Political Access Is an Asset With an Election Date

The seller says the company has excellent government relationships. You ask how those relationships help win work. The founder names three people, describes a lunch, and points to a photograph in which everyone appears pleased with the infrastructure sector.

Somewhere between that meeting and the investment committee, the photograph becomes a moat.

This is an expensive promotion. Knowing how to navigate public institutions can be valuable. So can a properly awarded concession, an experienced regulatory team, or the ability to complete projects competitors cannot. But a business whose forecast depends on one administration continuing to say yes has an additional expiry question. Buying the shares does not settle it.

Brazil's approaching presidential election makes the question immediate. This article uses information available on October 3, 2026, before voting. The acquisition lesson applies whenever a seller asks you to capitalize earnings supported by political access: identify the underlying right, establish whether you can acquire it, and price the period for which the evidence supports the cash flow.

“Asset” here describes economic value. It does not establish that a relationship qualifies for recognition as an accounting intangible. That distinction becomes useful when somebody tries to amortize a friendship.

On October 3, Reuters reported that a CNT/MDA poll put President Luiz Inácio Lula da Silva at 43.1% of first-round voter support and Senator Flávio Bolsonaro at 38%. The September 15 survey had shown 40.5% and 30.4%, respectively. In a simulated runoff, Lula led 47.3% to 43.1%, compared with 47.3% to 40% previously. Fieldwork ran from September 30 to October 2, with a reported margin of error of 2.2 percentage points. These are voter-support shares, separate from the poll's valid-vote estimates.¹

The official calendar puts the first round on October 4 and a possible second round on October 25. Governors and legislators are also being elected.² The political exposure in your deal may sit several floors below the presidency.

None of those poll percentages is the probability that your target keeps a licence. Converting one into the other would require assumptions about the election, appointments, policy, and the particular decision facing the company. The investment committee may enjoy a political briefing. That does not make its most confident partner an actuarial table.

There is historical evidence that connections can affect commercial outcomes. Taylor Boas, F. Daniel Hidalgo and Neal Richardson studied Brazil's 2006 election using close legislative contests. They found that public-works firms donating to successful federal deputy candidates from the governing Workers' Party received additional contracts worth at least 8.5 times their contributions. They did not find the corresponding effect for allied parties.⁵

That was contract value, before the costs of performing the work. It was also a particular historical setting, preceding the Supreme Federal Court's 2015 rejection of corporate campaign donations.⁶ It supplies evidence of a mechanism, not a 2026 return forecast or an allegation about either current candidate.

For a buyer, the useful inference is narrower: investigate whether the seller's performance depends on particular officeholders. Even re-election leaves questions about personnel and priorities. An opposition victory may leave a valuable contract fully operative.

Ask management which forecast assumptions change under either outcome. If the answer is that nothing changes because the founder knows everyone, request evidence from the last transition. Universal access is a demanding claim for a business whose government-relations department is one person's phone.

A relationship can produce something durable. If lawful advocacy helped a company secure a properly granted right, the right deserves analysis on its own terms. Refusing to recognize that value would be as careless as paying for every promised introduction.

Start with the thing being sold. A concession may specify a remaining term and tariff mechanics. A procurement contract may cover an existing order while leaving next year's orders uncommitted. An application may be progressing well while conferring no permission to operate. Sellers can put all three under “government pipeline,” which is convenient for the slide and less convenient for the person funding payroll.

Brazil's general concessions law, Law 8,987, requires contract provisions covering matters including duration, tariff adjustment and review, and extension conditions. Article 27 requires prior granting-authority consent to a concession transfer or transfer of control of the concessionaire; absence of consent exposes the concession to forfeiture.³

The law also distinguishes termination mechanisms. Article 37's public-interest resumption, or encampação, requires specific legislative authorization and prior compensation under Article 36. That provision concerns qualifying investment in reversible assets that remains unamortized or undepreciated. It does not promise reimbursement of your acquisition premium. Article 38 separately addresses termination for non-performance and procedural protections.³

Have Brazilian sector counsel identify the applicable framework and actual instrument. A concession, an ordinary supply contract, and a licence need separate analysis. A signed document can constrain the government without guaranteeing your model's timing, margins, or recovery value.

Your acquisition can therefore be the event that creates an approval problem. The founder may have a perfectly functioning business under present ownership. You still need to establish whether your proposed ownership structure can receive the necessary consent. A warm introduction to the relevant office is useful. It cannot be attached to the closing checklist in place of the decision.

