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State snapshot

Trends and climate

What is the current state of the M&A market in your jurisdiction?

Mexico represented 12% of the M&A market in Latin America for the first quarter of 2018, with a total of 28 transactions representing a value equivalent to $677 million. Of those transactions, 57% were carried out between Mexican companies, a combined 18% were operations with North American and European companies, 4% were from Asia and 3% were from Brazil.

Brazil is the most active Latin American country with regard to M&A transactions. It has a dominant 49% market share of transactions within Latin America. Nevertheless, there has been an increase in M&A transactions in Mexico since 2017, especially in the early months of 2018.

Have any significant economic or political developments affected the M&A market in your jurisdiction over the past 12 months?

Notably, the economic, political and legal climate began to pivot around 24 months ago following:

  • the election of Donald Trump;
  • fears of economic downturn and insecurity; and
  • fears of a potential devaluation in the Mexican peso due to the impending renegotiation of the North American Free Trade Agreement.

Despite this political turmoil and uncertainty, the value (in US dollars) of M&A in Mexico increased significantly in 2017 compared with 2016.

Mexico was further pushed into political unrest and investment uncertainty from abroad following the election of left-wing Mexican presidential candidate Andres Manuel Lopez Obrador, who appeared to represent the socialist ideals of other republic nations in Latin America. This, alongside growing insecurity and claims of corruption at the federal and state levels, eventually led to a ‘pens down’ approach until the political climate had settled. Many deals have since been reinitiated and the Mexican peso has stabilised. It will be interesting to see how Obrador’s presidency will affect M&A in Mexico once he is sworn into office on 1 December 2018.

Are any sectors experiencing significant M&A activity?

The sectors experiencing the greatest upturn in M&A activity in 2018 are the mass consumption market and the financial services market. Occupying the lower end of the spectrum are:

  • the real estate market;
  • technology and manufacturing industries;
  • the telecoms industry;  
  • the oil and gas market; and
  • the renewable energies market.

The mass consumption market was the largest sector in terms of value (in US dollar), bringing in a total of $385 million in the first quarter of 2018.

A sharp increase in the oil and gas market is expected following the deregulation of the energy industry by the Mexican government in December 2013. This energy reform allows, for the first time since 1938, both foreign and local private investment in the sector. With significant oil reserves having been documented in Mexico, there has been a steady rise in Mexico upstream oil and gas equipment.

Are there any proposals for legal reform in your jurisdiction?

There are no concrete proposals for reforms at this time. However, Obrador’s presidency may result in reforms across the legal gambit. For example, he has proposed to lower the value added tax rate in border zones from 16% to 8%.

Legal framework


What legislation governs M&A in your jurisdiction?

The main legislation governing M&A transactions in Mexico is the General Business Corporation Law. This law clearly sets out legal procedures for mergers, acquisitions, the incorporation of new entities, spin-offs and corporate housekeeping. That said, depending on the scope of any M&A transaction, other areas of law may also come into play. For example, on reaching certain thresholds, the Federal Competition Commission must be notified of a proposed transaction.

The Mexican Civil and Commercial Codes also regulate sale and purchase agreements with regard to general rights and obligations relating to the parties involved.


How is the M&A market regulated?

As mentioned above, the M&A market is mainly regulated by the Federal Competition Commission (COFECE). If a proposed transaction reaches certain economic thresholds in a non-intercompany transaction, the transaction must be notified to the COFECE. Once notified, the COFECE will carry out a market dominance review and either:

  • approve the transaction;
  • provide remedies so that the transaction can be executed; or
  • reject the transaction.

Strict fines of up to 8% of a company’s annual turnover can be imposed.

Are there any specific rules for particular sectors?

Specific rules govern highly regulated sectors and industries. For example, individuals and privately owned companies cannot participate in transactions exclusively reserved for the public sector. This includes transactions relating to:

  • the exploration and extraction of hydrocarbons;
  • the distribution of electricity;
  • nuclear energy generation;
  • radioactive minerals; and
  • telegraphs.

