Although many transactions in Costa Rica are not publicly disclosed, a reliable indicator of market activity can be found in the statistics of merger control filings before the national competition authorities:

• the Commission to Promote Competition (COPROCOM) for the general regime; and
• the Superintendency of Telecommunications (SUTEL) for the telecommunications sector.

In 2024, COPROCOM reviewed 54 transactions, which represented a stabilisation in the increase seen in 2023, compared to 2021 and 2022.

Broadly speaking, Costa Rica's M&A market tends to have two types of M&A transactions:

• cross-border deals led by foreign multinational companies, where one entity acquires another entity abroad, and the acquired group includes Costa Rican subsidiaries that are consequently brought into the process, in which the attorneys leading the acquisition process abroad seek local counsel to execute the transaction in Costa Rica; and
• purely domestic transactions, with Costa Rican entities not connected to larger multinational acquisitions – this category has seen a notable resurgence in activity in the past year.

Another significant trend to note is the use of artificial intelligence tools in corporate transactions.

The telecommunications sector experienced the most significant increase in M&A activity in 2024. The IT sector also saw a notable number of transactions, with many involving the total or partial acquisition of innovative local start-ups.

Other significant deals took place in the energy, real estate, hospitality and retail sectors, including automotive and electronic devices.

In general terms, there are two main alternatives to acquire a company in Costa Rica:

• equity acquisitions are the most common mechanism to acquire a company in Costa Rica, and involve the execution of a share purchase agreement by means of which the buyer acquires all or part of a company's capital stock; and
• asset acquisitions enable the buyer to select specific assets it intends to acquire from the seller which it intends to acquire, enabling the parties to exclude specific assets, rights or liabilities from the acquisition.

It should be noted that Costa Rica has a very small stock exchange, with some listed local entities. If any such entity is the target of an acquisition, there are certain special rules that would be applicable. However, such acquisitions are not common in Costa Rica.

If the obligation to notify a transaction is triggered, the parties must seek clearance from the corresponding competition authority (COPROCOM or SUTEL) prior to closing the transaction.

Acquisitions in the finance sector must be filed before COPROCOM. However, for such types of transactions, the National Council of Supervision of the Financial System (CONASSIF) may decide from a reasonable point of view whether COPROCOM or CONASSIF makes the final decision.

Acquisitions involving publicly traded companies require the involvement of the General Superintendency of Securities (SUGEVAL). Depending on the shareholding threshold to be acquired, a public tender offer may need to be launched.

Finally, transactions involving entities authorised to manage pension funds must obtain prior authorisation from the Superintendency of Pensions, even if they do not trigger the standard merger control obligation.

In Costa Rica there are no special limitations regarding foreign investment. However, companies that want to acquire companies in the following sectors must carry out a strategic exercise to consolidate their investments and ensure that they comply with the law.

• Energy sector – the Costa Rican energy sector is a complex and regulated market in which the State, acting through various public entities, is the sole agent authorised to sell energy to end users. Private companies may sell energy to the State only if they hold a specific concession. In addition, such companies must have at least 35% of their capital stock ultimately owned by Costa Rican individuals or entities.
• Hospitality – in acquisitions involving entities that have a concession for the use of land located in the maritime-terrestrial zone, the capital stock be at least 50% Costa Rican.

As such, acquisitions in either sector must ensure that, following completion, the company’s capital structure complies with the applicable local ownership thresholds.

Costa Rica has a pre-merger control system in place. The Law for the Strengthening of the Competition Authorities of Costa Rica (Law No 9736) broadly refers to transactions that are subject to merger control as “concentrations”, defining them as any transaction that results in an acquisition of control of one entity over another, or the formation of a new economic agent under joint control. As such, almost all mergers and acquisitions may be caught under the definition of “concentration”.

