Benefits of Making Business in Ecuador | Buy & Sell Business

1. BENEFITS OF MAKING BUSINESS IN ECUADOR WWW.MERGERSCORP.COM

2. At MergersCorp M&A International we help our clients confidentially buy and sell privately held businesses, aligning the interests of all parties for mutual success and satisfaction. It is our goal to make the process of either buying a new business or selling your current business as smooth and efficient as possible. We know how important confidentiality is to our sellers and we treat it with the utmost importance. WWW.MERGERSCORP.COM

3. BENEFITS OF MAKING BUSINESS IN ECUADOR WWW.MERGERSCORP.COM

4. Country Overview Ecuador, a republic in northwestern South America. The country is bordered by the Pacific Ocean in west, by Germany in north and by Peru in south east and south and it shares maritime borders with Costa Rica. Ecuador covers an area of 283,561 km², compared, it is somewhat smaller than Italy (301,318 km²) or slightly smaller than the U.S. state of Nevada. Ecuador has a population of 16.7 million people (2017). Capital city is Quito, largest city is Guayaquil. Spoken languages are Spanish and Quechua (both official). Main religion is predominantly Roman Catholic (80%). Economically, Ecuador became known for exporting Panama hats (straw hats so named because they were shipped to Panama in the mid-18th century and bought by traveling gold seekers and because they were worn by Panama Canal work crews in the early 19th century) and agricultural products, notably cacao (the source of cocoa beans), bananas, and flowers. It is a major exporter of petroleum and an increasingly important tourist destination. Its history has been marked by political and economic challenges, including long periods of military rule, boom-and-bust economic cycles, and inequitable distributions of wealth.

5. Executive Summary Numerous rivers originate in the mountains, pass through the hoyas of the Sierra, and flow either west to the Pacific coast or east to the Amazon River. In the Sierra the rivers are torrential in their upper courses and become calmer in the plains areas but nonetheless remain unnavigable. The main ethnic groups of Ecuador include a number of Indian- language-speaking populations (often referred to as indigenous peoples or Amerindians) and highland and lowland Spanish- speaking mestizos (people of mixed Indian and European descent. Spanish is Ecuador’s official language of business and government, although there are dialectal differences between Sierra and Costa Spanish; Sierra Spanish has been influenced by Quichua. Quichua and Shuar (both of which are official intercultural languages) as well as other ancestral languages are spoken by the country’s indigenous people.

6. Introduction – Doing business in Ecuador As businesses across Latin America and indeed around the world look for new opportunities in 2019 and beyond, expanding into new markets is often considered one of the best options for growth and long-term profitability. With a GDP of USD$103 billion and positive economic growth ranging from 0.1% to 5% over the past five years, Ecuador is a country on the up. Thanks to low unemployment in the country (latest figures put Ecuador’s unemployment figure at 5.4%) and a growing GDP per capita of USD$6,143, the country boasts an increasing middle-class citizenship, with many of its citizens having high levels of disposable income, meaning that there is a market for luxury goods and services. Inflation in the country has remained low, from a recent peak of 3.7% in 2014 to as low as -0.2% in 2017, which is good for consumers and for businesses. Annually, the country exports more than USD$19 billion worth of goods and services to other countries around the world, and imports a similar amount (in 2017, the country imported USD$20 billion worth of goods and services, but that figure has been as high as USD$27 billion in recent years) to appease rising consumer demand and growing foreign direct investment.

7. Conducting business in Ecuador Foreign investors starting a business in Ecuador usually establish local corporations, or local branches of offshore entities. Alternatives include limited liability companies, partnerships, and mixed economy companies. All entities are registered with and controlled by the Superintendent of Companies and governed by the Companies Law. Ecuador’s economy was powered by its agricultural products, with the country becoming a renowned producer of commodities such as coffee, cocoa, rice, potatoes, sugarcane, pork, beef, bananas, dairy, fish, and shrimp. Whilst agriculture and its processed foods industries remain an important part of its economy today, generating an estimated $USD1.8 billion annually, foreign investment and diversification have encouraged new businesses across a range of industries to take dominance, adding to the country’s GDP. The development of new technologies and the ongoing push to combine innovation with sustainability has brought about opportunities in oil, which currently accounts for around 50% of the country’s exported goods.