There are also sectors reserved for Mexican companies or nationals. Such entities must ensure that their articles of association exclude foreign entities from participating in transactions relating to the terrestrial transport of people and merchandise and development banking.

Finally, foreign entities can invest in certain activities; however, the Mexican regulations limit the percentage of foreign participation in transactions involving, for example, the manufacture of weapons and fishing and port administration.

Types of Acquisition

What are the different ways to acquire a company in your jurisdiction?

There are two main ways to acquire a company in Mexico. The first is to acquire the entity through a share purchase agreement, whereby the acquiring entity acquires either a portion or the totality of the shareholding interest in the company. The second is to carry out an asset purchase agreement, whereby the acquiring entity purchases all, or a cherry-picked selection of, assets which will be transferred to the buyer.

In both scenarios, a local share purchase agreement or asset purchase agreement must be executed under local law. The corresponding corporate documentation must also be drafted and executed, including meeting minutes approving the sale and purchase agreement, the assignment agreement or updating corporate books. Any extraordinary minutes must be protocolised by a notary public in Mexico. Mexican corporations must always have at least two registered shareholders.

Further, a company may be acquired through a merger agreement or increase in the company’s capital stock. These operations must also be approved by the shareholders or partners (as the case may be) in the extraordinary meeting minutes and protocolised by a notary public in Mexico.


Due Diligence Requirements

What due diligence is necessary for buyers?

It is strongly recommended to conduct a complete due diligence process before purchasing a company. It is important to analyse the activities and scope of operation, as these will have an impact on the due diligence process.

The first step in a due diligence procedure is to conduct a red-flag report. This allows the buyer to preliminarily analyse the convenience of buying the company without completing an extensive diligence analysis. The red-flag report is also useful when determining the specific areas that must be considered in the extended due diligence. Given the nature of the company, the following issues may be reviewed:

  • contractual considerations;
  • corporate considerations;
  • environmental issues;
  • labour matters;
  • tax considerations;
  • real estate issues;
  • administrative issues;
  • intellectual property;
  • criminal matters;
  • litigation matters;
  • antitrust matters;
  • banking and financial considerations;
  • foreign trade issues;
  • immigration matters;
  • data protection matters; and
  • money laundering considerations.


What information is available to buyers?

Buyers can obtain a company’s public information by conducting a search in the Public Registry of Property and Commerce or any competent public registry that hosts said information (eg, the Mining and Agrarian Registry).

Information within public registries is limited to an extract of the company’s incorporation and certain actions which, as per Mexican law, must be recorded therein (eg, mergers, spin-offs, amendments to bylaws and certain powers of attorney); however, not all corporate information can be found there. Thus, in addition to such information, the seller must usually provide a checklist, which includes the corporate records, books, agreements, permits, authorisations and other applicable documents.

What information can and cannot be disclosed when dealing with a public company?

The following information is available to the public:

  • a company’s annual, bi-annual and quarterly financial statements, with specific reports from directors, statutory auditors and the public company’s auditing firm;
  • reports on corporate governance and capital structures, including:
    • restrictions on transfers and voting rights;
    • shares conferring special control rights;
    • rules on the appointment of directors; and
    • amendments to bylaws;
  • information on stock options or incentive plans for managers and employees; and
  • information on significant corporate transactions, including:
    • statutory mergers and de-mergers;
    • bond issues;
    • amendments to bylaws; and
    • capital increases and reductions.

Any other information may not be disclosed until the transaction is completed. Any director, officer or party involved or which holds privileged information prior to the completion of the transaction may be accused of insider trading if they disclose information prior to completion.


How is stakebuilding regulated?

As a rule, Mexican corporations must have at least two shareholders or partners, with the exception of simplified stock corporations, which have a threshold as to the value of the activities that they may carry out.

When dealing with private entities, there are no specific regulations regarding stakebuilding.

