Mergers, acquisitions and investment flourish in a welcoming environment
Published on:Introduction
Foreign investment in the Dominican Republic is continuing to expand and the number of corporate transactions, including mergers and acquisitions, is steadily increasing. Business combinations in which one entity gains control of, or a controlling interest in, another occur frequently.
The preferred option for managing a business combination is through a merger or voluntary acquisition; under Dominican law, there is no form of hostile takeover. One of the more common approaches is a business merger. Under this model, two or more businesses choose to combine their assets to form a new company or special purpose vehicle that is stronger and more capable than the individual entities, or that may be able to obtain a larger interest in the marketplace than they had separately. The goods and services offered by the combined entity may consist of the combined product lines of the individual businesses, or may be a revamped product line that includes products of each party as well as products developed by the new entity.
There are three key reasons for the growth of mergers and acquisitions and other corporate transactions in the Dominican Republic:
·recent reforms to the Dominican legal system;
·the country's strong infrastructure; and
·its geographical location.
Legal reforms
In a transaction involving a transfer of shares or assets of a Dominican company, the companies' bylaws must be considered. Dominican law applies to some agreements. However, often New York law is used to the extent that it does not contravene Dominican public policy and on the understanding that, at some point, the documentation may have to be translated into Spanish for local registration purposes or for filing with the authorities.
Corporate transactions in the Dominican Republic are typically governed by the new Law on Corporations and the Dominican Tax Code. Additional regulations may apply to particular industries – for example, the Monetary and Financial Law would apply to mergers and acquisitions in the banking industry, and the Insurance Law would apply to insurance company mergers and acquisitions. Similarly, the Law on Electricity would apply to energy deals and the Law on Telecommunications to deals in that industry.
Over a number of years, the government has adopted substantial reforms to the country's laws and regulations that were intended, among other things, to incorporate international norms and standards into the country's rule of law. The most significant legal reforms include the new Law on Corporations, which provides a variety of corporate vehicles tailored to the needs of individual companies or investors, as well as broad tax reforms that enhanced competitiveness and improved the business environment.
Over the next few years, the government is expected to make additional changes that will affect mergers and acquisitions and other corporate transactions, including to the securities and bankruptcy laws, the Monetary and Financial Law and the Civil Code.
Acknowledging the role that international commerce plays in the Dominican economy, the government has also been an avid proponent of international bilateral and multilateral agreements to promote and protect investment in the country. Thus, the Dominican Republic is a signatory to international trade agreements with the United States – its primary trading partner – as well as with the European Union and other countries.
The Dominican Republic's participation in two particular international conventions, both relating to the enforceability of arbitration awards, is also noteworthy to businesses interested in investing or participating in mergers and acquisitions in the jurisdiction: the New York Convention, formally known as the Convention on the Recognition and Enforcement of Foreign Arbitral Decrees, and the Panama Convention, formally known as the Inter-American Convention on International Commercial Arbitration. Therefore, foreign arbitral awards are enforceable in the Dominican Republic as in other countries that are signatories to these conventions.
Dominican law sets down certain disclosure requirements for large shareholders in certain regulated industries, such as banking, as well as for companies that participate in the Dominican Republic stock market. In the banking industry, there are disclosure requirements for shareholders owning more than 3% of the stock in a financial intermediary. Business combinations constitute "relevant facts" under the Stock Market Law; therefore, companies participating in the stock market must provide notice of business combinations to the superintendent of securities.
Infrastructure and geography
In addition to a welcoming legal structure, another reason for the growth of mergers and acquisitions in the Dominican Republic is its infrastructure. The country's roads provide excellent access to the whole country – particularly compared to other Caribbean countries – while there are eight international airports and a dozen seaports near key production areas.
The Dominican Republic has a modern telecommunications system that provides it with a significant competitive advantage over other countries. In addition, the country's workforce is one of its key attributes – well educated and trained, highly skilled and multilingual.
Of course, all of this is aided by the Dominican Republic's location in the heart of the Caribbean, which allows easy access to markets in North, Central and South America, and which enables the Dominican Republic to act as an economic bridge for goods and services between those markets and Europe.
Comment
The Dominican Republic continues to offer an attractive foreign investment environment for a variety of industries, including banking, telecommunications and capital markets. Growth in sectors such as construction, energy and hospitality remains steady, along with increasing numbers of general corporate transactions and new business startups.
The government has undertaken to make procedures more efficient. In addition, it is open to meeting with parties so that they can present their proposed structures, in order to discuss whether any further documentation is necessary and whether any additional documentation is recommended in order to facilitate the process. From a more institutional perspective, businesses should recognise that the government continues to review the nation's laws and regulations; thus, the country should remain a leading destination for corporations from around the world to engage in a wide variety of business and financial transactions.
Source: International Law Office
