An interview with Martinez De Hoz & Rueda discussing M&A in Argentina

This article is an extract from GTDT Market Intelligence M&A 2022. Click here for the full guide.


Fernando Zoppi is a corporate and business law attorney with more than 20 years of experience representing clients in a variety of cross-border transactions in Argentina and Latin America. He is particularly well versed in mergers and acquisitions, private equity and venture capital.

Educated and trained in Argentina and the US, Fernando is praised for his practical approach in solving complex legal issues. He is fluent in Spanish and English.

Fernando is admitted to practise in Argentina. He is a member of the International Bar Association, the City of Buenos Aires Bar Association and the Columbia Alumni Association.

Key clients include ExxonMobil, Trafigura, DeltaPatagonia (Gulf), Amancay Partners, Linzor Partners, Clear North Capital, DNS Capital, Cross Capital, Schlumberger, CAPEX (Grupo CAPSA), Interbarge, EVO Payments and Imagine Communications.

Fernado is also a regular contributor to local and international legal publications and has made regular appearances in media. He is co-author of Ley General de Sociedades – Comentada (Comments on Argentine Corporate Law) with Horacio Roitman and Editorial Astrea (soon to be released).


1 What trends are you seeing in overall activity levels for mergers and acquisitions in your jurisdiction during the past year or so?

Overall, M&A activity in Argentina has remained modest since early 2019, in terms of number of deals and deal volumes due to the limited inbound foreign direct investment. The current administration’s economic policy (remarkably, a poor sovereign debt management, local currency weakness, high levels of fiscal deficit and inflation, and strong capital and foreign exchange controls) and the covid-19 pandemic coupled to create a negative scenario for investments and explain the low levels of M&As.

However, the first quarter of 2022 showed a 50 per cent year-on-year increase in M&A deals (compared to pandemic periods) due to a surge in deals on very specific areas such as oil and gas, mining and technology.

The fact that Argentine assets have depreciated may create an incentive for certain types of investors to turn to Argentina for investment opportunities at competitive prices. This may be particularly true for strategic or long-term investors and local companies, which are usually less sensitive to market cycles.

While the outlook for the remaining months of 2022 and for 2023 is negative, there are several circumstances that may favour an increase of M&A deals in the near future:

  • the elections scheduled for mid-2023 could result in a change of administration and economic policy;
  • the size of the Argentinian economy (still third in Latin America after Brazil and Mexico) and local market;
  • the relatively declining value of local assets and distressed opportunities;
  • competitive advantages in certain key areas, particularly the energy sector (oil and gas, green hydrogen and other renewable energy), mining (especially lithium), infrastructure and technology.

2 Which sectors have been particularly active or stagnant? What are the underlying reasons for these activity levels? What size are typical transactions?

As discussed above, the energy, mining and technology sectors have been particularly active in recent years. However, economic uncertainty, interventionist policies, high inflation and persistent economic stagnation have prevented the country from maximising its potential.

Argentina’s energy rebirth is and will be based fundamentally on the development of shale gas and shale oil projects in Vaca Muerta in the Neuquén region. Renewable energy and mining projects (mainly wind, photovoltaics and lithium) are also at the top of the list of local and international industry players. Furthermore, several local and international companies have shown a particular interest in green hydrogen projects that may lead to a significant increase in M&A transactions. For instance, Fortescue Metals Group Ltd, which aims to become carbon-neutral by 2030, is a major backer of green hydrogen and has announced that it is looking at developing a multibillion-dollar project in the province of Río Negro with a view to producing green hydrogen on an industrial scale.

On the oil and gas front, Argentina is a major player in the South American hydrocarbon market. Argentina has one of the largest volumes of shale gas reserves in the world, although the country lacks the necessary infrastructure to transport and export the gas outputs. More than 50 per cent of these unconventional resources are located in the Neuquén Basin, especially in the Vaca Muerta formation.

