo and Jean-Christian Six
Chapter 13 MEXICO��144
Hans P Goebel C, Héctor Arangua L, Adalberto Valadez and Lorenza Molina S
Chapter 14 NORWAY��156
Klaus Henrik Wiese-Hansen and Stig Nordal
Chapter 15 POLAND��166
Marcin Olechowski, Wojciech Iwański and Mateusz Blocher
Chapter 16 SAUDI ARABIA��177
James Stull, Macky O’Sullivan and Sayf Shuqair
Chapter 17 SLOVENIA��184
Gregor Pajek and Urh Šuštar
Chapter 18 SOUTH AFRICA��193
Johan Loubser, Magda Snyckers and Lorica Elferink
Chapter 19 SPAIN��209
Jaime Bragado Yturriaga, Francisco Martínez Iglesias, José Luis Ortín Romero and
Álvaro Manteca Rodríguez
Chapter 20 SWITZERLAND��219
Fedor Poskriakov, Maria Chiriaeva and Isy Isaac Sakkal
Chapter 21 UNITED ARAB EMIRATES��230
James Stull, Macky O’Sullivan and Sayf Shuqair
Chapter 22 UNITED KINGDOM��236
Jeremy Leggate, Prem Mohan and Ian Ferreira

Contents
v
Chapter 23 UNITED STATES��251
Kevin P Scanlan
Part II Investing
Chapter 1 AUSTRALIA��265
Tim Gordon, John Williamson-Noble and James Campisi
Chapter 2 AUSTRIA��272
Florian Cvak and Clemens Philipp Schindler
Chapter 3 BRAZIL��281
Marcus Vinicius Bitencourt, Luiz Augusto Osorio and Laura Angrisani
Chapter 4 CANADA��291
Michael P Whitcombe and Charles Chevrette
Chapter 5 CHILE��303
Andrés C Mena, Francisco Guzmán and Arturo Poblete
Chapter 6 CHINA��313
Xiaoxi Lin
Chapter 7 COLOMBIA��342
Hernando A Padilla and Pedro Arango
Chapter 8 INDIA��354
Nishant Parikh
Chapter 9 IRELAND��366
David Widger
Chapter 10 JAPAN��380
Kei Asatsuma, Ryo Okubo and Yasuhiro Kasahara
Chapter 11 LUXEMBOURG��389
Frank Mausen, Peter Myners, Patrick Mischo and Jean-Christian Six
Chapter 12 MEXICO��397
Andrés Nieto Sánchez de Tagle

Contents
vi
Chapter 13 NORWAY��407
Peter Hammerich and Markus Heistad
Chapter 14 POLAND��418
Marcin Olechowski, Borys D Sawicki and Jan Pierzgalski
Chapter 15 PORTUGAL��429
João Mattamouros Resende and Francisco Santos Costa
Chapter 16 SINGAPORE��439
Andrew Ang, Christy Lim and Quak Fi Ling
Chapter 17 SLOVENIA��456
Gregor Pajek and Aljoša Krdžić
Chapter 18 SPAIN��466
Christian Hoedl and Diana Linage
Chapter 19 SWITZERLAND��477
Alexander Vogel, Andrea Sieber and Samuel Ljubicic
Chapter 20 UNITED STATES��486
Paul Anderson
Appendix 1 ABOUT THE AUTHORS��499
Appendix 2 CONTRIBUTING LAW FIRMS’ CONTACT DETAILS��529

vii
PREFACE
The seventh edition of The Private Equity Review follows a turbulent and at times nerve-
wracking 2017. It was also a year in which private equity demonstrated its strength as an
asset class in spite – perhaps because – of that turbulence. Deal activity and fundraising
were strong in almost every major market despite fierce competition from public strategic
buyers and strong returns in other asset classes, demonstrating private equity’s ability to adapt
quickly to changing conditions to find profitable investment opportunities. As a result, we
expect private equity will continue to play an important role in global financial markets, not
only in North America and Western Europe, but also in developing and emerging markets
in Asia, South America, the Middle East and Africa. In addition, we expect the trend of
incumbent private equity firms and new players expanding into new and less-established
geographical markets to continue, although recent protectionist trends remain a risk factor.
While no one can predict how 2018 will unfold, one can confidently say that private
equity will continue to play an important role in the global economy, and will likely seek to
expand its reach and influence. It remains to be seen how local markets and policymakers
respond.
Private equity professionals need – now more than ever – guidance from local
practitioners about how to raise money and close deals in multiple jurisdictions. This review
has been prepared with this need in mind. It contains contributions from leading private
equity practitioners in 27 different countries, with observations and advice on private equity
deal-making and fundraising in their respective jurisdictions.
As private equity has grown, it has also faced increasing regulatory scrutiny throughout
the world. Adding to this complexity, regulation of private equity is not uniform from
country to country. As a result, the following chapters also include a brief discussion of these
various regulatory regimes.
I want to thank everyone who contributed their time and labour to making this seventh
edition of The Private Equity Review possible. Each of them is a leader in his or her respective
market, so I appreciate that they have used their valuable and scarce time to share their
expertise.
Stephen L Ritchie
Kirkland Ellis LLP
Chicago, Illinois
March 2018

