Due diligence, pricing and closing
Typical due diligence issues
In Colombia, regulatory noncompliance is not uncommon, particularly when the target is a family-owned business. Examples of noncompliance include breaches of statutory corporate obligations, underpayment of social insurance or violation of overtime policies for employees, breaches of tax law, data privacy law, intellectual property and environmental law. Often such noncompliance means additional costs for rectification and operations post-closing.
As these issues may erode deal value, a thorough due diligence process is recommended to define a plan for both the negotiation of the acquisition agreement and a post-closing plan. A deep understanding of the local practice and practical risks involved is required to create an appropriate solution. It may be advisable to seek protection through a reduction in, or holdback of, the purchase price. Escrow arrangements are also increasingly common in Colombia.
Pricing and payment
There are no special considerations regarding pricing and payment in Colombia. Parties may freely negotiate the terms considering foreign exchange controls (see below) and antitrust and other governmental authorizations (see below).
Foreign exchange control
Colombia has a floating exchange regime that operates as part of a wider economic policy targeting inflation. The Colombian Central Bank monitors currency flows and purchases foreign currency to ensure stability, but, in general, does not restrict the free-flowing exchange market. While businesses are not restricted from moving foreign currency into or out of the country in principle, they must comply with the related reporting and regulatory requirements.
The rule is that payments for goods or services between Colombian companies or individual residents must be made in Colombian pesos. This means that foreign investors will frequently need to exchange foreign currency into Colombian pesos to make payments and conduct business in the country. Exceptions to this rule include payments made from offshore accounts registered with the Colombian Central Bank and payments with respect to certain companies in the oil, gas and mining sectors.
Most business transactions that require an exchange of foreign currency into pesos (or vice versa) are regulated and the exchange must be made through an authorized channel, such as a foreign exchange market intermediary (i.e., financial entity).
Signing/closing
Whether signing and closing is simultaneous, or there is a gap between signing and closing, will depend on the conditions of each transaction. Both mechanisms are common. When a merger control or regulatory approval is required for closing the transaction, the parties typically agree on a deferred closing, subject to obtaining the applicable authorization.
