M&A IN LATIN AMERICA
Governance (ESG) programs are implemented as best practice for companies not listed in the stock market and we expect the same will also become mandatory for private companies within the next two years. In the gambling sector, it has become clear to some advisors that the primary concerns and adverse effects are not centered around taxation, environmental, and labour issues. Engaging a law firm with a sectoral specialization ensures thorough evaluations focusing on compliance, adherence to technical standards, and a deep understanding of the specific regulations governing gambling. iGaming M&A transactions: highlights and hurdles The forecast for 2024 and 2025, is an increase in activity in the gaming sector within Peru, Argentina, and Colombia. This is driven by the expected impact of newly regulated markets with the first two and by the reorganization expected in Colombia. Colombia led Latin America by regulating online games of chance in 2015, developing a mature legal framework through rigorous regulatory oversight. As a result, the country now boasts the most stringent compliance regulations in the Latin American gaming market. In the Colombian online gambling sector, aside from the previously mentioned contingencies, there is an additional critical aspect related to compliance, distinct from AML/FT concerns. This involves the contractual obligations under the terms of the operator’s license. The contractual obligations included in the concession contract (licence) set out 94 obligations that operators must fulfil to avoid any breach of the terms of the license. This compliance includes regular reporting to Coljuegos (the regulatory body) at daily, monthly, biannual, and annual intervals, alongside meeting technical compliance requirements (such as software an d
platform certification) and maintaining in good standing the payment for exploitation rights. Given these factors, compliance evaluation becomes a critical focus in the assessment of an online game of chance operator. Having said that M&A follows US and European norms, valuation practices and the setting of the transaction price diverge from standard practices, as the buyer is primarily seeking a route to market and market share. This objective de-emphasizes the acquisition of know-how, brand, business model, or profitability, resulting in a valuation based on the seller’s licensing costs, and compliance status, among other key factors. The regulatory framework of an open market jurisdiction for license applications implies an effort and a specific technique for the correct valuation of the company, which leaves the door open to applying for a new licence. Representations and warranties in iGaming sector M&A transactions differ significantly due to varying contingency priorities. It is common for an online gambling company in Colombia to have minimal staff employed under local regulations, as operational infrastructure is typically located overseas. Online gambling operators are exempt from VAT and municipal taxes, with only income tax returns being relevant. Environmental considerations are virtually non-existent in this context, shifting again the focus to ensure contractual and technical obligation, as non- compliance in these areas could result in fines or even the declaration of breach of contract with terminations as the worst consequence. Whilst the opportunities remain attractive, navigating M&A transactions in Colombia’s online gambling sector requires legal guidance from experts with proven industry knowledge. This ensures not only the avoidance of poor investments but also the effective allocation of resources towards comprehensive due diligence and the meticulous drafting of share purchase agreements.
JULIANA DUQUE Associate, Asensi Abogados, Colombia For information contact juliana@asensi.co
JUAN CAMILO CARRASCO Partner, Asensi Abogados, Colombia
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IMGL MAGAZINE | APRIL 2024
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