Deal-making has largely disappeared in Latin America as buyers put acquisition plans on ice while they seek discounts to reflect the impact of COVID-19 on valuations and also move to strengthen force majeure and material adverse event clauses for eventual closings.

For corporate lawyers in the region, this means work has turned more toward offering strategic advice, arbitration services and even restructuring. Some strategic buyers that had allotted capital for acquisitions have instead opted to stash those funds for the lean months ahead, while sellers have seen their businesses shrink amid quarantines and shutdowns.

In many cases, both buyers and sellers have taken a wait-and-see position.

The total value of mergers and acquisitions, private equity and venture capital deals either announced or closed in Latin America plunged to $3 billion in April from $16 billion during the same month of 2019, according to data compiled by Transactional Track Record.

Activity in April also slowed dramatically by number of transactions, with just 87 deals closing or announced in the region last month compared with 222 transactions in April 2019.

"While some operations have moved forward over the past two months—especially strategic deals in health, food and technology in Latin America—the transactional market faces a big challenge to advance in the middle of an environment of uncertainty and remote negotiating," said Marcela Chacón Sierra, spokesperson for research and business intelligence at Transactional Track Record.

Demand for arbitration services, though, is on the rise as investors seek deep discounts to reflect the dire economic panorama ahead. The World Bank predicted April 12 that gross domestic product in Latin America and the Caribbean region, excluding Venezuela, will contract by 4.6% this year, warning that this projection could worsen.

In one stunning collapse, U.S. aircraft manufacturer Boeing Co. pulled out of a $4.2 billion joint venture with Embraer SA that was years in the making. Boeing said the Brazilian firm was not able to satisfy conditions by an April 24 deadline to complete the deal.

Simpson Thacher & Bartlett and Brazilian firm Pinheiro Neto Advogados had previously announced they were advising Boeing Co. on the JV, while Skadden, Arps, Slate, Meagher & Flom and Brazil's Barbosa Müssnich Aragão have been mentioned in media reports as advisers to Embraer.

The firms did not respond to requests for comment.

Embraer said it has begun an arbitration proceeding against Boeing, but did not say whether the arbitration would play out in Brazil or the U.S. It also did not say who was representing the company.

Under the terms of the deal, Boeing would have assumed 80% of Embraer's commercial aircraft operations. That would have helped Embraer compete with Canadian rival Bombardier, which joined Airbus in a similar partnership announced in 2017. Embraer is a leading maker of small passenger jets.

Signs of hope ahead

A handful of large deals that were well underway still made it out of the gate as COVID-19 bore down on Latin America. And lawyers say work should pick up in the second half of the year as deep-pocketed investors prowl for discounted assets.

Cleary Gottlieb Steen & Hamilton guided Mexican beverage and retail conglomerate FEMSA to a definitive agreement announced in March to acquire a controlling interest in a U.S. distributor of packaging and sanitary supplies for $900 million. The acquisition still requires regulatory approvals.

The biggest deal to close in April was Sempra Energy's $3.59 billion sale of its Peruvian assets to China Yangtze Power. White & Case advised San Diego-based Sempra Energy alongside Peru counsel at Rodrigo, Elías & Medrano Abogados, while Baker McKenzie led negotiations for China Yangtze Power together with Peru's Estudio Muñiz.

Sempra CEO Jeffrey W. Martin says the company's $2.23 billion divestiture of its Chilean assets to China's State Grid International Development Ltd., including the divestiture of a 100% interest in the country's third-largest electricity distributor, remains on track. Paul, Weiss, Rifkind, Wharton & Garrison and White & Case have the lead roles on that Chinese outbound energy deal.

Elsewhere in the region, the UK's Imperial Brands agreed in April to unload $1.1 billion in premium cigar assets in the Caribbean to a consortium of private investors called the Allied Cigar Corp. The deal is expected to close sometime during the third quarter.

Andersen tax and legal's managing partner in Spain, Jaime Olleros, together with the firm's Cuban desk chief and European corporate legal services coordinator, Ignacio Aparicio, advised Imperial on a lengthy sales process that began in 2018. Imperial also credits Allen & Overy for offering external legal support on the deal.

The negotiations were complicated first by the prized Cuban assets in the portfolio, which drew strong interest but also trepidation, and then the COVID-19 pandemic. The assets included half of Habanos S.A., the company that exports all of communist Cuba's cigars including the renowned Cohiba brand, and two factories that hand-roll cigars in the Dominican Republic.

Dry powder to deploy

Strategic acquisitions could be stifled in the coming months as large corporations around the world focus on cash preservation to cover payroll and other expenses amid flagging or even non-existent sales because of COVID-19 precautions.

But numerous private equity firms have ample capital that they must deploy. Data provider Preqin estimates that the top-10 private equity firms globally hold $212 billion between them.

Many of the global private equity firms active in Latin America focus on energy and infrastructure opportunities, although food, healthcare, technology and sanitation are also big draws. Lawyers in the region say they're already helping clients scout for opportunities.

Struggling business owners in Latin America, meanwhile, are looking for salvation through exits or partial sales by next year or 2022. Local capital markets are shallow, and banks have tightened lending while only a handful of governments have offered financial assistance to companies.