Regarding the mining sector, investments are expected to continue during 2022 in connection with the exploration of lithium, which has been relatively active since 2021. For instance, Eramet Group, wishing to become a benchmark player in metals for energy transition, has naturally invested in the exploitation of lithium. A pilot plant was installed in early 2020, providing a real-world demonstration of the quality of the lithium carbonate end product, with a very high level of direct extraction efficiency (90 per cent).

In November 2021, Eramet Group launched the construction of its production plant in a JV with Chinese steel group Tsingshan, the world’s leading producer of stainless steels. Tsingshan and Eramet are already partners within Weda Bay Nickel, a project developed in Indonesia.

The technology sector has also shown great potential. As of August 2021, 11 Argentine companies reached the ‘unicorn’ category (a record number in Latin America after Brazil). A wide base of local literate human resources and entrepreneurship are usually mentioned as key drivers of the local technology industry. M&A activity in this sector outperforms any other sector in the economy. Unsurprisingly, the types of deals in this sector are varied and involve different sorts of local and international players (multinational companies, VCs and PE firms, strategic investors, etc).

3 What were the recent keynote deals? What made them so significant?

Some of the most relevant deals in the past 12 months include the exit from Argentina of Falabella (Chile’s largest retailer) and the sale of its card business (CMR Falabella) to Banco Columbia SA; the sale of Walmart operations in Argentina; the acquisition by Patagonia Energy SA of a hydrocarbon’s concession and other assets and liabilities from Medanito SA; the sale of EDENOR (a large local electricity distributor); the $250 million joint venture agreement between Trafigura and Vista Oil & Gas to develop shale oil projects in Vaca Muerta; the $140 million acquisition by Vista Oil of 50 per cent of Wintershall DEA Argentina’s interest in two target E&P blocks in Vaca Muerta; and the acquisition of EVO Payments, Inc, the largest fully integrated merchant acquirers and payment processors in the world, of certain assets in Argentina and Latin America owned by an Argentinian software company.

4 In your experience, what consideration do shareholders in a target tend to prefer? Are mergers and acquisitions in your jurisdiction primarily cash or share transactions? Are shareholders generally willing to accept shares issued by a foreign acquirer?

Most transactions in Argentina usually involve cash considerations. Due to foreign exchange regulations enacted by the local Central Bank, a key aspect of every M&A transaction is the negotiation of contractual provisions regarding currency and place of payment (a buyer would typically prefer to be paid in US dollars or euros in a bank account outside Argentina).

Only a modest portion of the M&A deals involve payments in shares or other types of securities issued by the acquirer or otherwise (including as a result of earn outs), and some transactions include some type of deferred or financed purchase price.

5 How has the legal and regulatory landscape for mergers and acquisitions changed during the past few years in your jurisdiction?

Recent changes include General Resolution IGJ No. 08/2021, which modified certain requirements and criteria for the registration of foreign companies that wish to establish a branch in Buenos Aires or to hold shares of companies incorporated locally. The registration of sole proprietorships whose sole shareholder is a foreign sole proprietorship is no longer admitted.

Furthermore, the current administration (which took office in December 2019) introduced several amendments to the foreign exchange regime and reinstated foreign exchange restrictions to acquire foreign currency and to transfer the proceeds outside Argentina (including in the form of corporate dividends).

In addition, there have been important changes in tax regulation with an impact on M&A transactions. Since January 2021, companies are now taxed on their worldwide income tax at a corporate level from 25 to 35 per cent of their corporate income tax rate. The taxable income is determined by deducting all allowable expenses from the entity’s gross income (including interest and salaries). Expenses incurred abroad are also deductible, provided the taxpayers can demonstrate they were incurred for the purposes of generating taxable income. Exported goods have also suffered modifications in withholding taxes.

Dividends distributed by Argentinian companies to their foreign shareholders continue to be subject to withholding tax depending on when the distributing company earned the profits out of which the dividends are paid:

  • for income earned in fiscal years beginning on or before 31 December 2017, there is no withholding tax (provided the profits had been taxed at company level);
  • for income earned in fiscal years beginning on or after 1 January 2018 and on or before 1 January 2021, dividends are subject to a 7 per cent withholding tax; and
  • for fiscal years beginning after 1 January 2021, dividends are subject to a 13 per cent withholding tax.