Part II
Investing

281
Chapter 3
BRAZIL
Marcus Vinicius Bitencourt, Luiz Augusto Osorio and Laura Angrisani1
I OVERVIEW
i Deal activity
In recent years, Brazil’s economic growth has slowed while the country has been suffering a
period of political instability. Due to the political and economic crisis, major projects across
numerous sectors were frozen and domestic companies suffered a credit crunch, which, in
some cases, even resulted in shutdowns.
In this scenario, Brazil’s economy has suffered a severe backlash in the first half of this
decade. The gross domestic product had the worst figures ever; two-digit inflation became
a serious concern; the market shrank compared to last decade and in addition to this grave
situation, credit availability severely decreased. Nevertheless, after changes in the government’s
direction in the past couple of years, there is increased confidence in Brazil’s commitment
to performing the necessary measures for its recovery and the economy has started to slowly
move forward once again.
Although the currency has experienced a smooth appreciation during 2016 and
remained relatively stable during 2017, the hefty devaluation of the Brazilian real in the
previous years along with its potential competitiveness and broad market maintains Brazil as
an attractive destination for international private equity investments.
Not surprisingly, it has been noticed signs of an effective potential economic recovery in
the year of 2017, as we can observe an increase in 6 per cent of the mergers and acquisitions
transactions held from January to October 2017 compared to the same period in 2016. The
growth was most noticeable on the IT, mining and retail sectors.2
In terms of total investments, data from the Brazilian Association of Private Equity
Venture Capital (ABVCAP) and KPMG3
indicates that private equity investment in Brazil
during 2016 amounted to US$3.41 billion,4
a decrease of 38.7 per cent compared with
2015.5
Despite the decrease in the total amount of investments in 2016, the number of
invested companies remained fairly stable. The transactions performed in 2016 were different
1 Marcus Vinicius Bitencourt and Luiz Augusto Osório are partners and Laura Angrisani is an associate at
Campos Mello Advogados.
2 Information from PwC: ‘Fusões e aquisições no Brasil’, October 2017. Available at www.pwc.com.br.
3 ‘Consolidação de Dados da Indústria de Private Equity e Venture Capital no Brasil – 2012/2013/2014/
2016’. ABVCAP and KPMG.
4 The monetary values mentioned herein have been converted from Brazilian reais to US dollars at the
exchange rate for 31 December 2017, as published by the Brazilian Central Bank.
5 Variations considering the amounts in Brazilian reais.

