Purchase and acquisition of companies in Panama (Mergers & Acquisitions)

Mergers, acquisitions and demergers are common operations on a dynamic economy, they contribute to strengthen the business sector, consolidate and improve the investment scene and provide better services to customers.

Generally, these are complex transactions related to financial services, public services, real estate, construction, insurance and several other areas of the business sector that frequently transcend national borders.

In the business field, the interests of owners (shareholders) and executives (managers) often lead to the decision to merge or acquire other companies, to achieve synergies, maximize shareholder values, correct the market and make the company grow.

In the opposite direction, but always to find better results in performance, and profitability, a company can split its assets totally or partially and transfer it to one or more existing companies.

The merging

Merging companies as a social and corporate act, is provided in the Law 32 of 1927, its participation in the Panamanian tax system does not appear until March 14, 1994, with the Executive Decree No. 18.  It applies when two or more companies join or when a new company is created from a merger of other companies.

A merger has several advantages such as strengthening the absorbing company, lower production costs, stopping rivalry and competition among the merged companies, greater profitability, a more methodical administration and a more effective control.

But it can also have disadvantages such as the atrophy associated with gigantism, the generation of monopolies and oligopolies and, in the social sphere, the reduction of employment.

The acquisition

During an acquisition of shares, the investor or investors (individual or legal entity) has the objective of obtaining a significant share in the capital of a listed or unlisted company.

The buyer’s objectives can be diverse:

• The liquidity of the investment. It is important to obtain dividends and have a share in decisions about the development and management of the company; but it is still more important to guarantee the return of the investment in case the expectations are not being fulfilled.
• The investor expects the company he invested on is well-managed, to achieve that, he must get involved in the management or put his trust on the hands of third parties. In any case, it is important to sign a hedge contract that establishes a minimum price for the value of the investment made.
• The acquiring company should increase its growth speed or strengthen its superior market share as an alternative formula to organic growth.
• Valid for investors or companies that consider that the company must always grow no matter the cost. It’s like a game for those who enjoy making investments with optimism.

Demerger

This operation consists of dividing a corporation into two or more companies, this operation is governed by the Commercial Code of Panama, however the articles 505-A to 505-F of the Law 85 of 2012 define the demerger as a form of business reorganization.

A demerger allows any company to totally or partially divide its assets and transfer them to one or more companies (either Panamanian or foreign) which are already incorporated or the creation of new companies that have the same shareholders of the split-off company.

A demerger is a way to adapt companies to different economic situations; a way to redistribute and decentralize the activities of a company and separate the operations of an area of ​​the company that is losing money from the others that generate more profits.

Although mergers, acquisitions and demergers are oriented towards similar purposes, the operations are complex and require a methodical work and knowledge regarding the law and administrative procedures.

Because of that, at Candanedo Correa we are more than ready to help you with our ethics, honesty, responsibility and transparency. We are a law firm that offer our clients high quality services by providing a complete and experienced legal advisory service.