Mergers & Acquisitions: How to Prevent Your Business from Incurring in Sanctionable Economic Concentrations under Ecuadorian Law

When discussing mergers and acquisitions (M&A), we refer to a series of legal and non-legal acts, including economic, financial, and accounting actions.

Whether a company acquires the rights of another, either fully or partially, the expected outcome is always to have a larger company (understood as market share) compared to any of the preceding entities.

The point of legal interest, however, arises when the result of these acts violates regulations governing the economic concentration of commercial operators. In Ecuador, the Organic Law of Regulation and Control of Market Power stipulates that certain companies engaging in capital transfers must notify the competent authority (Superintendency of Economic Competition), which will then evaluate each case to determine if there have been any regulatory infringements.

The companies required to make the aforementioned notification are:

a) Those whose total business volume exceeds the limit set by the Regulatory Board within a specific period.

b) Those in which, as a result of the concentration, a share equal to or greater than 30 percent of the relevant market for the product or service at the national level or in a local market is acquired or increased.

If a breach of regulations is determined, such as failing to comply with the required notification, it is within the competent authority’s power to impose sanctions, typically monetary penalties, which can be a significant burden for the company receiving them.

For these reasons, before initiating a corporate procedure aimed at completing mergers and acquisitions, it is recommended that companies seek proper legal counsel and adhere to compliance standards, encompassing both good corporate practices and proper observance of regulations such as Competition Law.

At Quevedo & Ponce, our team of experts with extensive experience is qualified to provide you with the appropriate legal advice based on your specific needs and in accordance with your company’s activities.