Brazil
282
from those that occurred in 2017, as they mainly occurred in the real estate and construction
industry, retail, food and beverages, financial services and energy sectors, which combined
represented 60 per cent of the private equity investments made in 2016.
The same study indicates that, the amount of divestment transactions in Brazil in 2016
were reduced by 14 per cent in comparison with 2015.
According to data from BMF Bovespa,6
10 IPOs occurred in 2017, a significant
increase in relation to 2016, when only one company went public. However, even with
the recent positive results verified in comparison to previous years, the expectation for
2018 is that the number of IPOs will decrease, which is very common during presidential
election years. The market will probably be more active in the first semester to avoid the
volatility before the elections that will occur in October and resume more intense activity
in 2019.
A broader analysis, that contemplates investments and divestments by private equity
funds through MA transactions, shows that these funds participated in 128 transactions
from January to October 2017, representing more than 24 per cent of the announced MA
deals during such period7
and an increase of 23 per cent compared with the same period of
2016. Of the MA deals in Brazil announced from January to October 2017, more than 59
per cent involved acquisitions of control.
ii Operation of the market
Brazilian practice draws a distinction between the portfolio manager and administrator of
investment funds. The activity of both entities, regardless of the level of effort made in raising
resources, is subject to the rules issued by the Brazilian Securities Commission (CVM). The
operation of private equity funds is thus subject to the rules of CVM.
Foreign private equity funds are not subject to the CVM’s rules when investing in
Brazil. They are simply classified as foreign investors, and as such are subject to the general
rules on registration of capital invested in Brazil issued by the Central Bank. Therefore, since
this work already suitably covers other jurisdictions, here we focus on private equity activities
in which the portfolio manager is located in Brazil.
Brazilian private equity funds are subject to registration with the CVM and must have
an administrator, which must be a financial institution authorised to function by the Central
Bank, and a manager. The manager exercises the most relevant function, as it is directly
responsible for managing the portfolio, including investment and divestment decisions. It is
important to note that the administrator and the manager can be the same entity.8
According to data announced by the Brazilian Association of Financial and Capital
Market Entities (ANBIMA),9
in November 2017 the largest private equity fund managers
in Brazil in terms of net assets were BB DTVM SA, Bradesco, Itaú Unibanco SA, Caixa and
Banco Santander (Brasil SA).
6 Information available at www.bmfbovespa.com.br.
7 Information from PwC: ‘Fusões e aquisições no Brasil’, October 2017. Available at www.pwc.com.br.
8 CVM Instruction 558/15, in force since 4 January 2016, rules the activities related to the securities
portfolio administration.
9 Ranking of investment fund managers, available at www.anbima.com.br.

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283
The CVM’s rules basically allow an administrator and manager to obtain remuneration
in two formats, through administration and performance fees, to be divided between the
administrator and manager as agreed between them. The administration fee is charged on
a monthly basis as a percentage of the net assets. The performance fee, in turn, is only paid
by the investor at the moment of redeeming an investment, as a percentage of the gain,
calculated according to the criteria established at the time of registering the fund with the
CVM.
In general, the manager’s remuneration is substantially higher than the administrator’s,
given that the latter usually only distributes the shares and takes care of treasury matters,
while the former manages the portfolio by making the investment and divestment decisions.
Average administration fees are historically around 2 per cent a year of the net assets
or committed capital. In turn, the performance fees can largely vary but they are commonly
around 20 per cent of the profit generated above a benchmark rate of return set in the fund’s
by-laws. These fees are paid at the time of redeeming the investment, after adjusting for
inflation.10
In many cases, the fund names a representative to hold an executive position with the
most important investee companies. In this situation, the person in question can receive a
stock option plan or other incentive, with the cost in the final analysis passed through to the
fund’s investors in proportion to the holding in the company in question.
With respect to the purchase or sale of an equity stake, the standard procedure includes
the following steps:
a negotiation of the terms of the deal, with the signing of an MoU or term sheet;
b carrying out of a due diligence process by the potential buyer. Tax and labour liabilities
are usually the most sensitive concerns;
c negotiation of the definitive documents, including the share purchase agreement and
shareholder agreement (as the case may be);
d signing;
e submission to the Administrative Council for Economic Defence (CADE) if the deal is
subject to antitrust notification; and
f closing.
This process can vary according to the complexity of the deal and other particularities. The
average time between the term sheet and closing is around four months if the deal is not
subject to approval by CADE. The rules of CADE are broad enough to cover a good part
of private equity transactions. In such cases, the acquisition documents are signed under
condition and the closing can only occur after CADE’s approval.
Another common way to sell a corporate stake when there are various interested parties
is by competitive bidding. In this case, the negotiation starts with several interested parties,
who analyse the preliminary data on the company and submit proposals. Those with values
below the expectation of the sellers are eliminated from the running, after which only the
prospective buyers with the highest valuations continue the negotiation process, until a final
buyer is identified.
10 Information from a report of ABVCAP in partnership with Insper.