A transaction must meet the following two criteria in order to trigger the notification obligation:

• at least two of the economic agents involved must have generated revenues in Costa Rica or owned assets in the jurisdiction during the two years prior to the transaction; and
• the following thresholds must be met:
1. combined threshold: the sum of the parties' revenue or productive assets exceeds the sum of 30,000 base salaries during the previous fiscal year (approximately USDD27.45 million); and
2. individual threshold: at least two of the parties involved have productive assets in Costa Rica or have generated revenues in Costa Rica of more than 1,500 base salaries during the previous fiscal year (approximately USD1.37 million).

The merger control process is divided into two phases. The first phase involves the initial assessment of the transaction to determine whether or not it poses risks of anti-competitive effects. If no risks are identified (which is the normal case when the acquisition does not involve market overlap between the parties), the transaction is authorised in that first phase.

If any risks are identified, the transaction will move on to the second phase, in which those risks are analysed in depth and the Commission will aim to review whether such risks are offset by efficiencies or pro-competitive effects. The second phase will conclude with one of the following three actions:

• rejection of the transaction;
• clearance of the transaction; or
• clearance of the transaction subject to the acceptance and implementation of certain remedies to mitigate the identified anti-competitive effects.

In local transactions, the buyer may want the target to keep the same personnel or dismiss the employees and liquidate them (often with the intention of rehiring such personnel after the acquisition). The first scenario is more sensible for the buyer, but both scenarios require the execution of proper due diligence over labour matters.

The most relevant labour issues that are assessed as part of the due diligence process are as follows:

• overtime hours and commissions or bonuses – most large labour contingencies in Costa Rica are related to discrepancies on overtime payments and commissions or bonuses that should have been received;
• payment and proper reporting of social security obligations – it is especially relevant to assess whether there may be certain employee benefits that should have been classified as salary but were not treated that way; and
• employee benefits (stock compensation plans, retirement plans, company vehicle, etc).

Even if the buyer prefers to terminate the labour agreements with personnel, they must take into account that this will only operate with the employer's liability and there are special circumstances in which the local regulation still forbids such dismissal (pregnancy, labour harassment).

The termination of labour relations implies the payment of notice, severance indemnities, pending vacation days and Christmas bonuses, and requires a case-by-case analysis.

There is no national security review or control in Costa Rica.

Mergers and acquisitions are not usually subject to scrutiny in judicial cases or court decisions.

Nevertheless, certain changes have made merger control stricter over the past few years. With the entry into force of Law No 9736, gun-jumping is more severely penalised. Furthermore, a regulation to Law No 9736 and merger control guidelines have been issued by the local competition authorities, aiding companies in navigating through these proceedings.

Whenever a transaction meets the criteria to be subject to merger control, the obligation is deemed to be fulfilled even if only one of the parties submits the notification. However, failure to file the notification can lead to economic fines for all parties involved, as well as other measures such as divestment or de-concentration in specific cases. The fines range from 0.1% to up to 10% of the parties’ total revenue generated in Costa Rica during the previous fiscal year. Therefore, it is recommended that any company involved in a transaction seeks specialised advice on competition law in a timely manner, in order to comply with local regulations and avoid contingencies.

There have been no regulatory changes surrounding takeover law.

Acquisitions of listed companies in Costa Rica are not common, and stakebuilding tends to be more associated with acquisitions of such entities.

Given that 99.9% of acquisitions in Costa Rica involve a private company as the target, stakebuilding is not customary in Costa Rica, and is infrequent in such transactions. However, it is not uncommon to see transactions for the consolidation of control in a company one or two years after the first acquisition of shares by the acquirer.

There is no general obligation to disclose shareholding interests specifically tied to M&A. However, when a publicly traded company in Costa Rica is involved, any purchaser who directly or indirectly acquires shares – including rights that may result in subscription – and, as a result, gains control of 10% or more of the company’s total subscribed capital must notify the company, the stock exchanges where the shares are listed, and SUGEVAL.

