DUE DILIGENCE IN LATIN AMERICA RISK REDUCTION STRATEGIES

1. ABA INTLAW FALL MEETING DUE DILIGENCE IN LATIN AMERICA RISK REDUCTION STRATEGIES Dr. Enrique P. Prini Estebecorena

2. TODAY’S SPECIALS • DUE DILIGENCE LATAM WAY • HIDE AND SEEK-PLAY THE GAME • DO NOT SEE YOU IN COURT • ASK THOSE RUDE QUESTIONS Dr. Enrique P. Prini Estebecorena

3. DUE DILIGENCE LATAM WAY • Each country it’s a world of its own • Latin America is too big & diverse • Who run the show • Some Lat-Am ways. Lawyers out • Know the knots & bolts of the place • Standards Dr. Enrique P. Prini Estebecorena

4. DUE DILIGENCE LATAM WAY Cont. • Management Due Diligence • Plan Ahead • Put up the right Team • Local lawyers, specialist in target industry • Local experts, target industry • Interdisciplinary exercise • Guarantee a swift flow to closing docs and decision makers and advisors • Open your game. Worst case scenario: a million deal killer unfound Dr. Enrique P. Prini Estebecorena

5. DUE DILIGENCE LATAM WAY Cont • Legal Due Diligence • It is not an end in itself • Do not over Due Diligence. • One team sees an entire issue • DD Minutes: Bigger is not better • Timing: • Most sellers and their representatives will push you to agree to a 10-day due diligence investigation. This is completely ridiculous and totally unacceptable!  There isn't a single business in the world where you can learn what you need to know in 10 days. • 20 working days, a full calendar month could suit Dr. Enrique P. Prini Estebecorena

6. Risks Assessment • Identification of deal-breaking exposures. • Quantification of the liabilities & claims assumed. • Projection of the future cost of insurance and self-insured losses. • Coordination of the matters related to closing. • Recommendations for improvements after closing. • Political Risk • Regulatory Framework of the Target • There is no such a Business like unregulated Business Dr. Enrique P. Prini Estebecorena

7. RISK MANAGEMENT • Provides pre-acquisition risk assessment of potential merger or acquisition candidates by looking at the candidate’s operations and systems within the context of the stated goals and strategic vision. • Confirms fit or results in the identification of significant issues or challenges for further consideration prior to making the final investment decision.   Dr. Enrique P. Prini Estebecorena

8. RISK MANAGEMENT(cont.) • Review the offering document. • Examine the disclosure attachments (e.g. discussion of environmental impairment matters or matters in litigation. • Confer with your client (the buyer) concerning any issues that could have a material bearing on the value of the transaction. • Prepare a list of additional information that will be required. Dr. Enrique P. Prini Estebecorena

9. RISK MANAGEMENT(cont.) • Obtain and review prior years' schedules of insurance and regulatory approvals or licenses (going back at least three years) depicting the limits of insurance, deductibles & the names of the insurance companies. • Obtain and analyze the workers compensation experience, severance packages, etc. • Discuss with the insurance & reinsurance broker(s) any preliminary findings and obtain from any missing policies, claims or other information. • Transfer income abroad and recover your investments- Local Central Bank rules. Dr. Enrique P. Prini Estebecorena

10. HIDE AND SEEK-PLAY THE GAME • Review the closing documents with focus upon any indemnification wording and the risks found. • Prepare a concise due diligence memorandum that identifies any deal breakers, quantifies the uninsured liabilities that may be assumed, projects the future cost of insurance and liabilities and sets forth the activities that will be necessary before closing and after closing. • Assure that all of the documents required at closing are prepared, including certificates, schedules and additional insured endorsements in favor of the lender/lessor/mortgagee. • Confer with buyer, the closing attorney and any other stakeholders in the transaction. Dr. Enrique P. Prini Estebecorena

11. HIDE AND SEEK-PLAY THE GAME • Financials: • They all looked so good on paper... • Just part of the movie. • US GAAP reconciliation. Apples & Oranges • Historical Data. Inflation accounting. • Assets valuation. Dr. Enrique P. Prini Estebecorena

