Over the past year, Panama’s M&A market has gained momentum, supported by its strategic location, dollarised economy, and strong financial services industry. Foreign direct investment has seen a notable increase, with 2024 marking a 69.7% rise compared to the previous year. This growth is largely driven by reinvested profits in the banking and corporate sectors, as well as significant capital inflows from North America, Europe, Asia, and Latin America.

Panama has long capitalised on its geographic and policy advantages to attract international companies and investors. As the region rebounds from recent global disruptions – such as supply chain issues and shifting investment trends – the country continues to offer a compelling environment for cross-border deals. Its legal system is regarded as transparent and predictable, and its arbitration framework, which aligns with international standards, adds an extra layer of reassurance for foreign parties looking to resolve disputes efficiently.

While challenges remain – such as the social security reform and the closure of a key copper mine – the government is pushing ahead with fiscal reforms and infrastructure investments to boost growth, generate employment, and tackle long-standing structural issues.

Lastly, the political volatility in neighbouring countries has also contributed to Panama’s appeal, with many investors and companies looking to reduce their exposure by turning to more stable jurisdictions like Panama.

Panama’s M&A market has grown significantly over the past year, driven by increased foreign direct investment, particularly in the financial services, logistics, pharmaceuticals, hospitality, and quick-service restaurant sectors. The financial services sector has experienced considerable consolidation, enhancing market positions and diversifying financial products.

A change in foreign policy from the United States – historically Panama’s closest ally and largest trading partner – coupled with higher interest rates have led to longer lead times for transactions as buyers further assess geopolitical turmoil. At the same time, they take time to conduct more thorough due diligence to mitigate financing risks. The complexity of deals has necessitated more sophisticated legal counsel, ensuring compliance with local and international standards. Additionally, there has been a trend towards shorter escrow periods to expedite deal closures and reduce uncertainties. The demand for representations and warranties insurance has grown, providing buyers protection against potential losses due to breaches of seller representations and warranties. Adopting digital tools, such as virtual data rooms and electronic signatures, has streamlined the transaction process, making it more efficient. Panama also emerges as a regional arbitration hub, attracting international investors seeking neutral and efficient dispute resolution mechanisms.

Panama’s stable economic outlook, supportive business leadership, and commitment to structural reforms are anticipated to maintain investment and deal-making activities moving forward. The increasing sophistication of Panama’s mergers and acquisitions (M&A) market, driven by a more standardised regulatory environment and a growing preference for arbitration, continues to attract both regional and international investors. This reinforces Panama’s status as a leading investment destination in Latin America.

In the past 12 months, several industries in Panama have experienced significant M&A activity, reflecting the country’s dynamic economic landscape and strategic appeal to investors. Key sectors that have seen notable mergers and acquisitions include:

• Financial Services: The financial services sector has been particularly active, with consolidation efforts to enhance market positions and diversify financial products. Notable transactions include Banco Davivienda Panamá’s integration of Scotiabank Panamá and Grupo Imperia’s acquisition of Banco La Hipotecaria. These moves underscore the sector’s resilience and critical role in Panama’s economy.
• Logistics and Transportation: Given Panama’s strategic location and the presence of the Panama Canal, the logistics and transportation sector continues to attract substantial investment. The country’s role as a regional logistics hub makes it a focal point for M&A activity, with companies seeking to optimise supply chain operations and expand their reach in Central and South America.
• Pharmaceuticals: The pharmaceutical sector has also seen significant M&A activity driven by the need for expansion and market penetration in Latin America. A notable transaction in this sector is Swixx Biopharma’s acquisition of Pharma Consulting Group S.A., which marks Swixx Biopharma’s entry into the Latin American market and highlights the sector’s growth potential.
• Hospitality and Tourism: The hospitality sector has been buoyant, reflecting Panama’s growing appeal as a tourist destination. Key transactions include Hotel La Compañía’s acquisition of Hotel Los Mandarinos and La Casa de Lourdes, which enhance its luxury offerings and regional expansion strategies. This sector’s growth indicates Panama’s increasing attractiveness to international tourists and investors.
• Quick-Service Restaurants: The quick-service restaurant sector has been dynamic, with significant acquisitions aimed at expanding market presence and brand portfolios. Platinum Brands, S.A.’s acquisition of KFC and Dairy Queen assets, along with Grupo Vierci securing the Popeyes franchise, exemplify the sector’s robust activity and growth prospects.
• Automotive: The automotive sector has seen notable M&A activity driven by the entry of international players and the evolving competitive landscape. Sojitz Corporation’s acquisition of Grupo Sílaba, a leading automobile distributor in Panama, positions the company for growth in the consumer goods sector and underscores the sector’s attractiveness to foreign investors.