8. Taxation in Ecuador Ecuador currently taxes its citizens and foreigners mostly on their Ecuador-source income, which is defined as any income derived from activities executed in Ecuador, regardless of where the income is received or paid. Foreign residents of Ecuador are taxed on their Ecuadorian- sourced income but not on income earned outside of the country. Income taxes are charged at progressive rates, ranging from 5% to 35%. As of 2019, the first $11,310 of an individual's income is not taxed. Non-residents are subject to 25% income tax on income received from local sources, which is withheld at source. Payments made to non-residents occasionally working in Ecuador, when not charged to an Ecuadorian company or branch of a foreign entity, do not give rise to income tax. Foreigners with resident visas are subject to income tax on any earnings and are not entitled to exclusion of income for periods of temporary absence from Ecuador.

9. Trade Ecuador is the 69th largest export economy in the world and the 102nd most complex economy according to the Economic Complexity Index (ECI). In 2017, Ecuador exported $19.3B and imported $19.3B, resulting in a negative trade balance of $18.4M. In 2017 the GDP of Ecuador was $104B and its GDP per capita was $11.6k. The top exports of Ecuador are Crude Petroleum($5.63B), Bananas ($3.38B), Crustaceans ($3.06B), Processed Fish ($1.18B) and Cut Flowers ($846M), using the 1992 revision of the HS (Harmonized System) classification. Its top imports are Refined Petroleum ($1.7B), Coal Tar Oil ($1.1B), Cars ($921M), Packaged Medicaments ($653M) and Broadcasting Equipment ($390M). The top export destinations of Ecuador are the United States ($6.06B), Vietnam ($1.46B), Chile($1.33B), Panama ($932M) and Russia ($912M). The top import origins are the United States($3.72B), China ($3.62B), Colombia ($1.51B), Brazil ($86 5M) and Panama ($848M).

10. Banking in Ecuador Banco Pichincha Founded in 1906, Banco Pichincha, the main bank of Grupo Pichincha, is the biggest private bank in Ecuador in terms of capitalization and client base. The bank offers a wide range of banking products and services, not only in Ecuador but also in other countries. The bank serves around 1.8 million customers and manages over 200 branches in Ecuador. The bank also oversees several subsidiaries such as Banco Financiero Perú in Peru, Banco Pichincha in Colombia, and Banco Pichincha in Panamá. It also operates through eight representative offices in Spain and an agency in Miami. Produbanco Banco de la Producción S.A. or Produbanco was established in 1978 with headquarters in Quito. The bank provides corporate, retail, and SME banking products and services, operating in the country, as well as in Panama, Nicaragua, Costa Rica, Honduras, El Salvador, the Dominican Republic, Guatemala, and the Cayman Islands. It is part of the Promerica Group since 2014. It currently employs 11,200 staff.

11. Our M&A Process NEGOTIATION & CLOSE POST MERGER INTEGRATION (PMI) INTEGRATION (PMI) POST MERGER TARGET APPRAISAL APPROACH DUE DILIGENCE Key Areas  Target & market analysis;  Initial assessment of synergies & value drivers;  Indicative valuation;  Go or No-Go decision;  Preparation of transaction documents (NDA – Non- disclosure Agreement/LOI- Letter of Intent);  Select Transaction team;  Appoint advisors;  Consider funding ability.  Initial approach letter;  Signing of NDA;  Prepare & share initial information requests;  Formulation of LOI (Letter of Intent) & possible negotiations;  Initial meeting and Q&A;  Circulate information on the Target to the Transaction team.  Set scope of due diligence;  Set up VDR (virtual data room);  Coordinating of due diligence, further meetings and Q&A sessions;  Consider points relevant to the Post-Merger (PMI) phase;  Revisit indicative valuation & prepare detailed valuation based on due diligence findings;  SPA negotiations with the seller;  Development of final structure (share/asset deal) and final valuation;  Approvals;  Signing of SPA & Close.  Consider the extent of integration;  Development of 100 Day PMI Plan;  Consider short & long term objectives;  Estimate requirements to capture synergies;  Determine resource needs & optimal allocation. Parties Involved  CFO;  Head of M&A;  Accountants;  Corporate finance advisors;  Consultants.  Senior management;  CEO, CFO, CTO;  Strategy director;  Head of M&A;  Head of Business Development;  Consultants.  Company general counsel;  Lawyers;  Senior management.  Company general counsel;  Lawyers;  Senior management/HR. 11 © Midaxo 2018 www.midaxo.com

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