When dealing with public companies, the following information must be made public on the business day following completion:

  • the identity and stake of any persons that, directly or indirectly, acquired a percentage of ownership equal to or greater than 10% but less than 30% of the target;
  • the identity of the persons that directly or indirectly increased or decreased 5% of their ownership in the target; and
  • the person or groups of person that, directly or indirectly, hold 10% or more of the target’s capital stock.


Preliminary agreements

What preliminary agreements are commonly drafted?

Generally, non-disclosure agreements, letters of intent and memorandum of understanding are preliminary drafted. These agreements contain the general framework which must be followed during the negotiations and any decisions that may be reflected in the final agreements.

In addition, the seller must hold shareholder and board meetings to:

  • authorise the sale and grant powers of attorney; and
  • waive to its first refusal right and any other requirements established in the bylaws and by law.

Parties should review whether there are any limitations or authorisations required to carry out the transaction prior to its execution, including antitrust filings and other agreements entered into by the parties (eg, loans and leases).

Finally, certain licences, permits and rights may require additional preliminary steps.

Principal Documentation

What documents are required?

The following documents are required in a stock purchase transaction:

  • the stock purchase agreement;
  • endorsements of share certificates;
  • entries in the corporate books;
  • proof of the physical delivery of the share certificates;
  • in case of limited variable capital, a partners’ meeting approving; and
  • resolutions approving the removal of former directors and appointment of new officers.

In case of an asset purchase transaction, the following documents must be drafted:

  • the asset purchase agreement;
  • assignment of any applicable rights or agreements;
  • invoices pertaining to the corresponding assets; and
  • if the assets are transferred (including a real estate), a separate public deed approved by a notary public.

Which side normally prepares the first drafts?

The seller customarily prepares the first drafts. The buyer then reviews these and makes any necessary revisions, comments and changes.

Notwithstanding the above, in some cases, the buyer will request to prepare the first drafts and the seller will review these at its convenience.

What are the substantive clauses that comprise an acquisition agreement?

The substantive clauses that comprise an acquisition agreement are:

  • representation and warranty clauses;
  • purchase price and adjustment clauses;
  • survival clauses;
  • third-party consents;
  • covenants;
  • confidentiality clauses;
  • indemnity clauses;
  • termination clauses; and
  • clauses regarding the governing law and dispute process.

What provisions are made for deal protection?

Representations and warranties are usually included in share or asset purchase agreements. Further, joint obligors occasionally execute agreements alongside a bond or collateral agreement to ensure that the parties fulfil their covenants.

Closing Documentation

What documents are normally executed at signing and closing?

Before signing, it is customary to have executed the corresponding share purchase agreement and asset purchase agreement.

For purposes of closing, it may be necessary to:

  • assign permits, rights or assets;
  • include entries in the corporate books;
  • deliver share certificates;
  • issue notices with federal agencies;
  • execute any transitory agreements;
  • conduct shareholders’ meeting approving the transaction; and
  • address the resignation and appointment of officers (if necessary).

In addition, it is important to consider any post-closing conditions that must be fulfilled as agreed in the purchase agreement.

Are there formalities in the execution of documents by foreign companies?

To the extent that the documents are private, it is customary to have these recorded by different counterparties depending on the location of each party. However, if the documents must be signed before a notary public, a special power of attorney is necessary in order for the foreign company to have representation when executing the documents.

Are digital signatures binding and enforceable?

Yes – while relatively new, the Code of Commerce allows digital signatures; however, these are uncommon in practice.

Foreign law and ownership

Foreign law

Can agreements provide for a foreign governing law?

Yes. However, since the assets are in Mexico, it is recommended to use Mexican law as governing law and Mexican courts for conflict resolutions.

Foreign ownership

What provisions and/or restrictions are there for foreign ownership?

Article 7 of the Foreign Investments Law sets out the restrictions on foreign investment in certain sectors:

  • up to 10% in cooperative production associations;
  • up to 25% in local air transport; and
  • up to 49% in:
    • insurers and bonding companies;
    • currency exchange houses;
    • leasing companies;
    • factoring companies;
    • investment funds (not private equity companies);
    • companies involved in the manufacture and sale of explosives and firearms;
    • newspapers, cable TV and basic telephone services; and
    • port administration.