Institutional design matters too. Law 13,848 gives the federal regulatory agencies it covers statutory autonomy and fixed-term leadership protections.⁴ Do not assume every official changes with the president, or that presidential influence reaches every permit. Map the responsible federal, state, or municipal body and its actual decision process.

Then examine the operating capability. An engineering team that submits complete applications, meets performance standards, and wins open competitions may remain valuable through several administrations. A company that needs the founder to rescue every routine filing may have underinvested in that capability. Both businesses can report impressive “stakeholder engagement.” Only one has taught someone else where the forms go.

The illustrative map below assumes an operator with an enforceable five-year contract, a separate discretionary renewal decision, and a founder who can arrange introductions. The authority retains the renewal decision; the operator owns the assumed contractual claim. The founder cannot bind the authority. These are assumptions for an explainer, not findings about a Brazilian company.

A buyer can acknowledge uncertainty and still pay for permanence. It happens when the valuation applies one multiple to all current earnings, including income whose continuation needs a fresh discretionary decision. The diligence report describes the risk beautifully. The spreadsheet has already renewed it.

Separate the cash generated by durable operations and documented rights from the incremental cash attributed to contingent advantages. Establish the incremental amount after the costs required to earn it. Government revenue is not the same thing as a political premium: a competitive supplier may win the work without unusual access.

Consider a deliberately simplified hypothetical. All amounts are nominal Brazilian reais. At the valuation date, an operator is expected to generate R$12 million a year for five years from its core business. A lawful but contingent commercial advantage adds R$8 million annually. These are after-tax, unlevered cash flows after required capital expenditure and working capital, received at each year-end.

Use a 10% annual nominal BRL discount rate solely for illustration. Assume no growth and no terminal value. We exclude debt, surplus cash and transaction costs, so this compares operating values before the bridge to the price paid for equity. The assumptions are teaching inputs, not estimates for Brazilian concessions or a recommended market discount rate.

If both streams last five years, the present value is the sum of R$20 million divided by 1.10 raised to each year from one through five: R$75.8 million.

Now preserve the core business but allow the additional R$8 million only in years one and two. The five-year core contributes R$45.5 million in present value. The two-year advantage contributes R$13.9 million. Combined value is R$59.4 million. Using unrounded inputs, the difference rounds to R$16.4 million.

That difference buys three extra years of an advantage whose continuation we have not established. No machine becomes faster. No customer pays more. The buyer has simply promoted a short relationship to senior management with a five-year guaranteed package.

The two-year case is a duration stress, not a prediction that a particular administration lasts two years. A real model should connect the cash-flow change to a decision: renewal denied, approval delayed, a lawful preference withdrawn, or work won at a lower margin. Some advantages survive; others decay gradually. Evidence determines the scenarios.

Where probability weighting is useful, use probabilities conditional on those decisions. A change of government can lead to several commercial outcomes; retaining the incumbent can also produce several. Do not set the survival probability equal to a candidate's polling share.

Keep the existing concession's finite term visible. If renewal is uncertain, give the renewal case its own costs and assumptions instead of allowing a terminal value to grant it automatically. Include handback obligations, maintenance requirements, and any supportable residual or compensation separately. Our example omits those items to isolate duration.

Also test cash timing. An eventually successful claim may still require the company to finance a delay. If approval delays and payment delays originate in the same office, assuming independence can understate the downside. Adjusting cash flows for an event and then imposing an unexplained extra discount for that same event can overstate it. A larger discount rate cannot tell you which invoice arrives late.

Government exposure becomes manageable when it has a decision-maker, a document, and a cash consequence. “We maintain excellent relationships” has none of those features. It is the corporate equivalent of listing “well regarded” as collateral.

Build a dependency schedule alongside the ordinary customer and contract analysis. For each material cash-flow stream, record:

Link each entry to the underlying record. Reconcile signed commitments with management's pipeline, and cash collections with recognized revenue. Review what happened after previous changes in the relevant administration or personnel. A list of prestigious contacts tells you whom the founder can reach. It does not explain why the company won the tender.

Ask whether the team can reproduce the result through the formal process. Inspect bid scores, performance records and the economics of business won from private customers. If a consultant allegedly accelerates approvals, examine the engagement, services delivered, compensation and ownership. A spreadsheet calling the fee “strategic advisory” has contributed typography, not diligence.

Lawful advocacy and competent public-sector selling are ordinary commercial activities. Evidence of improper advantages or procurement manipulation changes the question. Brazil's Law 12,846 imposes civil and administrative liability on entities for specified harmful acts committed in their interest or benefit. Article 4 preserves liability through corporate changes; its merger and incorporation rule limits specified successor liability to fines and damages up to transferred assets, subject to the statute's fraud exception.⁸ The transaction structure needs specific legal analysis.