In recent years, M&A deals in Panama have had many drivers. Certain deals have been:

• instigated by the need to consolidate in a very competitive environment;
• undertaken to control costs and exploit synergies; or
• fuelled by the global economy and the need to develop new international markets and expand market share.

Some of the largest transactions in Central America have included a Panamanian target company, independent of whether it is an operating company or a holding company registered in Panama with operations in the region.

The primary techniques for acquiring a company in Panama include mergers, stock purchases, and asset purchases.

Mergers can be either by absorption, where one company absorbs another and assumes all its assets and liabilities or by consolidation, where two companies merge to form a new entity. These mergers require approval from most directors and shareholders and must be registered with the Public Registry.

Stock purchases involve acquiring the target company’s shares and typically require approval from the majority of the directors and shareholders, especially if it involves all or substantially all of the company’s assets.

Asset purchases involve acquiring specific assets and liabilities of the target company, requiring similar approvals.

For public companies, control is often obtained through a public offer or a legal merger, usually involving a tender offer followed by a merger. Due diligence and regulatory approvals are crucial in these transactions to ensure compliance with local laws and regulations.

The primary regulators for M&A activity in Panama vary depending on the industry involved. Most transactions in Panama do not require regulatory approval, but when they do, the relevant regulatory bodies usually include the following.

• Superintendency of Banks of Panama (Superintendencia de Bancos de Panamá): This body regulates and supervises the banking sector, ensuring the stability and integrity of the financial system and overseeing transactions involving financial institutions.
• Superintendency of Capital Markets (Superintendencia del Mercado de Valores – SCM): This body enforces the Securities Laws, including public tender offers, proxy statements, and rules of disclosure for publicly traded companies.
• Authority of Consumer Protection and Defense of Competition (Autoridad de Protección al Consumidor y Defensa de la Competencia – ACODECO): This authority enforces antitrust and competition laws, ensuring fair competition and preventing monopolistic practices.
• National Public Services Authority (Autoridad Nacional de los Servicios Públicos – ASEP): ASEP regulates the energy and telecommunications sectors, overseeing activities and transactions within these industries to ensure compliance with relevant laws and regulations.

Generally, there are no foreign ownership restrictions in Panama. However, due to national security and national interest concerns, foreign governments or nationals are restricted from owning local companies in certain industries, including aviation, radio and TV, and retail trade. Foreign participation is generally prohibited in the retail services market, with very few exceptions.

There are no restrictions on the repatriation of profits or exchange control rules for foreign companies. 

In Panama, antitrust regulations for business combinations are governed by Law 45 of 2007, establishing the competition and antitrust enforcement framework. While no mandatory merger control approval process exists, the law prohibits economic concentrations that may unreasonably restrict or harm free competition. An economic concentration is defined as the merger, acquisition of control, or any other act that combines corporations, associations, shares, trusts, establishments, or other assets between competing or potentially competing economic agents.

The law applies to any acts or practices that may restrict competition and have effects in Panama, regardless of where they are carried out. However, not all economic concentrations are prohibited. Exemptions include joint ventures for specific projects, concentrations that do not harm competition, and those involving insolvent companies under certain conditions.

Economic concentrations with restrictive effects on competition can obtain clearance from the competition authority if they contribute to efficiencies such as improved production systems, technical progress, industry competitiveness, or consumer interests. If advance verification is sought and approved, the concentration cannot be subsequently challenged. Without advance verification, the competition authority may challenge the concentration within three years, seeking conditions to ensure market competitiveness or a partial or complete divestiture.