12. HIDE AND SEEK-PLAY THE GAME • Look for: • Generous settlements, severance agreements, parachutes • Sweetheart considerations • Tax moratoriums or payment agreements • Pardons/Compensations of Debts or Covenants • Related party transactions on non-arms length terms • Suppliers long term Agreements • Consulting services • Software upgrade exclusivity • SOX implications,15(d)SEAct, Certifications 906 &302 Dr. Enrique P. Prini Estebecorena

13. DO NOT SEE YOU IN COURT • Legal Opinions: • Are they useful in the LatAm landscape?. • What is really important to be included there. • Take advantage of the local insight • DD findings must be the base for Target’s Legal Opinions. Dr. Enrique P. Prini Estebecorena

14. DO NOT SEE YOU IN COURT • Jurisdiction and Venue: • New York Law • Local jurisdiction • Importance of paper agreement, save the trees!!! • Insolvency Proceedings. • Section 304 of US Bankruptcy Code. Dr. Enrique P. Prini Estebecorena

15. DO NOT SEE YOU IN COURT • Due diligence investigation must be so complete that you leave no stone unturned. • How to interpret all contracts, leases, agreements in place and evaluate the long term viability of each and any possible liabilities they may present for you in the future. • Crisis • Investment Protection Treaties- CIADI- Dr. Enrique P. Prini Estebecorena

16. ASK THOSE RUDE QUESTIONS • A structured process should be used to make the data gathering and analysis fast and efficient. An experienced, two-to-three person team should visit the candidate company and gather data first-hand on its business system. • Business processes • Structure, jobs and skills • Information systems • Culture, norms and beliefs • Systems for managing the performance of employees Dr. Enrique P. Prini Estebecorena

17. ASK THOSE RUDE QUESTIONS • Many DD fails because the up-front rigorous analysis that was applied to the financial and legal aspects of the evaluation was not applied to the organizational aspects of the union. An "organizational due diligence" is a key requirement for the success of integration and any new alliance. • First interview Lower Staff on one on ones • Who, Where, Why Skeletons are in the Closet • Senior Staff Dr. Enrique P. Prini Estebecorena

18. ASK THOSE RUDE QUESTIONS • CEO • BOARD OF DIR.- INDEPENDENT DIR. • AUDIT COMMITTEE • EXTERNAL AUDITORS • REGULATORS • VERY IMPORTANT: DD ON YOUR OWN CLIENT! Dr. Enrique P. Prini Estebecorena

19. ASK THOSE RUDE QUESTIONS • Most of these professionals are compensated, and many quite lavishly, when the deal is consummated. However, generally nowhere on the team is there an organizational specialist whose job is to perform a due diligence on the fit of the two organizations, their business processes, and their cultures. • Repeatedly, companies learn that despite the best-developed financial plans, it is the people who make the alliance succeed or fail. Dr. Enrique P. Prini Estebecorena

20. ASK THOSE RUDE QUESTIONS • Experience has shown that the real deal-killer is the failure to effectively integrate the two merging organizations. Good integration rarely makes a truly bad deal work, but failure to integrate well almost always ruins the chances of even the most financially promising union. • Most often, the responsibility for implementation is virtually "thrown over the fence" for the two companies to sort out. Sometimes a transition leader or team is appointed, however, most times they are inexperienced & unschooled in many of the skills so critical for an effective and efficient integration. Dr. Enrique P. Prini Estebecorena

21. Conclusion • KEEP YOUR EYE ON THE BALL • ALIGN YOUR INTEREST TO THE ONE of DD TEAM • WHAT ARE YOUR CLIENT DEAL KILLERS? • Hide liabilities • Integration cultures • People to do it IDEA * ACT LOCALLY THINK GLOBALLY *COMUNICATE WITH THE DECISION MAKERS Dr. Enrique P. Prini Estebecorena

22. Conclusion(Cont.) • License or Govt. Related franchise • No magic recipes- no one size fits all • Include DD findings in the Closing Docs • Not just reps, real relief to your pain • Conditions to closing • Indemnities • Not us boilerplate materiality • Who’ll pay the check if the Deal went down the drain? IDEA Remember to PLAN AHEAD/BE PREPARED/ ASK THOSE QUESTIONS Dr. Enrique P. Prini Estebecorena