Notwithstanding the above, any company – regardless of whether or not it is publicly traded – must submit an extraordinary ultimate beneficiary declaration to the Central Bank if there is a change in control equal to or greater than 15%. The information disclosed in this filing remains confidential.

A company may not introduce rules such as changing reporting thresholds in order to hurdle stakebuilding. These reporting thresholds are regulated by law and, therefore, they cannot be overridden by modifications to a company’s articles of incorporation or by-laws.

Dealings in derivatives are permitted in Costa Rica and are used in more complex transactions. However, it is not a customary mechanism for handling transactions in this jurisdiction.

While there is no specific filing or reporting obligation regarding derivatives, companies must be aware that any derivative granting rights to acquire or subscribe shares should be disclosed when conducting a merger control filing, with it being important for the assessment of the company’s participations and effects in relevant markets.

In general, shareholders are not required to disclose the purpose of their acquisition. However, whenever a transaction triggers merger control filing obligations, such information shall be disclosed to the applicable competition authority.

Deal disclosure requirements may vary, depending on the company’s regulatory status. For this purpose, a distinction must be made between companies that are not subject to special regimes and companies that are listed on local stock exchanges.

• Whenever a deal involves non-regulated target companies (non-listed and not involved in highly regulated markets), a competition law assessment must be conducted. If the transaction meets the criteria and thresholds set out in 2.4 Antitrust Regulations, it shall be subject to merger control. To comply with competition regulation, either the target or other parties to the transaction may file the transaction with the applicable competition authority at any time before its execution. There is no specific timeline or prior agreements that must be filed, but the notifying party must disclose the terms and conditions that shall be applicable, including the structure of the transaction. In the case of a share purchase and sale, for example, it should indicate, among other things, which company(ies) will act as purchaser(s) and the percentage of capital stock to be acquired. Any ancillary restrictions must also be precisely identified.
• For companies listed on the stock market, SUGEVAL’s regulations shall be applicable, without prejudice to the complementary application of general regulations. Under the Regulations on Public Purchase Offering of Securities, the offeror must submit a request for a public acquisition offer to SUGEVAL, subject to the requirements set forth in the Law. In this case, it is not necessary for a specific agreement to have previously been signed, but the terms and conditions that will apply must be disclosed and may not be modified.

While legal requirements may mandate prior disclosure under specific circumstances, market practice often leans toward delaying announcements until there is greater certainty around the deal.

Although companies generally comply with applicable pre-closing regulatory approvals (particularly in the context of merger control), some prefer to postpone public disclosure of transactions involving private companies to third parties (other than competition authorities) until completion. This approach is often intended to avoid disruptions to ongoing operations or to prevent attracting competing bids.

In general terms, a standard due diligence process in Costa Rica involves the assessment of the following elements:

• corporate structure – a review of legal books and governance documentation (by-laws, shareholders' agreements, board resolutions, statutory filings) to ensure consistency with reports and agreements;
• key contracts– identification and analysis of material agreements (supply, distribution, service, lease, financing);
• labour – a review of all labour matters (see 2.5 Labour Law Regulations);
• asset assessment – verification of ownership and encumbrances over key assets such as real estate and vehicles, and a review of property titles, leases, mortgages and other security interests;
• regulatory and administrative matters – an examination of business licences, operational permits, sector-specific authorisations and compliance with applicable regulations, and an assessment of risks related to government investigations, administrative proceedings and obligations under IP, data protection and consumer protection laws;
• outstanding and potential litigation and contingencies – a review of ongoing or threatened legal disputes, arbitration or administrative claims, and an analysis of the likelihood of adverse outcomes, estimated financial exposure and potential reputational impact; and
• accounting and tax – a review of financial statements, tax returns and accounting practices, and an assessment of compliance with applicable tax laws and identification of contingent liabilities, pending audits or disputes with tax authorities.

The scope of due diligence on a transaction varies considerably depending on the type of transaction, the markets in which the parties operate and the purpose of the transaction. There are certain sectors that will involve more highly specialised due diligence.