Brazil
284
II LEGAL FRAMEWORK
i Acquisition of control and minority interests
Private equity funds domiciled in Brazil are set up in the form of equity investment funds
(FIPs) and are subject to the regulations of the CVM.11
FIPs must invest their assets in shares, subscription warrants, debentures and other
securities convertible into or exchangeable for shares of corporations, both listed and unlisted,
as well as securities that represent quotas of limited liability companies, which is the most
common company type in Brazil, especially for start-ups.
Since FIPs are subject to the rules of CVM, they must submit all their relevant
documents, such as balance sheets and portfolio composition, as well as report any intention
to issue new quotas of the fund, replace the administrator or amend the by-laws, and of any
pending spin-off, merger, consolidation or liquidation.
The rules on FIPs historically require their active participation in the decision process
of the portfolio companies, with effective influence in defining management strategy and
policy. This is generally achieved by appointing members to the board of directors. The right
of the FIP to take part in the decision-making process can also occur in one or more of the
following ways: by holding shares in the controlling block; through a shareholder or voting
agreement; or by any other agreement that assures the fund effective influence. The investee
companies also must satisfy certain corporate governance requirements.12
Therefore, the standard investment model of the FIP is to acquire shareholding control
or a relevant stake in the controlling block. Control in Brazilian law is defined as holding
rights that assure, on a permanent basis, the majority of the votes in the decisions of the
general meeting and the power to appoint the majority of the administrators (directors and
officers). Participation in the controlling block is defined as being a party to a shareholder or
voting agreement that guarantees influence in the decisions of the company.
Nevertheless, according to the CVM Instruction 578 of 30 August 2016 (CVM
Instruction 578), FIPs are exempted from the requirement of participating in the
decision-making process if the investment is reduced to less than half of the original amount
invested and constitutes rate below 15 per cent of the company’s corporate capital; or the
book value of the investment is reduced to zero.
Foreign private equity funds can set up a FIP in Brazil as a vehicle to make investments.
As for any other foreign investment, the capital must be registered with and follow the rules
of the Brazilian Central Bank.13
Income arising from investment in FIPs and gains arising
11 CVM Instruction 578, mentioned below.
12 Namely: they may not issue founders’ shares or have any such securities outstanding; they must call for
a unified term of one year for all directors; they must disclose the terms of contracts with related parties,
shareholder agreements and stock options and other similar programmes; they must pledge to resolve
corporate disputes by arbitration; in the event of going public, they must undertake to the fund to adhere
to a trading segment of an exchange or organised over-the-counter market that requires enhanced corporate
governance, as per the preceding items; and their annual financial statements must be audited by an
independent auditor registered with the CVM.
13 Resolution 4,373 of 29 September 2014, from the National Monetary Council.

Brazil
285
from the sale or amortisation of FIP quotas by non-resident investors that are not resident or
domiciled in a favourable tax jurisdiction14
is currently taxed at zero per cent, provided that
the following requirements are met:
a the non-resident investor does not hold, individually or with related parties (as defined
by the applicable legislation),15
40 per cent or more of all shares issued by the fund
(shareholding test) or does not have the right to receive 40 per cent or more of the total
income generated by the fund (economic test);
b the fund does not have in its portfolio, at any time, debt securities in an amount
exceeding 5 per cent of its net worth, except if such securities correspond to convertible
debentures, subscription warrants or public bonds;
c the fund is compliant with additional portfolio requirements provided by CVM
regulations, which currently require that at least 90 per cent of the portfolio of the FIP
to be composed of shares, subscription warrants, simple debentures, other securities
convertible or exchangeable securities into shares issued by corporations, either closely
held company or publicly held company, as well as securities representing equity
participation in limited liability companies, provided that the FIP participates in the
decision-making process of the investee companies, with effective influence on the
definition of their strategic policies and management; and
d in addition to the provision mentioned in item (c) above, at least 67 per cent of the
FIP’s portfolio is composed of shares of corporations, debentures that are convertible
into shares and subscription warrants (allowed assets).16
Additionally, all gains, including capital gains paid, credited, delivered or remitted to
beneficiaries resident or domiciled outside Brazil (except if situated in a favourable tax
jurisdiction) that are produced by investment funds are exempt from income tax if the
14 Brazilian law defines more than one concept of favourable tax jurisdiction. However, the concept that
matters for this particular analysis refers to foreign investments in the Brazilian financial and capital
markets pursuant to CMN Resolution 4,373/14. Accordingly, the applicable concept of favourable tax
jurisdiction refers to a country that does not tax income or that taxes income at a rate lower than 20 per
cent or does not provide information regarding the equity partners of legal entities, its owners or the
beneficial owner of the income paid to non-residents. The standard tax rate of 20 per cent to identify
privileged tax regimes is reduced to 17 per cent if the country follows the international standards of tax
transparency (Ordinance MF 488/14), as established by the RFB.
The Brazilian tax authorities have listed some jurisdictions as favourable tax jurisdictions. Historically
the tax authorities have viewed such list as being a numerus clausus list, namely, any jurisdiction not
appearing on the list will not be deemed as a favourable tax jurisdiction. In 2017, Costa Rica, the Island of
Madeira and Singapore were removed from the referred list.
15 Such 40 per cent ceiling considers the following related parties of the investor of the FIP: (a) regarding
individuals, (1) its relatives up to the second degree, (2) company controlled by the investor or by any of its
relatives up to the second degree and (3) partners or managers of the company controlled by the investor or
its relatives up to the second degree; and (b) regarding legal entities, the one that is its controller, controlled
or affiliated.
16 Section 11 of recently enacted Provisional Measure No. 806/2017 revoked such requirement which, in our
understanding (see below), is expected to be in force as of 1 January 2019.