The limitation on foreign participation must not be directly or indirectly exceeded through trusts, other mechanisms or indirect foreign participation. In addition, special authorisation is needed from the National Foreign Investments Commission when foreign investment will exceed 49% in:

  • shipping companies;
  • air terminals; and
  • mobile phone service companies.

Valuation and consideration


How are companies valued?

A valuator must determine the company’s value, considering its assets, operations, potential gains and liabilities. This valuation may be carried out by a commercial notary public.


What types of consideration can be offered?

In Mexico, consideration can be made in cash or kind (ie, any asset, right or service delivered as payment).


General tips

What issues must be considered when preparing a company for sale?

In order to prepare a company for sale, it is paramount that the company be up to date with all of the regulations set out in Mexican law. For example, in a transfer of stake, it is necessary to review whether the capital stock is fully paid, share certificates exist and the capital structure is clearly established in the Stock Registry Book (which, in accordance with the General Corporation Law, is the appropriate register to evidence ownership of shares and capital).

Further, all of the agreements and operations carried out by the company must be reviewed to assess whether any include a control change provision or any additional requirement in order to sell the company.

Additionally, for the sale of assets, the licences, permits and authorisations must be reviewed in order to determine the assignment and transfer procedure of the same. This is because certain licences and permits are not subject to assignment and will therefore be cancelled and new permits obtained. In other cases, there are specific procedures required for their transfer.

Moreover, it is important to review:

  • whether the transaction falls within the thresholds and thus requires notification or approval from the Federal Competition Commission;
  • the applicable taxes for the transaction in order to confirm the most effective structure for the transaction; and
  • the current status of litigations or credits that may affect the value of the company. 

Finally, if foreign investors are involved, is important to review whether the main purpose of the target can be performed by a foreigner or that the transaction involves the correct percentage of foreign participation. 

What tips would you give when negotiating a deal?

When negotiating a deal, the purchaser must be reviewed to ensure it meets the requirements set out under Mexican law. Following this, a due diligence report must be prepared on the target to ensure that its articles of association and any other agreements do not limit or prohibit the merger or acquisition.

If one of the parties is unsophisticated or unfamiliar with such contracts, the other party should take the lead in drafting all documents in order to avoid any delays.

When negotiating a cross-border deal, foreign co-counsel should be maintain contact to ensure that appropriate advice about any local restrictions or matters is given. This may give parties an advantage, especially if their counterparty has no counsel in Mexico.

Hostile takeovers

Are hostile takeovers permitted and what are the possible strategies for the target?

The Securities Market Law permits hostile takeovers. However, the relatively low number of listed companies and high shareholder concentrations therewith tends to discourage hostile takeovers in Mexico. For example, there have been only two attempts at hostile bids in the past few years. In 2015 the Supreme Court ruled that any provisions in a company’s bylaws aimed at deterring or limiting hostile takeovers must be made in accordance with Article 48 of the Securities Market Law. This is almost always the case in Mexican publicly traded companies.

As mentioned above, the target may easily prevent a hostile takeover by including one of the mechanisms under Article 48 of the Securities Market Law, as follows:

  • Targets can require that at least 95% of the shareholders with voting rights in the company provide their approval, including the mechanism in the bylaws, by means of an extraordinary shareholders’ meeting.
  • Targets can include a mechanism to exclude the person that wishes to obtain control of the company rather than all of the shareholders in general. While the mechanism does not absolutely restrict takeovers, clauses requiring the approval of the board of directors are permitted; however, these clauses must include the criteria that the board must follow to approve or deny the acquisition, as well as a timeframe in which the board must make a decision.

Mechanisms to avoid hostile takeovers cannot contravene the Securities Market Law.

