In October of last year, global outsourcing giant Accenture bought a midsize digital marketing and entertainment provider, avVenta. With offices in New York and San Jose, Costa Rica, the acquisition only added to Accenture’s already enormous service capability. There was nothing earth-shattering about the deal, and the buzz surrounding it soon died down. Nonetheless, this marked a growing trend we’ve been noticing at Nearshore Americas: US companies are increasingly looking to buy businesses in Costa Rica.
If you’re considering that same move into Central America, you might need a few pointers to get started. We got in touch with executives as well as corporate lawyers working in Costa Rica, to bring you some key advice for your M&A strategy.
Forget the debate on hiring a third party provider versus building a captive center. Buying an existing business combines the best of both those worlds. It calms data security fears by keeping your operations in-house and in your control, while giving you a business that’s more or less ready to go.
“The firms that acquire companies in Latin America are usually ones in areas of specialty knowledge like IT, software development or professional services,” said Paul Fervoy, CEO of InterNexo, a web marketing firm based in San Jose. “They’re not sure they can hire the necessary talent themselves. The labor market might not provide enough.” In addition, when you buy an existing business, you often skip the bureaucratic nightmare of obtaining the permits and licenses needed to start a new firm.
But what’s so special about buying a business in Costa Rica? For starters, it’s one of the most investment-friendly countries in Latin America. As The Costa Rica News recently noted, the rules are effectively the same for foreigners as they are for locals. Add to that a technologically-oriented, English-proficient workforce, and you have an offshore location that can strongly support your company at home. But the challenge is in attracting that talent in Costa Rica, especially with an unknown entity, according to Fervoy. The result is that many Costa Rican businesses with well-trained workforces are being snapped up by American entrepreneurs. Here are a few pieces of advice in case you’re considering doing the same:
1) Connect with PROCOMER and CINDE
Not only are the investment rules no different for foreigners, but in fact, says Fervoy, “you’ll find much more support for foreign companies than national ones.” The official policy is to attract as much external investment as possible. PROCOMER, Costa Rica’s export corporation, and CINDE, the country’s investment promo agency, are very helpful in providing information and setting up meetings with businesses, lawyers and anyone else you might need. We’ve heard glowing recommendations from several executives who evaluated Costa Rica, including Jonathan Washburn of Cignium Technologies. Connect with these two organizations – they’ll make your life easier in Costa Rica. That being said, anticipate a longer timeline than what’s quoted at you. Costa Rican bureaucracy is not bad compared to others in the region, but it does exist.
2) Tap the experts on the ground
A result of the number of local businesses being bought by foreigners is that an entire consulting industry has grown up around providing acquisition advice in Costa Rica. Carolina Soto is a Senior Associate at corporate law firm CLC, which specializes in exactly that. “It’s mainly law firms doing this kind of consulting,” she says. “They’ll find you good business opportunities, do your due diligence, and help you navigate the investment regulations.” However, make sure to do your research on the consultants themselves before hiring them. Soto says most of her clients come to her because of bad advice they received elsewhere.
3) The main issues: Taxes and labor
Tax issues are the most frequent problem in these kinds of deals. Thomas Burke, Attorney and member of the Costa Rican Bar Association, recommends checking the tax situation at both the national and local level – they could often be different, causing hidden costs that you haven’t anticipated. The second most frequent issue is personnel obligations, or costs related to employees. “Many firms here have not complied with labor regulations. Common issues are extra work hours not reported on social security requirements, and year-end bonuses unaccounted for,” said Soto. “Those obligations won’t expire if the labor relationship continues.” In other words, you’ll be stuck with the bill.
4) Personal relationships are critical
Really, this one is important throughout Latin America. “All business in Costa Rica is based on friendship and mutually respectful behavior,” writes Christopher Howard, author of Move, Live, Retire in Costa Rica. “In fact, when dealing with all government officials, it’s a good idea to treat them to a snack, a drink and chat. You will be amazed at the difference in their attitudes.”
Do you have specific questions about buying a business in Costa Rica? Feel free to contact our expert team at Nearshore Americas for specific guidance: firstname.lastname@example.org