Brazil
286
following general cumulative requirements are met (but an analysis per asset to be invested
is advisable):
a the quotaholders must be exclusively non-residents; and
b the fund regulations must provide that its fund application is made exclusively in:17
• assets required by tax legislation;
• cash deposits;
• assets that are also exempt from income tax, or taxed at a zero per cent rate,
when the beneficiaries of the gains derived from such assets are residents or are
domiciled outside Brazil (except if situated in a favourable tax jurisdiction); or
• assets traded in financial and capital markets that are exempt from taxation,
provided that they are negotiated by the funds under the same terms and
conditions set forth by law for the enjoyment of the tax exemption.
In addition, foreign exchange transactions carried out in Brazil are subject to the tax on
financial operations regarding exchange agreements (IOF) for inflow and outflow. The
standard rate is currently 0.38 per cent for most foreign exchange transactions. IOF is levied
at a zero per cent rate on the inflow and outflow of remittances into related investments made
by non-Brazilian residents in the Brazilian financial and capital markets. There are other
specific rates or exemptions that may apply to certain transactions. Although unlikely in the
current economic scenario, the IOF rate, due to its regulatory purpose rather than budgetary,
may be increased at any time to a maximum of 25 per cent by the government.
Notwithstanding the tax benefits listed above, the requirement to engage an
administrator and manager approved by the CVM to structure a local FIP prompts most
international private equity players to choose an offshore structure to invest directly in Brazil,
outside the capital market. This means that the investment will be classified as a foreign
direct investment, regulated by Law 4,131/62. A foreign direct investment can occur by
incorporating a new company or investing in an existing one (limited liability company
or corporation). In some cases, the direct investment involves setting up a joint venture
with a Brazilian company or other investors, and the signing of shareholder agreements,
investment agreements or loan contracts, among other mechanisms. In addition, for foreign
direct investment both the foreign investor and the receiving company in Brazil must be
registered with the Central Bank.
Finally, it is also worth mentioning that recent amendments to the Brazilian Federal
Revenue Rule No. 1634, as of 6 May 2016 (IN 1634/2016), which governs the registration
of national and foreign entities with the Federal Taxpayers’ Registry of Legal Entities of
the Ministry of Finance, has established the obligation of foreign shareholders of Brazilian
entities and also the Brazilian entities18
to provide the Brazilian Federal Revenue with the
information on the relevant corporate chain, including trusts and foundations, up to the
individuals deemed as their ultimate beneficial owners, defined, with a few exceptions,
as the (1) the individual or individuals who either, directly or indirectly, own, control or
17 If the fund regulations restrict its quotaholders to non-resident individuals only, the fund is also allowed
to invest in assets whose gains will be exempt from individual income tax under Section 3 of Law
11,033/2004 (e.g., certificates of real estate receivables (CRIs), real estate investment funds (FIIs)).
18 This obligation was also applied to the Brazilian entities by means of the enactment of the Declaratory
Executive COCAD Act No. 9, as of 23 October 2017, issued by the Brazilian Federal Revenue.