Dividends are not deductible from income tax in any case. Gains arising from the sale or transfer of shares are:

  • subject to corporate income tax at the same tax rate if made by a local entity;
  • subject to a special capital gain tax of 15 per cent if made by a resident individual; and
  • subject to a capital gains tax of 15 per cent if made by a non-resident (non-residents may also opt to pay a 13.5 per cent on the sale price).

Last, in November 2021, General Resolution 17/2021 of the Public Registry of Commerce was published, whereby the percentage threshold for a person to be considered a beneficial owner was reduced from 20 per cent to 10 per cent. The new regulation requires that, in the case of a chain of ownership, the chain must be described including the beneficial owner and, in each case, attach the corresponding supporting documentation, corporate bylaws, share ledgers, contracts, transfers or any other document evidencing the chain of control. The provisions represent a more burdensome compliance with the obligation imposed for each procedure in which the beneficial owners must be accounted for.

6 Describe recent developments in the commercial landscape. Are buyers from outside your jurisdiction common?

According to public date, during the first quarter of 2022, 80 per cent of M&A deals involved non-Argentinian buyers. This is certainly in line with the trend observed in 2020 and 2021, and the prominence of domestic buyers.

There are no specific approvals required for foreign investors to conduct business in Argentina other than some restrictions on acquiring certain types of real estate (rural lands or land adjacent to country borders). In some other sectors, foreign investments are also subject to specific red tape procedures.

In some regulated industries (such as financial services, insurance, telecommunications, aviation, oil and gas, mining and utilities), governmental approval is necessary to transfer either control of, or a relevant portion of the shares of, a company operating in those industries.

7 Are shareholder activists part of the corporate scene? How have they influenced M&A?

Shareholders activism is not part of the corporate scene in Argentina. The local capital market is rather small (even compared with other Latin American countries) and few companies are listed in the Buenos Aires stock exchange. Even for listed companies, shareholder activism is insignificant as these companies generally list a small portion of their capital stock (10 to 30 per cent). Public M&A deals represent a fairly small portion of local M&A activity.

Argentinian capital markets are governed by Securities Law No. 26,831, as amended and supplemented by Productive Financing Law No. 27,440 and a set of rules issued by the National Securities Commission. These regulations include provisions regarding minority shareholders’ rights and (mandatory and voluntary) tender offers, competing offers, squeeze-out tender offers and voluntary delisting, among other matters.

Generally, a mandatory tender offer at an equitable price is required to be made by a person who, acting individually or jointly with other persons, has effectively reached the control of a listed company. A person will have, individually or together with other persons, a controlling interest when they:

  • directly or indirectly reach a percentage of voting rights equal to or greater than 50 per cent of the listed company, excluding from the calculation those shares that belong, directly or indirectly, to the affected company; or
  • have obtained less than 50 per cent of the voting rights of a company but otherwise act as controlling shareholder.

The regulations now clarify that the tender offer must be launched upon acquisition of control.

8 Take us through the typical stages of a transaction in your jurisdiction.

The local steps in an M&A process follow international market practices. Usually, M&A transactions start with the execution of a non-disclosure agreement (NDA) between the potential parties. Depending on the complexity of the transaction, the parties may negotiate and execute a memorandum of understanding or letter of intent (commonly non-binding for the parties) to establish the general framework of the potential transaction and its main terms and conditions.

Once the NDA is executed, the purchaser is expected to conduct a due diligence of the target to identify possible contingencies and make a valuation of the target company or assets to be transferred. Due diligence usually covers the legal, accounting, tax, financial and technical areas. The scope of the audit will depend on various factors, such as the time and cost assigned, and will ultimately be conditioned by the activity carried out by the target company.

Usually, the target’s information is uploaded in a virtual data room, and in-person meetings are held with the key managers of the target to discuss the main issues that may arise from the due diligence. Once the due diligence is completed (or when it is already in an advanced stage), the parties start to negotiate the transaction documents.