In Panama, acquirers must be mindful of several key labour law regulations during mergers and acquisitions. In a merger, the surviving company inherits all labour relations and liabilities of the absorbed company. Similarly, the target company remains responsible for its labour relations and liabilities in stock acquisitions.

Asset acquisitions, however, present unique considerations. If the transaction involves all or nearly all of the assets, resulting in the transfer of business operations, both the buyer (new employer) and the seller are jointly and severally liable for all labour liabilities that arose before the acquisition for one year following the transaction. Employees retain all their rights and benefits, and no adverse changes can be made to their terms of employment. Consequently, in many asset acquisitions, buyers often require sellers to terminate certain labour relations before closing the deal, allowing the buyer to rehire employees under more favourable terms. The employment relationship may also be terminated by mutual consent provided it is expressed in writing and does not involve waiver of acquired rights. Labour unions and employees must be notified of employer substitution, although they cannot prevent it from occurring.

Additionally, Panamanian law mandates that all companies with five or more employees establish and maintain a severance fund. This fund must cover 100% of the accrued seniority premium (equivalent to one week of salary per year of service, prorated) and 5% of the severance pay (equivalent to 3.4 weeks of salary per year of service for the first ten years, and one week of salary per year of service thereafter, prorated) for each employee. This ensures that severance payments can be made upon the termination of employment.

Please see 2.3 Restrictions on Foreign Investments.

In November 2023, the Supreme Court of Justice of Panama issued a landmark ruling declaring Law 406 – which ratified a new mining concession contract between the Panamanian government and Minera Panamá, S.A. (a subsidiary of Canada’s First Quantum Minerals Ltd.) – unconstitutional. That concession-law contract granted rights for the continued operation of Cobre Panamá, the largest open-pit copper mine in Central America. In the wake of the ruling, Minera Panamá initiated arbitration proceedings to defend its rights under the concession agreement.

The decision has significantly impacted the legal framework governing mining concessions and the future of the mining industry in Panama. However, it is important to note that this impact is limited to the specific facts and circumstances at the time; it has not had a wider effect on overall mergers and acquisitions (M&A) activity in Panama.

Given the copper mine’s economic significance, the government is expected to pursue a constructive dialogue with all stakeholders to reach a resolution that aligns with national priorities and investor expectations. With mining previously contributing approximately 3.5% to 5% of Panama’s GDP and accounting for 7.5% of its exports, a balanced solution that safeguards legal certainty, environmental responsibility, and economic stability remains a critical objective.

There have been no changes to the takeover law, and no future changes are expected.

In Panama, it is not customary for a bidder to build a stake in the target prior to launching an offer. However, public companies’ main means of obtaining control are a public offer or a legal merger. Most combinations involve a two-step process that begins with a tender offer (either for stock, cash, or a combination of both) followed by an actual merger.

If a bidder offers to purchase more than 25% of the shares of a public company or offers to purchase any number of shares which, as a result of said purchase, would result in the bidder owning more than 50% of the issued and outstanding shares of the public company, the offer must be subject to the public tender offer rules under Panama Securities Law. If the bidder does not fall into either of these two scenarios, it may build a stake in the target without restrictions or timetables. 

At the time the public tender offer is launched, the bidder must disclose its direct and indirect shareholding (beneficial ownership) in the target, as well as any shares held by its directors, officers, executives, and its controlling parent, with an indication of those shares acquired in the previous 180 days, stating the date of purchase, price, quantity and the percentage said shares represent of the total issued and outstanding shares of said class.

A company can introduce different rules in its articles of incorporation or by-laws that make processes more stringent than those required by law, but it cannot circumvent legal requirements by introducing less stringent requirements than those dictated by law in its organisational documents.

Dealings in derivatives are allowed and disclosable.

There are no specific reporting obligations for derivatives under Panama securities or competition laws. The filing and reporting obligations for derivatives dealings, under Panama securities and competition law, are the same as those applicable to the acquisition of shares in publicly listed companies, as described throughout this chapter.