Brazil
287
significantly influence19
the legal entity; or (2) the individual under whose name a given
transaction is performed. Such obligation shall be complied with during any update of any
data of the Brazilian or foreign entity’s registry before the Brazilian Federal Revenue, or if no
update occurs, until 31 December 2018.
Such rule also presents some exceptions to the compliance of such obligation, such
as the case of (1) a publicly held corporation incorporated in Brazil or in other jurisdiction
that requires the public disclosure of all the shareholders considered relevant and that are not
located in jurisdiction with a favourable taxation nor under a privileged tax regime; and (2)
the Brazilian investment funds that are regulated by the CVM, provided that the Brazilian
taxpayers’ number of all the shareholders of the funds are duly informed by the portfolio
administrators to the Brazilian Federal Revenue. It is important to clarify that this is a very
recent obligation and even the authorities are still uncertain on their requests for documents
and information.
ii Fiduciary duties and liabilities
FIP administrators and managers must observe the standards of conduct established by the
CVM and are liable for losses caused to investors when they act with intentional misconduct
or culpability (defined as negligence, imprudence or malpractice) in violation of the law,
CVM rules or the FIP’s by-laws. The CVM has also issued specific rules for portfolio
managers of funds,20
and any infractions subject them to penalties if they are found guilty in
an administrative sanction proceeding conducted by the CVM.
Complementary to the CVM’s rules, ABVCAP and ANBIMA have issued the
ABVCAP and ANBIMA Code for Regulation and Best Practices for the FIP Market with
the aim of raising fiduciary standards and promoting best practices, to allow the gradual
integration of the Brazilian investment fund market with the international private equity
market. Adherence to this Code is mandatory for those members of ABVCAP and ANBIMA
that engage in administration and portfolio management activities.
Representatives of the manager named as directors, officers or to other executive
positions in the investee companies also have the duties to the company required of
administrators in general by the Law of Corporations. Accordingly, they must employ, in the
exercise of their functions, the same care and diligence as all active and honest people employ
in handling their own affairs, following the law and the company by-laws; they must always
act in the company’s best interests; and they must satisfy the greater public good and the
social function of the company.
The fund administrators or managers must also observe the duties attributed by the
Law of Corporations to shareholders. Accordingly, they must exercise the right to vote in
general meetings in the interest of the company and can be held liable for any damages caused
in exercising their voting right.
19 Pursuant to Article 8º §2º of the Brazilian Federal Revenue Rule No. 1634, as of 6 May 2016 a significant
control or influence is presumed whenever the individual (1) holds, directly or indirectly, more than 25 per
cent of the entity’s corporate capital, or (2) holds, directly or indirectly, the power to control the entity’s
corporate decisions and to appoint the majority of its managers.
20 CVM Instruction 558/15, in force since 4 January 2016, sets forth the conduct rules that administrators
and portfolio managers are subject to in the performance of their duties.

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288
III YEAR IN REVIEW
i Recent deal activity
As mentioned in Section I, signs of a potential economic recovery in 2018 are being seen,
after important private equity deals were carried out during 2017. In the education sector,
the Group SEB – Sistema de Ensino Brasileiro acquired 80 per cent of COC Florida, an
institution based in the south of Brazil, in Santa Catarina, that acts in the secondary school
and in pre-college preparatory courses. In May 2017, Brazilian wealth manager Gavea
Investimentos Ltda purchased an undisclosed majority stake in local indoor services group
GPS Group for an undisclosed sum.
Amongotherimportanttransactionscarriedoutin2017,Chinesemobiletransportation
company Beijing Xiaoju Technology Co Ltd has acquired a controlling share in Brazilian
mobile phone taxi-hailing application developer 99Taxis Desenvolvimento de Softwares Ltda
(99 Taxis) for around US$960 million, Brazilian business news magazine Exame reported.
Also in 2017, Alpargatas SA, the producer of Havaianas flip flops, announced that
Brazilian holding company JF Investimentos SA has agreed to sell its 54.23 per cent stake
of the company’s total capital stock for 3.5 billion reais. The buyers are Brazilian holding
companies Brasil Warrant Administração de Bens e Empresas SA and Itausa Investimentos –
Itau SA and the local private equity firm Cambuhy Investimentos Ltda. The acquisition was
concluded in September 2017.
ii Financing
The scenario for financing of private equity changed substantially in 2016, due to the
issuance of CVM Instruction 578,21
which aimed to unify and modernise the rules about the
incorporation, operation and management of FIPs, also consolidating previous amendments
to the provisions that rule the structure and guidelines for FIPs.
Among the main changes promoted by the Instruction, FIPs are now able to (1) invest
on limited liability companies and in non-convertible debentures;22
(2) invest up to 20 per
cent of their net equity in offshore private equity assets; and (3) have authorised capital,
which means that the administrator may issue new quotas in FIPs without requiring a new
investors’ approval.
The Instruction also created different categories of FIPs, such as the FIP – seed capital,
which allows the use of FIPs under certain conditions as a vehicle to invest in start-ups
companies. Furthermore, the administrator may create different classes of quotas that
may have different rights, permitting differentiation as to, among other things: hurdle
rates; management fees and performance fees; the timing of capital calls, amortisation and
redemption; and veto rights and the appointment of members of committees.
In order to harmonise the Brazilian accounting principles with international standards,
FIPs qualified as investment entities shall mark the portfolio assets according to their fair
value, while FIPs that do not qualify as investment entities shall register their investments in
accordance with the rules applicable to affiliates of publicly traded companies and are now
21 Although the referred CVM Instruction was enacted in August 2016, the FIPs had until August 2017 to
adapt the new rules.
22 Previously, according to CVM Instruction 391, FIPs could only invest in corporations and not in limited
liability companies. Additionally, FIPs could not invest in non-convertible debentures, but only in the
convertible ones.