Warranties and indemnities

Scope of warranties

What do warranties and indemnities typically cover and how should they be negotiated?

Representations and warranties usually cover the status of the business within the past five years (the general statute of limitation in Mexico) and describe whether the business is in good standing within its legal obligations. In exceptions in this regard would be described in the schedule.

Moreover, as a result of the due diligence process, the target must comply with all pending obligations (eg, paying tax credits, updating any expired permits or licences and generally carrying out any action to ensure that the company is in good standing prior to the transaction). If the target cannot comply with these requirements prior to closing, this must be set out in a disclosure schedule, along with terms of compliance or a possible price adjustment.

Indemnities should cover at least the cost of any pending liabilities and administrative fees which the buyer may incur in order to connect any issues regarding the company’s liability once acquired (generated prior to the transfer).

In this case, the buyer can ask for a price adjustment or establish that a portion of the price will be given in escrow as warranty of sellers’ compliance with the agreement.

Finally, the negotiation of representations and warranties will depend on the represented party. When representing a seller, it would be appropriate to include only basic representations limited to a short period with as many qualifications as possible. On the contrary, when representing a buyer, it is advisable to include several representations and warranties for a long period without any restrictions or qualifications.

Limitations and remedies

Are there limitations on warranties?

Limitations on warranties may vary depending on the case and specific warranty terms.

What are remedies for a breach of warranty?

As mentioned above, the easiest remedy is to conduct a price adjustment or recover an amount from the escrow, provided that Mexican law requires that a judicial process be started before the competent authority in order to demand the mandatory fulfilment of the agreement or its termination (in both cases, with the payment of damages and losses). However, this procedure will be lengthy and costly to the company.

Are there time limits or restrictions for bringing claims under warranties?

Yes – it will depend on the limitation period associated with the action which resulted in the breach. For example, in the case of a bond, the bonding company cannot be held liable if a claim is not submitted within 180 days of the breach.

Management and directors

Management buy-outs

What are the rules on management buy-outs?

The are no specific regulations in Mexican law regarding management buy-outs; as such, the applicable sale provisions must be followed.

Director’s duties

What duties do directors have in relation to M&A?

As the directors are the representative body in charge of executing the resolutions approved by the shareholders meeting, their duties will be established in the terms agreed by the shareholders in the relevant M&A documents.

Tax and Fees

Considerations and rates

What are the tax considerations (including any applicable rates)?

Under the Income Tax Law, the standard income tax rate in Mexico is 30%. The tax rate applies to the tax base, which is determined by subtracting accruable income with authorised deductions (ie, discounts, the cost of sales, expenses, investments, losses by fortuitous events, payments of social security, interests, annual adjustment for inflation and tax-loss carry forwards).

Income tax is payable monthly during the relevant accounting year. In March of the following year, an annual tax return must be filed.

According to the Value Added Tax Law, transfers of goods are taxed at the 16% rate applicable to the consideration agreed. 

The Federal Tax Code establishes that a merger is considered a transfer of goods for tax purposes.

Further, the Income Tax Law states that the right to carry tax losses forward pertains exclusively to the taxpayer who sustained the losses and may not be transferred to any other party, even as a result of a merger.

If a merger takes place within five years of another merger, a prior authorisation from the tax authorities must be requested.

Exemptions and mitigations

Are any tax exemptions or reliefs available?

The Federal Tax Code provides for an exception to the general rule abovementioned. Under this exception, mergers will not be considered a transfer of goods when the following requirements are fulfilled:

  • The notice of a merger is filed before the tax authorities.
  • After the merger, the merging company continues to conduct the activities that it and the other company had conducted before the merger for a minimum one-year period immediately following the date on which the merger takes effect.
  • The company that survives or is derived from the merger files the required tax returns for the fiscal year and the information returns.

If a merger fulfils all of the requirements mentioned above, the tax authorities will not consider the operation as an alienation of goods and thus no income nor value added taxes are generated.

What are the common methods used to mitigate tax liability?