The public tender offer rules under Panama Securities Law require that the purpose of the acquisition and intention regarding control of the company be disclosed.

For a public company, similar to the US norms, the Superintendence of Capital Markets in Panama requires that certain events that are expected to have an impact on the stock’s value or that could influence the public’s decision-making process (hechos de importancia) be communicated to the public. Similarly, from a Panama Securities Law perspective, the public company would likely need to disclose the existence of the transaction and agreements reached between seller and buyer as a material fact (hechos de importancia) to the market.

Disclosure must take place immediately after a material fact (hechos de importancia) has occurred. Panama Securities Law has some exemptions to this requirement.

A bidder generally makes a due diligence review of publicly available information on the target. This includes a review of the corporate structure of the target, including the articles of incorporation and by-laws (in the public record), which set forth, among others, the corporate purposes, share capital, rights of the various classes of shares, and limitations on the transferability of shares. Bidders also try to obtain copies of regulatory paperwork such as commercial licenses, permits, concession contracts, regulatory reporting, and a history of sanctions and fines with regulatory authorities. Any public material agreements are reviewed, and litigation, environmental, intellectual property, and real property searches are also carried out.

For public companies, a variety of information will be in the public domain. A public company will have filed an offering document with the SCM, which includes an in-depth description of its business and assets as well as management’s discussion and analysis of its operations and financial statements. Public companies must also file annual and quarterly reports (which include audited annual financial statements and unaudited quarterly statements, respectively) with the securities regulator and notify investors of any material event.

Standstills and exclusivity are business terms to be negotiated by the parties. Standstills are very unusual; exclusivity is often demanded. However, it is not usually granted as sale processes are often run in an auction style, with the seller seeking various competing bids. Regarding public companies, under Panama Securities Law, the SCM orders and notifies the suspension of the trading of the tendered shares to the offeror and the target company immediately after being notified of the tender offer notification. The suspension of the trading will be automatically lifted five business days after the second publication of the tender offer request. The SCM can reduce the trading suspension period by issuing a formal resolution to that effect. Directors and others privy to confidential information may not trade during the negotiation period.

Panama Securities Law requires a public tender offer to be documented in a definitive agreement.

The process of acquiring/selling a private company usually takes four to six months, but the timeline varies depending on the parties’ needs and preferences. For tender offers over the shares of public companies, the timeframe must also include a period for acceptance of the tender offer, which can be no less than 30 days.

Panama does not have a mandatory offer threshold for private companies.

A takeover offer of a public company must be made:

• to the totality of the shareholders;
• the equality of terms and conditions; and
• the bidder must pay the same purchase price to all shareholders who accept the offer.

A takeover offer can be subject to the satisfaction of conditions or pre-conditions so long as they are disclosed in the tender offer documentation. Tender offers are usually conditioned on obtaining a minimum number of acceptances. If a bidder offers to purchase more than 25% of the shares of a public company or offers to purchase any number of shares which, as a result of said purchase, would result in the bidder owning more than 50% of the issued and outstanding shares of the public company, the offer must be subject to the public tender offer rules under Panama Securities Law. If the tender offer will result in the bidder owning more than 75% of the issued and outstanding shares of the public company, the offer must be made for all shares of the target that the bidder does not own.

In Panama, cash is more commonly used as consideration for acquisitions due to its straightforward nature, providing immediate liquidity and certainty to sellers. However, shares are often used in mergers because of the tax incentives associated with stock-for-stock mergers. These mergers are tax-free transactions, provided no cash is paid out (except up to 1% of the transaction value for fractional share adjustments), and certain accounting parameters are followed. Shareholders of the merged company retain a tax basis on the shares of the surviving company equal to their average pre-merger tax basis of the surrendered shares. Conversely, stock-for-cash mergers are not tax-free.

Several mechanisms are commonly employed to bridge value gaps in deals with high valuation uncertainty, as outlined below.