Brazil
289
required to prepare and submit audited financial statements whenever there is a material
change in the fair value of the investment company during the fiscal year. In this regard,
CVM Instruction 579 was issued on 30 August 201623
creating new rules for the provision of
financial statements of FIPs, outlining the accounting methods for the classification of assets
and liabilities.
iii Key terms of recent control transactions
Acquisitionsofcontrolarecharacterisedbythesigningofdocumentsthatprotectthepurchaser
from possible liabilities not reflected on the balance sheet at the time of closing, including
instruments to adjust the price, escrow accounts and similar arrangements. Additionally, with
the alteration of the rule for prior submission of transactions involving a change in control
to CADE, the moment of closing now occurs in some cases several months after execution of
the binding documents. This makes it more necessary than ever to include protective clauses
covering price adjustment and material adverse change.
In cases where a particular shareholder has great importance in the development of the
company’s business plan, a lock-up clause can be used, by means of which this shareholder
cannot sell the respective shares during a certain period, to assure that the transition to
management by the new controllers will occur as smoothly as possible.
In transactions involving listed corporations, the transfer of control can only be
contracted under the condition that the purchaser launches a public tender offer to acquire
the shares of the other owners.24
iv Exits
As previously explained, divestment via an IPO and follow-on sale of shares was the exit
strategy most often used in the Brazilian market until the first years of this decade. One
example is BR Investimentos’ investment in Abril Educação, a publisher. In July 2010,
BR Investimentos, through its funds BR Educacional FIP and FIP Brasil de Governança
Corporativa, invested about US$98.18 million to acquire a 24.7 per cent stake in Abril
Educação. In July 2011, one year after the capitalisation of BR Investimentos and after
various acquisitions, Abril Educação held an IPO on the BMF Bovespa, and in April 2013,
a follow-on offering in which the funds of BR Investimentos sold approximately 45 per cent
of their interests. The funds remained with a combined stake of about 8.5 per cent in the
company.25
The expectations to the year of 2018 are high: the market has already in its pipeline a
list of six companies that may become public shortly before the end of the first semester of the
year. The companies want to do their offers before the electoral timetable affects the pockets
of national and foreign investors.
23 The referred CVM Instruction became applied to accounting periods initiated in or after January 1st, 2017.
24 Article 254-A of the Law of Corporations determines that the buyer must launch a public tender offer to
acquire the voting shares owned by the other shareholders at a price per share of at least 80 per cent of that
paid for the shares in the controlling block. In the case of companies listed in the Novo Mercado and Level
2 trading segments of the BMF Bovespa (the top two enhanced governance segments), the public offer
must target all the remaining shares, for the same price paid to those of the controlling block, to assure
equal treatment between minority and controlling shareholders.
25 ‘Cases de Private Equity e Venture Capital: Construindo empresas para o futuro’, ABVCAP. October 2013.