As mentioned, most of the M&A activity is done through private deals. These may involve shares, assets or a combination thereof. Generally speaking, share deals are preferred over asset deals for tax considerations.

Share deals are undertaken through stock purchase agreements that generally follow international standards for private transactions. These agreements can be subject to foreign law and jurisdiction (including foreign arbitration tribunals). This is generally the case in transactions for high-end Argentinian companies; however, there are some aspects that will necessarily depend on and be governed by Argentinian laws (eg, matters relating to the consummation of transactions, certain matters covered by local securities regulations, labour laws and regulatory requirements).

9 Are there any legal or commercial changes anticipated in the near future that will materially affect practice or activity in your jurisdiction?

Since the current administration took place in December 2019, local market conditions have deteriorated. The policies implemented by this administration are far from restoring the confidence of the local and international business community. The foreign exchange controls, high levels of inflation and the new corporate law requirements for foreign shareholders are affecting economic activity in general and the M&A deal flow in particular.

In early 2022, the National Senate signed the agreement between Argentina and the International Monetary Fund to refinance the foreign debt ($45 billion). The Argentinian peso has devalued substantially since the beginning of 2022. For the coming months, the current FX regime is expected to remain unchanged, making it harder to mitigate the high levels of inflation, currently standing above 80 per cent. Recent economic measures taken by the administration lack the necessary incentives and consistency required in relation to current economic and financial challenges, falling far short of what the stabilisation plan would require in the current macroeconomic situation.

10 What does the future hold? What activity levels do you expect for the next year? Which sectors will be the most active? Do you foresee any particular geopolitical or macroeconomic developments that will affect deal sizes and activity?

As mentioned in previous replies, due to weak political and economic performance, the current administration has lost credibility and, therefore, the outlook is negative. A possible change in government after holding the presidential elections in mid-2023 could restore faith among the local and international business community.

Argentina has attractive investment projects capturing the interest of local and foreign investors, especially in the above-mentioned sectors related to energy and natural resources, agribusiness and technology.


The Inside Track

What factors make mergers and acquisitions practice in your jurisdiction unique?

The structure of the transaction plays a fundamental role, not only because of the potential tax efficiencies that can be achieved, but also because the structure can make a great difference from a foreign exchange standpoint (eg, payment of purchase price and future distribution of corporate profits). Structure can also mitigate regulatory risks (ie, avoid unnecessary governmental fillings or approvals) and reduce the impact of contingencies associated with the target company or assets (mainly of a labour or tax nature).

What three things should a client consider when choosing counsel for a complex transaction in your jurisdiction?

In our view, there are three fundamental pillars:

  • high-quality teams across the different practice areas that may be relevant to the transaction;
  • a deep understanding of the business drivers, potential risks and legal environment for the transaction; and
  • a counsel that can lead the transaction with a practical approach to add value in a cost-efficient fashion.

What is the most interesting or unusual matter you have recently worked on, and why?

During 2021, I represented the buyer in a complex transaction worth $250 million involving the acquisition of an oil and gas asset located in the world-renowned Vaca Muerta shale play in Neuquén, as well as associated assets and liabilities from a distressed local oil and gas company. The transaction included:

  • an asset purchase transaction to acquire the mentioned asset (requiring substantial work on the regulatory front as the oil and gas concession had to be extended by the provincial government and was subject to an extensive negotiation on minimum investments, and the acquisition was also required to be approved by the energy regulator);
  • a financial debt restructuring transaction, which included the restructuring of a $80 million syndicated credit agreement between the seller company and international creditors; and
  • a securities exchange deal in the Argentine capital markets, including the creation of a financial trust and the issuance of trust debt securities worth approximately $21 million, payable in kind with existing defaulted securities.

The transaction was authorised for public offering by the Argentine Securities and Exchange Commission. This piece of the transaction is relevant, as this deal represents a totally new investment and financing product in the local market. By exchanging the new trust securities for outstanding existing notes, the transaction represents, in economic terms, the first case in Argentina of an exchange of notes for trust debt securities with public offering.

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