During the negotiation phase, it is very common for the parties to agree on exclusivity, so that the sellers do not negotiate with third parties that may affect the ongoing negotiation. This is often agreed upon in the initial letter of intent.

Standstill clauses are common in international or multi-jurisdictional hostile takeovers, but it is uncommon to see hostile takeovers in Costa Rica, so these clauses are not customary nor usually demanded.

It is permissible for tender offer terms and conditions to be documented in a definitive agreement, although this is not common since tender offers are not customary in Costa Rica. The execution of agreements during negotiation phases, including the definitive terms and conditions, is uncommon in transactions involving private companies.

Typically, a non-binding letter of intent is signed first, followed by a due diligence process. Afterward, the parties enter a negotiation phase, during which the final key terms of the sale and purchase agreement are defined and agreed upon.

In some cases, when the parties aim to close swiftly, a hold-separate agreement is agreed upon after finalising due diligence, where provisional terms and conditions are agreed upon, including suspensive clauses stipulating that the contract will be executed immediately upon the fulfilment of certain conditions. In cases that require the approval of the competition authorities, one of the suspensive conditions is such clearance, but in these cases, such terms and conditions may be subject to variations when required by the competition authority, which may be incorporated more quickly by means of addendums.

Contrary to the above, when the acquisition of listed companies is sought in certain circumstances, the buyer must issue a Public Purchase Offering of Securities in which the terms and conditions must be stipulated (see 5.1 Requirement to Disclose a Deal).

The length of the process for an acquisition will depend considerably on the size of the targets, the extent of due diligence required by the buyers, the markets in which they operate and whether pre-execution approvals are required.

The due diligence and execution timeframe will also change depending on the availability of information, but an approximate range is four to eight months.

Following this, when authorisations are required by competition authorities, if a transaction will not affect relevant markets, its authorisation may take, in practice, approximately 30 days after its notification to the authority. If the transaction does cause competition risks, a period of 90 days should be added after the parties offer commitments to the authority.

When a private company that is not subject to special regimes or merger control is involved, Costa Rican regulation does not set a mandatory offer threshold.

For public companies, certain thresholds shall be applicable depending on the specifics of the purchaser and the aimed participation percentage to be acquired, which shall be legally assessed on a case-by-case basis.

The most common consideration in Costa Rican transactions is cash, usually through financing, as it provides more certainty of value as well as regulatory simplicity. Agreeing for shares to act as consideration is less frequent due to regulatory and valuation challenges, but is permitted and used; it would not be considered out of the ordinary to use shares as consideration.

In transactions involving the real estate market, real estate assets are sometimes incorporated as consideration, which is unusual in other jurisdictions.

In deals involving industries with high-value valuation uncertainty, the following tools that have been implemented to bridge value gaps:

• earn-outs – the seller may receive additional payments based on the target’s future performance;
• price adjustment mechanisms – either through working capital adjustments, based on the status at closing, or through net debt adjustments at delivery;
• seller financing – vendor take-back through seller deferred financing may also be implemented;
• continue value rights – the seller may receive additional payments based on the achievement of agreed-upon milestones; or
• escrows – partial amounts of the purchase price may be held to cover certain representations, warranties, breaches and liabilities.

In Costa Rica’s small public stock market, certain requirements must be met in the context of a takeover of a publicly traded company. The offeror must disclose:

• its existing participation in the target (if any);
• any private agreements entered into with the target’s board of directors;
• the consideration being offered;
• the scope of the securities involved; and
• other relevant details concerning the offeror.

In some cases, the effectiveness of the offer may be conditioned on acquiring a minimum number of securities.

For acquisitions involving private companies, the parties are generally free to agree on a non-exhaustive list of conditions. However, some ancillary restrictions – such as non-compete or exclusivity provisions – may be subject to scrutiny by the competition authorities, which may reject certain terms or condition the approval of the transaction on their limitation. It is common practice to include non-compete clauses for specific durations, provided they meet legal and regulatory requirements.

