Ana Mercedes López and Rafael Burgos,
El Salvador has just held a presidential election and
emerged from it with a new president who ran for a political
party that has never before been in government. Given this
backdrop, the market has been cautious with regards to
executing M&A transactions. Notwithstanding this, there
have been some relevant M&A transactions in the first two
months of 2019.
Economic growth in El Salvador over 2018 was held in check
by the political landscape and a lapse in security compared to
previous years and the flow of M&A transactions did not
As the Salvadoran stock market is still under development,
there are few companies that are required by law to be listed
in the public market. As a result, Salvadoran companies are in
their majority held privately and M&A acquisitions are
The most significant transaction structure trends derive
from M&A transactions between competitors driving industry
consolidation without the entrance of new players. There has
also been some interest from foreign private equity funds to
invest in recently developed energy projects.
Financial investors are starting to review Salvadoran market
conditions in order to participate in local M&A, especially
related to the energy market. We expect to see major
participation of private equity funds once the most recently
adjudicated energy projects begin commercial operations.
The most recent major M&A in El Salvador was The Bank of
Nova Scotia's sale of its banking and insurance business to a
Panamanian investor who is also the majority owner an important
financial group (Grupo Cuscatlán). The transaction has
yet to be approved by the regulatory authorities
(Superintendence of the Financial System/ Superintendence of
Elsewhere, Telefonica has agreed to sell its operations in
El Salvador to America Móviles, which is also the owner
of CTE-Claro in El Salvador (another relevant player in the
telecom sector). The transaction is subject to the applicable
regulatory approvals. This transaction is part of a joint deal
which included the operations of Telefónica in
Guatemala, where the transaction was a simultaneous sign and
close as no regulatory approvals were required in this
In both cases, the market is focused on the resolution that
the Superintence of Competition will either authorise, allow
with conditions or reject the transactions.
LEGISLATION AND POLICY CHANGES
The Salvadoran Commerce Code is the principal regulation
that governs M&A in El Salvador. Also, depending the amount
of the transaction, the Competition Law may be applicable.
Finally, depending on the industry, other relevant regulations
may be applicable (or instance the Banking Law,
Telecommunications Law, General Electricity Law, etc.)
Recent changes in law
There have not been relevant changes in regulations related
to M&A transactions.
Regulatory changes under discussion
The Superintendence of Competition has announced that will
file a proposal before the Salvadoran Congress to amend the
Competition Law, with the purpose of decreasing the monetary
thresholds in which an M&A transaction needs to request
authorisation from the Superintendence of Competition, among
other aspects of the law.
One common mistake made in the Salvadoran market is that
seller's budget does not always contemplate the execution of a
vendor's due diligence, which aims to identify, treat, solve
and/or disclose the relevant contingencies, and therefore fails
to avoid a decrease in the purchase price during the
negotiation of the SPA.
Another mistake is to underestimate the petition to be filed
before the Superintendence of Competition. Even though not all
transactions require authorisation (for instance when the
economic thresholds of the transaction do not exceed those
established by law), in practice it may be convenient to obtain
the written opinion of the Superintendece, even if it only
refers to the Superintendece's non objection. The closing of a
transaction is sometimes delayed for not having taken this
aspect into consideration.
Frequently overlooked areas
As described above, some of the overlooked areas include
vendors due diligence, regulatory approvals (including, but not
limited to competition filing) and tax planning and
As described above, the stock market in El Salvador is under
development and public companies are not common on the
Salvadoran market, thus, transactions are mostly conducted
privately. Nevertheless, in public transactions a key factor is
to obtain the applicable regulatory approvals before the Stock
Exchange and Superintendance of the Financial System.
Conditions for a public takeover
The shares of Salvadoran public companies may also be
transferred privately, therefore, public takeover offers are
not common locally.
Break fees are not a common practice in El Salvador market,
for public or private transactions.
To address the more sensitive contingencies, buyers often
request sellers to provide bonds issued by local financial
institutions in a private M&A transaction in the market, in
view that the payments are easier to execute than escrow or
other agreements. Insurance for representations and warranties
is not common in local M&A transactions, but it is a trend
to consider taking into account that a significant portion of
M&A transactions are submitted to foreign laws rather than
Conditions for a private takeover
Key conditions include the purchase price, reps and
warranties, regulatory approvals and any conditions to closing.
Foreign governing law
Using a foreign governing law is common practice, as long as
either the seller or buyer is a foreign company. M&A
transactions between local companies are usually submitted to
The exit environment
An exit on the local market is usually executed as a result
of private negotiations between a buyer and a seller.
Investment bankers have an active role in seeking business
In view of El Salvador's new government, which will take
office on June 1 2019, we believe that investors will act
cautiously until they are able to understand what approach the
President-elect will take in relation to private investment.
The legal sector will always be prepared for any opportunity
and requirement from the market.
Ana Mercedes López
San Salvador, El Salvador
T: +503 22570900
F: +503 22570901
Ana Mercedes has participated in financing projects
for the aviation and energy industries, among others.
She has advised internationally renowned companies on
the execution of power purchase agreements (PPA), EPC
agreements, O&M agreements and on obtaining all
regulatory approvals in El Salvador. Her experience
includes advising multinational companies on mergers
and acquisitions, regulatory analysis related to
concentrations and legal corporate matters.
She has a degree in law from Dr Jose Matías
Delgado University and a master's in entrepreneurial
law from Navarra University, Spain. Ana also has a
diploma in family education from the European Institute
of Education and a master's degree in bioethics, from
the Universidad del Istmo, Guatemala.
Ana has been recognised as best finance lawyer in
Latin America by Euromoney Legal Media Group's
"Americas Women in Business Law Awards". She was
awarded Central America Lawyer of the Year by Chambers
Women in Law Awards 2018 and is ranked in Chambers
Latin America for her corporate and commercial
practice, as well as for her active role and expertise
in banking and finance. She is also listed as
"Recommended lawyer" by The Legal 500.
San Salvador, El Salvador
T: +503 22570900
F: +503 22570901
Rafael Burgos is member of Arias´corporate
team, where he has been providing legal advice to
national and international companies involved in
complex multi-jurisdictional transactions and leading
them to their successful completion.
Currently, Rafael advises internationally renowned
companies in the local and international execution of
their projects, with a special emphasis on the
development of their investments in the energy industry
through the drafting and review of power purchase
agreements (PPA), engineering, procurement and
construction agreements (EPC) and operation and
maintenance agreements (O&M) and the securing of
all required permits and authorisations for the
execution of projects in El Salvador. Rafael has also
been involved in the financing of projects, as in the
incorporation and acquisition of companies dedicated to
diverse matters within the energy industry.
He has a law degree cum laude from Dr José
Matias Delgado University and an LLM in corporate law
from Pontificia Universidad Católica de