• Earnouts involve additional payments to the seller based on the future performance of the acquired business, aligning interests and mitigating overpayment risks.
• Equity rollovers in private equity deals allow sellers to retain a stake in the business, ensuring their continued investment in its success.
• Contingent Value Rights provide additional compensation if predefined milestones or performance targets are met post-acquisition.
• Seller financing spreads the payment over time, reducing the immediate financial burden on the buyer.
• Price adjustment clauses allow for adjustments to the purchase price based on actual performance or conditions post-closing, ensuring the final price reflects the true value of the business.
• Escrow arrangements hold part of the purchase price to cover potential liabilities or ensure conditions are met, providing security to the buyer while addressing the seller’s valuation expectations.

A takeover offer can be subject to the satisfaction of conditions or pre-conditions, so long as they are disclosed in the tender offer documentation and the conditions do not violate Panama Securities Law (eg, conditioning a public tender offer to obtain financing). 

Tender offers are usually conditioned on obtaining a minimum number of acceptances. If a bidder fails to obtain control of the target, there are no restrictions on it launching a new offer or buying shares in the target. However, if in the new bid, the bidder offers to purchase more than 25% of the shares of the target or offers to purchase any number of shares, which, as a result of said purchase, would result in the bidder owning more than 50% of the issued and outstanding shares of the target, the new offer must also be subject to the public tender offer rules under the Panama Securities Law.

Business combinations involving private companies can be conditional on the bidder obtaining financing.

In public tender offers, committed funding is required before an offer is announced. Panama Securities Law requires that the bidder deposit a payment guarantee covering 100% of the tender offer, either in cash, a bank guarantee, or a bond. If the bidder will obtain financing for payment of the tender offer, it must file a copy of the financing documentation with the tender offer documents.

A bidder can seek any deal security measures in a business combination involving private companies. It is not common to seek deal security measures in public company tender offers, as tender offers can be conditioned.

A bidder may seek to implement a supermajority shareholder vote on certain key company decisions, rights of first refusal, drag-along and/or tag-along rights on share sales, and shareholder change-of-control limitations, among other things. Preemptive rights are granted to all shareholders as a matter of Panamanian law.

Shareholders can vote by proxy in Panama.

The laws of Panama allow traditional mechanisms commonly employed to buy out minority shareholders, so long as the processes do not infringe upon the shareholders’ acquired rights.

A memorandum of understanding or undertaking from key shareholders to tender their shares is often a critical component and is often negotiated privately among key or controlling shareholders. However, the existence and terms of the memorandum must be disclosed as part of the tender offer process. Otherwise, the tender offer documents must expressly state that the bidder has not made nor agreed to make any payments, retributions, donations, or give any other type of consideration, for any reason, in favour of any of the target’s shareholders.

For a tender offer of a public company, the bidder must publish notices which contain the terms of the tender offer in two newspapers of national circulation for two days prior to the launch of the tender offer. Additionally, the bidder must notify the SCM, the Bolsa Lationamericana de Valores (Latinex) and the Central Lationamericana de Valores, S.A. (Latinclear) (the local depository and clearinghouse) on or before the date of launch of the public tender offer. 

The notice to the SCM must be accompanied by, among other things, a copy of the prospectus, a copy of the guaranty of payment for 100% of the tender offer, copies of the notices filed with the newspapers, copies of all transaction documents (including any applicable financing documents), corporate authorisations, and the bidder’s financial statements for the previous three fiscal years, as well as the most recent interim financial statements. The period for acceptance of the tender offer can be no less than 30 days.

Any competing bids must be for no less than the number of shares which are the object of the original tender offer. The regulator must be notified of them prior to the expiration of the period for acceptance of the original tender offer, and the period for acceptance of the competing bid may not exceed 30 days. Launching a competing bid will automatically extend the acceptance period of the original tender offer for an additional 30 days. If a competing bid is launched, the original bidder may present a writ with observations or challenges to said competing bid.

A takeover offer must be extended to all shareholders on equal terms and conditions. The bidder is required to pay the same purchase price to every shareholder who accepts the offer. A takeover offer may be contingent upon certain conditions or pre-conditions as long as these are clearly stated in the tender offer documentation. Typically, tender offers are conditioned on receiving a minimum number of acceptances.