In a Public Purchase Offering of Securities, when the offeror intends to reach a participation equal to or higher than 25% but lower than or equal to 50%, the offer must be made on a number of securities representing at least 10% of the capital of the offeree company.

When the offeror intends to reach a participation higher than 50%, the offer must be made on a number of securities that allows the acquirer to reach at least 75% of the capital of the offeree company.

In transactions involving private companies, it is possible to enter into agreements that include suspensive clauses that make the completion of the transaction conditional upon the buyer obtaining financing.

However, this is restricted in public company acquisitions subject to a Public Purchase Offering of Securities, as a performance bond must be provided in order to place an offer.

In Costa Rica, deal security measures sought by bidders of private companies generally align with international standards and have not suffered changes in the regulatory environment. However, this should comply with local corporate, contract and competition law. Common deal protection mechanisms include:

• break-up fees not exceeding a quarter of the principal obligation under the transaction;
• initial bidder match rights; and
• non-solicitation and non-competes, provided these comply with local competition law.

In private company partial acquisitions, bidders often enter into shareholder agreements to secure the right to appoint certain board members and management positions. Another strategy is to remove cumulative voting from the company's by-laws. This system, established by the Commercial Code, allows shareholders to allocate their votes – calculated by multiplying their shares by the number of board seats – among candidates as they choose, enhancing minority shareholder representation. The Code also generally prohibits partial or staggered board renewals if they would obstruct cumulative voting.

Shareholders may grant a proxy letter or a power of attorney to a third party for the authorised person to represent them in shareholders' meetings.

Some squeeze-out mechanisms are mergers, as a common approach is to merge the target company with the acquiror. In such circumstances, dissenting shareholders shall have the right to withdraw and demand compensation.

In addition, shareholder agreements including drag-along clauses may be implemented. While not regulated by the law, they can still be contractually agreed and enforced between shareholders. If properly structured, these agreements can force minority shareholders to sell their shares once the majority approves a transaction.

It is possible to negotiate such types of commitment in Costa Rica, but they are not common.

These commitments are typically negotiated at an early stage in the process, and the nature of these undertakings can vary. In some cases, they are strictly binding and irrevocable, regardless of the emergence of a competing offer. However, these commitments may be drafted so that they allow the principal shareholder to withdraw their commitment if a superior offer is received.

In private company acquisitions, while irrevocable undertakings may also be sought, they tend to be more straightforward and less likely to include fiduciary outs.

The purchase and sale of shares of private companies does not require publication. In some asset purchase agreements, a publication in the official newspaper must be made so that third parties can make a well-founded objection.

In acquisitions of public companies, the offer must be published in newspapers of national circulation after SUGEVAL has received and processed the application of the bid.

In the context of business combinations such as mergers, Costa Rican law requires certain disclosures prior to the registration of the merger with the National Registry. Specifically, the notary public who formalises the shareholders’ meeting resolutions approving the merger must publish an edict in the official newspaper, La Gaceta. This publication must allow interested third parties to raise objections and must include, at a minimum, the names and corporate identification numbers of the merging Costa Rican companies, along with a summary of the merger agreements.

In addition, if the transaction is subject to merger control, COPROCOM is required to publish a notice in a public medium of its choosing. This notice must identify the parties involved, describe the nature of the transaction, and indicate the relevant markets in which the parties operate.

Bidders involved in a Public Purchase Offering of Securities in Costa Rica are required to submit audited financial statements. These must cover both the bidder (ie, the direct offeror) and its broader economic interest group, and must include, at a minimum, the financial information for the most recent fiscal year.

While the specific regulations governing this process do not mandate a particular accounting standard, in practice financial statements are generally prepared in accordance with International Financial Reporting Standards (IFRS), which are widely accepted in Costa Rica.

