TBY talks to Pablo Mijares, Partner of Mijares, Angoitia, Cortes and Fuentes, S.C., on the legal outlook in Mexico for foreign corporates and investors.
TBY What are the main services offered by your firm to investors and foreign companies?
PABLO MIJARES We are a leading team of legal experts with a wide variety of areas of expertise, including the fields of general corporate practice, domestic and cross-border M&A, private equity, banking, securities, insurance, finance, real estate, hospitality, litigation, tax, project finance, antitrust, energy, sports and entertainment, intellectual property, environmental and gaming, and are recognized both domestically and internationally as a top-notch firm in Mexico.
What should foreign companies be aware of before engaging in their start-up phase?
Foreign companies should understand that Mexico is a mature and sophisticated market, more open than most in the world and relatively well regulated in most sectors—although improvements are always attainable. Mexico is no longer a “wild west”-type of place, an “unexplored territory”, as many would have considered it—with reason—in the 1970s and 1980s, and changes have been dramatic; mostly for the best. Back then lawyers played a significant role as consiglieri, and despite the fact that we sometimes continue to act in that capacity for some clients, today’s legal advice is more technical, more business oriented, and less political and dependent on government contacts. Given the country’s history, a foreigner should know that the Mexican psyche does not welcome a “conquistador” approach from a buyer or potential business partner. And although there is no magic trick to doing business in Mexico, it pays to follow some common sense strategies that could generally be applied elsewhere: (a) choose your partners carefully, not quickly; I know of some sad stories; (b) do not stampede into a definitive agreement thinking it will save you time and money; most times it is best to execute a reasonably detailed letter of intent or memorandum of understanding, even if non-binding, that sets forth the agreed upon deal terms; try to have the tough discussions upfront; it could save you a lot of troubles and disillusionment down the road; (c) if entering into a regulated activity, be sure you are well aware of the approval process your investment will involve; (d) no matter what you are told, there is no such thing as a perfectly well kept, riskless company; if you are buying or joint venturing with a family-owned company, multiply the foregoing statement by at least 10; and (e) hire a good lawyer and involve him
What regulatory changes are we likely to see over the medium term?
Although during the last few years investments by foreigners have been constantly stimulated by Mexican macroeconomic strength and a promising regulatory environment in Mexico, changes in laws, regulations, public policies, and government programs are likely to continue happening in the medium and long term to keep promoting Mexico as a healthy and secure investment destination. Pending legal changes that will need to be made to ensure greater growth include a revamped Federal Labor Law, a drastic change and openness in the oil and gas and energy sectors generally, and changes to a number of tax laws, including levying value-added taxes on food and medicines, an unpopular but clearly necessary measure. These changes are all politically charged, but it would appear that a majority of political figures recognize the need for regulatory change in this regard.
What is your outlook for M&A activity in Mexico in 2012?
Generally positive, although clearly not as strong as it was prior to 2009, when the US crisis actually hit Mexico. The economic and political situation in Mexico are, to varying degrees, affected by economic and market conditions in other emerging market countries and in the US. Although economic and political conditions in other emerging market countries and in the US may differ significantly from economic conditions in Mexico, investors’ reactions to developments in any of these other countries may have a positive effect on the M&A sector. I even dare sat that, speaking from experience, the real security problems that we face in Mexico have not, even remotely, brought M&A activity to a halt.
How would you describe Mexico’s private equity landscape and its legal environment?
In recent years, Mexico has made great strides in the development of a comprehensive body of corporate governance laws. The revamped Securities Market Law (LMV) that came into effect in 2006 made huge improvements to corporate governance standards for publicly traded companies, and it created Investment Promotion Companies (SAPIs), that have set forth the basis for much more flexible investment structures in non-public companies. Indeed, most private equity investors in Mexico are using SAPIs as the investment vehicle of choice to ensure a higher level of corporate governance standards as well as to allow the parties to agree on a distinct number of covenants involving shareholders’ undertakings, veto rights, distribution arrangements, directors’ liability, and exit alternatives, among others, which were not previously available for traditional Sociedades Anónimas (SAs) under the Commercial Companies General Law. All of this has a much larger degree of legal certainty as to its enforceability. I do believe the flexibility afforded by the SAPIs is almost limitless, and it will become a tremendous tool for creative lawyering in years to come.
© The Business Year