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IV REGULATORY DEVELOPMENTS
Private equity deals can be carried out by means of offshore structures, with capital raising
and legal structuring done outside the country, resulting in a foreign direct investment from
the standpoint of the Central Bank; or through transactions carried out by funds domiciled
in Brazil, subject to the rules of the CVM.
Besides issuing rules on the capital market and investment fund industry, the CVM
oversees the activities of players and enforces rules through investigations and administrative
proceedings. Punishments for wrongdoing range from a formal warning to the application of
fines and even a prohibition on operating in the capital market.
In addition to this, many sectors of the Brazilian economy are subject to the specific
oversight of regulatory agencies. There are currently 10 such agencies, all established between
December 1996 and September 2001: the National Telecommunications Agency; the
National Petroleum, Natural Gas and Biofuels Agency; the National Electric Energy Agency;
the National Supplementary Health Agency; the National Sanitary Surveillance Agency; the
National Water Resources Agency; the National Cinema Agency; the National Waterway
Transport Agency; the National Land Transport Agency; and the National Civil Aviation
Agency.
Some of these agencies regulate MA transactions, enforcing respective technical, legal
and financial requirements to be observed by the parties involved, and must also be consulted
before concluding changes of control, meaning that their approval must be obtained before
closing a deal. In such cases, both the regulatory agency and CADE have the power to block
transactions.
V OUTLOOK
The private equity industry in Brazil has been growing strongly in the last couple of decades,
and there is great demand for investments in various sectors of the economy, especially in
Brazil’s infrastructure, and in the petroleum and hospitality sectors.
The environment for private equity investments has also been continuously modernising
and adjusting to the reality of the international markets. Other measures to expand the private
equity market are being put in place, such as specific rules for investments in special segments
or in organised over-the-counter markets.
Some important challenges to investments in the country need to be overcome, such as
the complex and burdensome tax system and the high level of regulation of the economy. It
is thus necessary to retain specialist advisers before making investments in Brazil.

499
Appendix 1
ABOUT THE AUTHORS
MARCUS VINICIUS BITENCOURT
Campos Mello Advogados
Marcus Vinicius Bitencourt is a partner and co-head of the corporate area of Campos Mello
Advogados. Having joined the firm in 2005 as an associate, he became a senior associate in
2008, a partner in 2012 and co-head of the corporate area in 2017. Mr Bitencourt graduated
with a BA in law from the University Candido Mendes in 2002; a postgraduate qualification
in business law from the Getulio Vargas Foundation (FGV) in 2005; a specialisation in
corporate and capital markets law from FGV in 2007; and a certificate in investment banking
from the School of Continuing and Professional Studies, New York University, 2009. He has
an extensive practice in the areas of corporate law, securities and MA, offering legal advice
in all investment operations and directing Brazilian and foreign investors in mutual funds,
investment companies and share portfolios. His experience also encompasses assistance
with planning and structuring of business transactions and corporate activities, including
incorporation; corporate reorganisations and restructurings; and assembly of joint ventures,
consortiums, associations, foundations, partnerships and other methods of organising
businesses, activities and enterprises.
LUIZ AUGUSTO OSORIO
Luiz Augusto Osorio is a partner at Campos Mello Advogados, based in Rio de Janeiro.
Having joined the firm in 2005 as an intern, he became a senior associate in 2012 and a
partner in 2018. He graduated with a BA in law from the Pontifícia Universidade Católica
PUC-Rio in 2005, and gained a postgraduate qualification in private and property law
from the Pontifícia Universidade Católica PUC-Rio in 2008, as well as a specialisation in
accountancy from FGV in 2009. He practises in the areas of corporate, securities, mergers
and acquisitions and contracts

About the Authors
500
LAURA ANGRISANI
Laura Angrisani is an associate in the corporate area of Campos Mello Advogados. She
graduated in Law in the Pontifícia Universidade Católica of Rio de Janeiro in 2015. She
has also taken a course of Commercial Law at Kings College London in 2013. She has
practised in the areas of corporate law, mergers and acquisitions operations, and associations
in general and corporate governance. Her experience also encompasses assisting with foreign
investments in Brazil and corporate reorganisations and restructurings. She is a member of
the Rio de Janeiro section of the Brazilian Bar Association.
CAMPOS MELLO ADVOGADOS
Av Pres Juscelino Kubitschek, 360
10th Floor, Vila Nova Conceição
04543-000 São Paulo
Brazil
Tel: +55 11 3077 3500
Fax: +55 11 3077 3501
Rua Lauro Müller, 116
25th Floor, Botafogo
22290-906, Rio de Janeiro
Brazil
Tel: +55 21 3262 3000
Fax: +55 21 3262 3011
mbitencourt@cmalaw.com
www.cmalaw.com

ISBN 978-1-912228-21-8

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