Full disclosure of transaction documents is not typically required as part of standard procedures. However, during merger control proceedings, the competition authority may request a notarised copy of the closing agreement, particularly in cases where exclusions have been imposed or commitments have been agreed upon as conditions for approval.

In Costa Rica, directors involved in a business combination owe fiduciary duties primarily to the company and its shareholders. These duties include acting in good faith, with loyalty, and in the best interests of the company. However, directors may also have responsibilities toward other stakeholders, such as employees, creditors or the general public, particularly if regulatory or public interest considerations are at stake.

As part of the merger process, the board of directors must convene and adopt a written resolution approving the terms and conditions of the merger, along with any other matters they deem relevant.

If the merger is subject to merger control, at least one of the parties must file the corresponding notification with the applicable competition authority (COPROCOM), usually through its legal representative.

It is relatively common for boards of directors to establish special or ad hoc committees in the context of business combinations, particularly when actual or potential conflicts of interest exist among board members. These committees (often referred to as special committees) are typically composed of independent, disinterested directors and are tasked with evaluating and negotiating the transaction on behalf of the company.

The use of such committees enhances the integrity of the decision-making process, helps to ensure compliance with fiduciary duties, and provides greater protection against potential legal challenges. While not mandatory, forming a special committee is a recognised best practice, especially in related-party transactions or management buyouts, or when significant shareholders are involved in the deal.

Hostile takeovers are not common in Costa Rica and there are no relevant recent precedents in this regard.

The advice of external auditors is normally used to evaluate technical and financial aspects. The criteria can be taken into account both by means of criteria disclosed in an audit, and by the reports rendered at meetings of the board of directors.

There are no judicial precedents regarding conflicts of interest of directors, managers, shareholders or advisers being subject to judicial or other scrutiny in this jurisdiction.

There is no public information revealing the occurrence of hostile tender offers in Costa Rica.

Although hostile bids and takeovers are rare in Costa Rica, and the legal framework does not provide the extensive Delaware-style takeover defences, companies may adopt various governance and contractual tools to deter or prevent unsolicited offers. These measures are typically implemented through shareholders’ agreements and corporate governance mechanisms.

There have been no hostile takeovers in Costa Rica to date. However, companies may use contractual provisions such as pre-emptive rights, tag-along rights and drag-along rights within shareholders’ agreements as preventative strategies.

In addition, if the transaction is subject to merger control, the board of directors may appear before the competition authority to raise concerns regarding potential anti-competitive effects as a form of defence.

Directors are personally accountable to shareholders for their decisions and must act in the best interests of both the shareholders and the company. If they take defensive measures that shareholders perceive as detrimental, or if they have acted despite a conflict of interest, they may face legal action.

Directors are not allowed to just reject a business combination such as a merger. When receiving an offer, this should be notified to the company’s shareholders, which ultimately would be the ones approving the merger through a shareholders’ meeting.

Judicial litigation is not common in connection with M&A deals in Costa Rica, and there is no public knowledge of recent cases.

However, most deals include dispute resolution clauses through which the parties undertake to resolve any dispute through arbitration; therefore, arbitration disputes that are not public cannot be ruled out.

The few precedents that do exist typically involve breaches of representations and warranties, or undisclosed latent defects that were not properly disclosed during the transaction process.

There have not been any significant recent judicial precedents in the M&A field in Costa Rica.

Shareholder activism is not customary in Costa Rica and has not played a significant role in shaping corporate or transactional outcomes.

Activist shareholders do not typically seek to influence companies to pursue M&A transactions, spin-offs or major divestitures.

Given the absence of shareholder activism, there have been no cases of interference with the completion of announced transactions.

However, in two merger control proceedings, third parties have attempted to oppose the clearance of the transaction before the competition authorities. One of these transactions was ultimately abandoned due to competition concerns, while the other remains under second phase review by the relevant authority.