If a bidder offers to purchase more than 25% of the shares of a public company or offers to purchase any number of shares which, as a result of said purchase, would result in the bidder owning more than 50% of the issued and outstanding shares of the public company, the offer must be subject to the public tender offer rules under Panama Securities Law.

If the tender offer will result in the bidder owning more than 75% of the issued and outstanding shares of the public company, the offer must be made for all shares of the target that the bidder does not own.

When a public tender offer is involved, the SCM mandates that financial statements be produced in accordance with International Financial Reporting Standards (IFRS).

Panama Securities Law indicates the documents the target’s shareholders receive on a tender offer. The bidder will file with the SCM, Latinex and Latinclear the following documents:

• a prospectus which contains the terms of the tender offer;
• copies of the organisational documents and a good standing certificate of the bidder;
• documentation which evidences the creation of a guaranty to secure payment of 100% of the shares, which are the object of the tender offer;
• copies of the notices that will be published (or that were published) with the newspapers;
• copies of the principal transaction documents of the tender offer;
• corporate authorisations of the bidder for the tender offer; and
• audited financial statements of the bidder for the previous three fiscal years, as well as the bidder’s unaudited financial statements for the previous fiscal quarter.

If there is a competing offer, the competing bidder must file all documents listed above. The bidder in the original tender offer may file a writ with the SCM with observations or challenges to the competing bid.

In a public tender offer, Panama Securities Law requires that the target’s board of directors issue a detailed report with its opinion regarding the offer and that it make reference to the existence of any agreements between the bidder, the target or its directors, officers or executives, which arose as a result of the tender offer. If there is a competing offer, the board of the target must also issue a detailed report with its opinion regarding the competing offer and disclose whether there are any agreements between the competing bidder, the target or its directors, officers or executives, which arose as a result of the competing offer.

Since the board of directors must issue an opinion, it is not common for the board to issue a recommendation without a formal agreement between the bidder and the target. A board could agree not to solicit or recommend other offers as long as it discloses this agreement in its report.

Director duties are owed only to company shareholders.

It is common for boards of directors to establish special or ad hoc committees to evaluate bids or negotiate deals.

Litigation in connection with takeover situations in Panama is not common.

Independent outside advice is generally retained by the company for the business combination. It is unusual for the directors to retain separate independent outside counsel.

The courts in Panama have not established many significant precedents concerning conflicts of interest involving directors, managers, shareholders, or advisers. Generally, directors are not personally liable for the corporation’s obligations. However, they do have a general duty of care to the corporation and may be held personally liable for negligence in fulfilling these duties. Additionally, directors can be held jointly and severally liable for specific actions as outlined in the Code of Commerce. 

Hostile bids are uncommon but are allowed as long as they conform to the SCM’s requirements.

Directors are allowed under Panama law to use defensive measures.

Statutory or practical defensive measures are not common in Panama. To defend a hostile bid, a target’s board of directors may convene a meeting of the shareholders (pre- or post-bid) to explain the terms of the hostile bid and recommend that the shareholders reject the offer. The board may lobby the shareholders to reject the tender offer, and when it issues its detailed report with its opinion regarding the offer, it may also recommend that it be rejected.

Directors owe duties of loyalty and care to the shareholders.

For a public company, the offer is made publicly, and the directors are not allowed to “just say no.” Instead, they are required to present their opinion/position regarding the public tender offer.

Not many claims result in litigation in Panama.

Litigation is not common in connection with M&A deals in Panama. However, it is more common at the corporate approval stage.

Litigation related to M&A deals is relatively uncommon in Panama, and no significant “broken-deal” disputes have established relevant precedent. However, some lessons learned include the importance of ensuring that exit or walk-away rights are properly drafted and negotiated and carefully negotiating interim covenants between the signing and closing of a deal.

Shareholder activism is not a prominent trend in Panama.

Shareholder activism is not a prominent trend in Panama.

Shareholder activism is not a prominent trend in Panama.