For several reasons, such as demographics and income, and especially because of precarious structure (in comparison with an enormous demand), Brazilian health care market is recognized as one of the most attractive in the world. Besides the lack of financial public investments, the main reason for the outdated health care system in Brazil might have been the delay in opening this market for the foreign investment.
The very first small door opened for the exploitation of such market by foreign investors occurred back in 1998, with the enactment of Law 9,656. Such statute made to international companies access to a specific part of the health care system, enabling them to invest in private health insurance and plans segment.
Up to Law 13,907[1], enacted on January 19, 2015, foreign investor was only able to participate in private health insurance companies, which, by their turn, were able to invest and buy Brazilian hospitals. Foreign hospitals could not incorporate and / or directly acquire equity participation in Brazilian hospitals, human genetic and clinical analysis laboratories. After Law 13,907, no such restrictions apply, and foreign investors may freely invest in companies of the health care field, including, but not limited to, hospitals and laboratories (human genetic, clinical analysis, pathologic anatomy, image diagnosis, among others). It is important to stress that relevant part of the private capital invested in health services in Brazil has foreign origin. With such a legislative change, this percentage tends to grow, since the international private sector will have access to the health care market (at this time, in the hospital, clinical and laboratory services industry).
Foreign investment[2] in the health care market are more than welcome and comes in a good time. Current economic scenario and crisis combine excessive cost on private funding and insufficient public sector resources to meet social demands. Difficulties tend to accentuate especially given the relatively scarce local investments in research, development and training, relegating the structural locations for the lower value-added services provision.
Capital inflows will facilitate investments in the sector. In the other hand, local institutions (many of them unfamiliar with international management standards), will be forced to compete with referenced structures, which are regularly more efficient. Therefore, foreign investment will serve the important role of the market intelligence developer and process structuring, aiming to increase efficiency in the health care market.
Entering the Brazilian market is tough not very easy. Besides several cultural barriers, the Brazilian health care market is complex, highly regulated, fragmented and uneven, with major discrepancies among competitors in terms of infrastructure, technology, organization, training, processes and human resources.
Even tough, a significant portion of hospitals, clinical and laboratory services institutions will be prepared to the opportunities brought by Law 13,097, aiming to attract foreign investors to improve their market position.
Thus, the industry consolidation trend through mergers and acquisitions is likely to increase significantly, and legal advice becomes crucial for foreign investors seeking for good opportunities in the health care market in Brazil. For those investors which intend to incorporate a subsidiary in Brazil, the most relevant aspects will be: (i) choosing the correct corporate vehicle in Brazil; (ii) reviewing the best funding alternatives available (which, briefly stated, are the capital contributions and the foreign currency loans); and (iii) reviewing the HR structure and tax model.
Accordingly, for those who plan an acquisition in Brazil, important issues will be: (i) carry out a full legal and financial due diligence, to identify the business risks and proceed, together with the legal and financial advisors, with a careful review aiming to mitigate contingencies (especially those of tax and labor nature); (ii) review foreign exchange regulatory matters to define as to how payment for the acquired equity stake will be made; (iii) tax matters, since almost every acquisition in Brazil by a foreign investor has relevant tax consequences, which should be reviewed before the transaction is concluded; and (iv) human capital, which is one of the biggest bottlenecks in the industry and therefore, proper management and retention of human capital is strategic and determinant for project profitability, especially in markets niches in which services are more complex and have higher added value.
It happened for other sectors of the industry, such as the automobile and telecom, and we are now seeing the “appetite” of big players of a specific market coming back to invest in Brazil. Foreign health care investor profile is aimed on structuring the business, with a long-lasting commercial relationship, based on strong corporate governance milestones. Such characteristics, aligned up with the new legal framework, will surely cause a relevant economic impact to our country, since the private health care market represents almost 10% of our GDP[3]. Acquisitions are in the verge of being started…
Notes
[1] Before the Law, Brazilian companies had access to foreign funding via foreign currency loans, which were scarce and with a high cost.
[2] Equity (capital) investments are not subject to any prior approval and have the same treatment as the national investment. Dividends and capital may be repatriated if the foreign the investment is registered with the Brazilian Central Bank. Dividend payments do not require any prior approval to be remitted abroad. Dividends paid to nonresidents are not subject to any withholding tax. Nonresidents may repatriate their investments regardless of any prior approval and free of tax, provided that the funds to be repatriated do not exceed the amount of the capital registered with the Central Bank.
[3] As per information provided by the National Association of Private Hospitals.
Patricia Freitas Fuoco, Bruno Mirabile and André Luis Garbuglio published the article “The Healthcare market in Brazil: new business opportunities” at the Recht & Steuern of the Brazil-Germany Chamber of Commerce and Industry – AHK.
Bruno Mirabile is associate at Pacheco Neto Sanden Teisseire Law Firm.
André Garbuglio was an associate at Pacheco Neto Sanden Teisseire Law Firm.
Patricia Freitas Fuoco was consultant at Pacheco Neto Sanden Teisseire Law Firm.