It is advisable to develop a due diligence process prior to a merger in order to mitigate any tax risk. If a tax risk is identified, a guarantee is usually requested by one of the parties involved.


What fees are likely to be involved?

The fees involved are:

  • professional fees (ie, legal and financial adviser fees);
  • local taxes (ie, real estate tax);
  • public notary fees; and
  • registration fees.


Consultation and transfer

How are employees involved in the process?

In general, employee consultation or consent for major transactions or share sales and assets sales is not required.

If a transaction implies an asset deal, employees and unions have no say as long as terms and conditions are fully honoured. However, constructive dismissal may be triggered if agreed terms and conditions of employment are not honoured.

On the other hand, if the deal involves a sale of shares, the above notice will not be required.

In any event, if no consultation is necessary, it is always wise to approach union leaders to inform them of the transaction and to assure them that employees will be treated fairly, as per the law.

What rules govern the transfer of employees to a buyer?

When a company transfers its business (including assets), an automatic transfer of employees applies, and the acquirer becomes a substitute employer. Under this scenario, the only legal requirement is to notify (not request consent from) employees of the transfer of undertaking. Under this requirement, the new employer must notify the employees of the change of employer and indicate that salary, benefits and service time will be fully honoured; otherwise, a constructive dismissal may be triggered.

Whenever a transaction implies redundancies or reductions in the workforce, an agreement must be reached prior to closing.


What are the rules in relation to company pension rights in the event of an acquisition?

If the whole business is acquired, an automatic transfer of all employees applies. This transfer must be made under the same terms and conditions as agreed on with the former (substituted) employer. This means that the new (substitute) employer must honour full seniority, as well as any and all statutory and contractual employee benefits, including but not limited to private pension plan rights.

Other relevant considerations


What legislation governs competition issues relating to M&A?

The legislation governing competition issues relating to M&A includes:

  • the Constitution;
  • the Federal Economic Competition Law; and
  • the regulatory dispositions of the Federal Economic Competition Law.

The Federal Competition Commission has also issued non-binding guidelines for M&A transactions entitled “Guidelines to notify concentrations”.


Are any anti-bribery provisions in force?

Derived from a series of constitutional reforms in 2015, as well as the creation and reform of several laws in 2016, Mexico created the institutional framework necessary for the operation of a national anti-corruption system.

The General Administrative Responsibilities Act and the Federal Criminal Code establish both administrative and criminal penalties for bribery and related behaviour, including:

  • illegal participation in public tenders;
  • influence peddling;
  • use of false or altered information;
  • collusion;
  • unlawful use of public resources; and
  • illegal hiring of former governmental officials.

According to the General Administrative Responsibilities Act, any individual who promises, offers or delivers any undue benefit to one or more public officials, directly or by means of a third party, in exchange for said public official to carry out, or refrain from carrying out, an activity relating to their public functions or that of other public official, or to abuse their real or supposed influence, in order to obtain or maintain an undue benefit for itself or a third party, independently of the acceptance or reception of the benefit or result, will be liable for bribery.

Possible administrative penalties for major offences include:

  • fines, as follows:
    • individuals – from Ps7,304 to approximately Ps11 million; and
    • corporations – from Ps73,040 to approximately Ps111 million.
  • temporary disqualification from participating in acquisitions, leasing, services or public works for between three months and 10 years;
  • indemnity for damages and lost profits to the public treasury; and
  • penalties exclusively for corporate entities include:
    • suspension of all activities from three months to three years; and
    • the dissolution and liquidation of the entity in particularly grave cases.

Criminal penalties range from three months to 14 years’ imprisonment based on the particularities of the case.


What happens if the company being bought is in receivership or bankrupt?

In general terms and under the mercantile bankruptcy proceeding regulation, if the bankruptcy proceedings are in the conciliation stage, the buyer will acquire all risks and liabilities.

If the target has already declared bankruptcy per se, it must launch a proceeding before the bankruptcy trustee in order to be sold through the courts as a productive unit.