In that situation, do not assign a probability that the improper advantage continues and add it to enterprise value. Investigate the conduct, assess the liability and remediation, and determine whether a lawful business remains worth buying. A discount does not cure the conduct being discounted.

Brazil's CGU maintains the CEIS and CNEP registers for relevant procurement restrictions and anti-corruption sanctions.⁹ Search them as part of the work, alongside proceedings and the underlying contract history. An empty search result is one piece of evidence; it cannot establish that every payment and intermediary was proper.

Separate the resulting exposures. Losing an informal advantage affects future earnings. A historic violation can create a claim against the business. Closing without a necessary consent can threaten the transaction's operating premise. Giving all three the label “country risk” makes them easier to discuss and harder to allocate to anyone responsible.

A seller who insists the advantage is durable has a straightforward way to support that position: accept some economic exposure to its durability. This is often where the meeting acquires a sudden appreciation for uncertainty.

Use the dependency schedule to negotiate specific protections. A required change-of-control consent can become a closing condition. The condition should identify the decision, issuing body, acceptable terms, and deadline. Decide who carries the cost if approval requires a lower tariff or additional investment. “Approval obtained” can conceal an asset with substantially different economics.

Do not assume an election result gives the buyer a right to walk away under a generic material-adverse-change clause. Counsel should address the actual allocation of the identified risk in the governing agreement. The commercial objective is a transaction that works under agreed conditions, rather than an argument later about whether everyone watched the same news.

Contingent consideration can address genuinely uncertain upside. Pay an additional amount if the company secures a lawful renewal or collects specified cash under an approved contract. Avoid making payment depend merely on the founder remaining friendly with an official, or a favoured candidate winning. Those milestones prove little about what the buyer receives.

An earnout also creates a new incentive problem. If the buyer controls bidding, staffing and collection after closing, it can influence whether the seller gets paid. Define the eligible contracts, calculation period, cost allocation and reporting access. Deal with delayed receipts, disputes and what happens if the business is sold again.

A gross-revenue milestone can reward low-margin work or invoices that never turn into cash. A collections milestone reduces that problem but can expose the seller to timing the buyer controls. There is no elegant word that eliminates the tradeoff. “Alignment” usually means the parties have agreed to argue about the same spreadsheet.

Keep this mechanism separate from an indemnity for an undisclosed historic breach. A holdback or escrow may help support an indemnity, but the amount, duration, claim procedure and seller creditworthiness determine its usefulness. A promise from an empty holding company is still a promise; the recovery model needs another input.

There can be a legitimate price for relationships that have not yet produced enforceable rights. The sensible structure puts that uncertain value where evidence can resolve it. If a seller demands full cash at closing for a forecast it will not stand behind, the buyer should recognize who has been asked to own the election risk.

For founders, this diligence framework exposes a saleability problem. You can become so effective at personally navigating institutions that the company never develops a transferable process. The buyer admires your influence, then deducts the cost of not being you.

A long transition agreement may help transfer knowledge. It cannot guarantee that officials keep answering, that approvals remain available, or that the founder can compel a successor team to cooperate. If every regulatory conversation requires your presence, retiring has become a customer-concentration event with better catering.

Research offers a useful counterweight to the assumption that losing government access destroys the firm. In a 2022 Journal of Financial Economics paper, Emanuele Colonnelli and co-authors examined exposure through Brazilian anti-corruption audits. On average, exposed firms lost procurement access but grew; the outcomes differed substantially. Firms with poor delivery and active corrupt involvement shrank, while growth came from other groups, including firms capable of delivering quality goods or services. The researchers documented investment and financing adjustments.⁷

These were audits, not presidential elections. The practical inference is that productive capability and government dependence should be investigated separately. A business may be able to redirect its skills toward other customers, at a cost. A buyer needs evidence of that option, including the investment and time required, before paying for it.

For the founder, the work starts before a sale process. Build a regulatory team whose records someone else can use. Preserve the formal basis for approvals. Demonstrate competitive wins and customer demand beyond one public sponsor. Turn personal knowledge into an operating process. It may make you less indispensable, which is awkward at a leadership retreat and helpful when selling the company.

Before the next investment committee, require one schedule that reconciles the asking price to cash flows under documented rights, cash flows requiring new decisions, and the cost of losing or delaying those decisions. Assign someone to verify each dependency. Put the required consents beside the proposed closing date.

When the seller describes access as permanent, ask which part of the purchase price they are prepared to receive after the next administration has made its decision.