Election years and upcoming Government administrations renew hopes of materialising long-awaited reforms in tax, labour, energy, infrastructure and other strategic sectors. Last year has left us with a number of accomplishments that have moved the country in this direction although it is still falling behind of what it is required.
With a burgeoning economy, Mexico appears to be the new destination
for foreign firms, especially those from the US. Although traditionally
the market has had a handful of foreign operators such as White &
Case, Baker & McKenzie and Jones Day, who have gained decent market
shares, there now seems to be a fresh influx....
[more]
With a burgeoning economy, Mexico appears to be the new destination
for foreign firms, especially those from the US. Although traditionally
the market has had a handful of foreign operators such as White &
Case, Baker & McKenzie and Jones Day, who have gained decent market
shares, there now seems to be a fresh influx.
"There has been increasing competition from foreign law firms," one
partner notes. "In the last year we've seen two or three US firms coming
in and aggressively buying practices and poaching partners." One such
example is DLA Piper, which opened an office in Mexico City with the
addition of a 14-attorney team from Thompson & Knight in February
2012. In October 2011, Greenberg Traurig also announced the opening of
its Mexico City office, led by former Rubio Villegas & Asociados
partner Luis Rubio Barnetche and later joined by former Galicia Abogados
partner Juan Manuel Gonzalez Bernal. Two months later, Littler
Mendelson established offices in Mexico City and Monterrey, led by
former Basham Ringe & Correa partner Oscar De la Vega Gómez and
joined by another three ex-Basham attorneys. "It will be interesting to
see in the next four to five years how much these firms want to grow and
what market they want to target," one partner predicts.
In addition to the growing presence of foreign firms, the market has
also noted an upswing in the number of new firms spun out from
established operators. One such case is Raz Guzmán Abogados, a
specialist financial and corporate law firm established by former
Mijares Angoitia Cortés y Fuentes partner José Raz Guzmán, along with
two ex-Mijares associates, in January 2012. Another is Nader Hayaux y
Goebel, an finance and corporate-focused firm set up by ten former
Jáuregui Navarrete y Nader partners in June 2011, including name
partners Michell Nader, Yves Hayaux-du Tilly and Hans Goebel. Finally,
in May 2012, partner Juan Pablo Rico, the head of the White & Case's
disputes practice group, along with litigation partners Gustavo Robles
and Eugenio Bernal and corporate specialist Iván Libenson, left White
& Case to start their own firm.
Overall the market is becoming increasingly fluid, with law firms reporting plenty of major staff changes over the past year.
On the legislation front, the Public-Private Partnership (PPP) Law
has come into force in January 2012. The law establishes the framework
for PPPs for federal projects to facilitate greater cooperation between
government agencies and the private sector in relation to infrastructure
construction. One notable provision in the legislation is that it
permits the private sector to propose new projects to relevant
government agencies. "Under the new law, anybody could propose new
projects," one partner explains. "That would encourage new ideas from
private companies who really know how to do the work."
Another important legislative change in the country is the enactment
of the Federal Procurement Anti-Corruption Law in June 2012. As part of
the government's efforts to reduce bribery at a federal level and
attract more investment to the country, the law establishes a legal
regime to impose administrative fines and sanctions to individuals or
entities committing bribery an offense previously only subject to
criminal sanctions under the Federal Criminal Code. "More than ever
before, it's important to undertake due diligence to make sure there's
no corrupted money in transactions," one partner notes. "More and more
multinational firms are maintaining law firms for legal opinions on
compliance with anti-corruption regulations."
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CONTEXT AND TRENDS
From chairing the G20 Summit to holding a national election, Mexico has constantly been under the spotlight in 2012.
As Latin America's second-largest economy, the country is starting to witness a greater maturity in its capital markets....
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CONTEXT AND TRENDS
From chairing the G20 Summit to holding a national election, Mexico has constantly been under the spotlight in 2012.
As Latin America's second-largest economy, the country is starting to witness a greater maturity in its capital markets. "The CKD market did well last year - many firms and banks have been using them to raise money," one attorney states. CKD, or certificado de capital de desarrollo, is a type of security, created to allow Mexican pension funds to invest in infrastructure, real estate, and private equity funds through publicly-issued trusts listed on the Mexican Stock Exchange. Since its debut in 2009, approximately 17 CKDs have already gone to the market and currently there are 10 to 20 in the pipeline, according to estimates. "Approximately 30% of the CKDs issued are related to infrastructure, another 30% are related to private equity, while the rest are related to real estate and other sectors," one partner reckons. However, as a relatively new financial instrument, CKD does face challenges, with the main concern for investors the sharing of some of the private business information with the public as requested by current regulations. The country's financial regulators are reviewing this issue and seeking to come up with a solution.
Another new instrument generating interest is the FIBRA, the Mexican real estate investment trust (REIT), which is defined by attorneys as "the next trend". In spite of the fact that there are only a few FIBRAs in the market at the moment, attorneys see great growth potential in this area. "FIBRA continues to move in the right direction - this year and in the coming years we are getting busy in that respect," one partner says, while another agrees: "There is a pipeline of two or three new FIBRAS seeking to be established."
Attorneys also highlight the growing presence of public debt market in the country. "Traditional lenders reduced the amount of loans they are lending. As a consequence, firms went to capital markets for debt," one attorney notes and another agrees: "A huge part of the debt market is driven by the pension funds. As bank loans suffered in the past two years, the debt market has helped companies to help themselves in the absence of bank loans."
In the banking sector, an interesting topic of discussion in the last few years has been the influence of Basel III on the make-up of the market. The majority of banks in Mexico are not public yet, however, under the new regulations, capital requirements will be more flexible for public banks, which triggered a discussion around encouraging banks go public through IPOs. "There is some pressure from regulators on the stock exchanges to provide incentives to banks for them to go public," one partner remarks.
The spotlight has also fallen on the Mexican stock exchange (BMV) itself. In December 2011, BMV signed a letter of intent to join Integrated Latin American Market, also known as MILA, a combination of stock markets of Chile, Peru and Colombia. Mexico's entrance could almost double the size of this Latin America's first stock market conglomerate.
On the project finance front, attorneys are excited by the enactment of the new public-private partnership (PPP) law. "This is good for greater development in Mexico because we now have more legal certainty that we didn't have before," one attorney states. "This will trigger more projects." Another confirms the view: "The new legislation will open the door for many, many projects in Mexico."
Prison construction has also become an active area after the government launched a program to build 12 federal corrective projects through PPPs. With violence being a serious problem in the country and the president focusing on fighting crimes, there is huge pressure on the current limited number of prisons. "Prisons in Mexico are becoming a hot topic," one partner points out, with another adding: "We need more prisons now on the federal level."
Another area of growth in project finance is the renewable energy sector. With the country's energy authority pushing for the development of more renewables, many projects involving wind farms and solar energy are taking place. "Most of the work we did last year was in the renewable energy sector," one partner states. "Energy projects have grown dramatically in the last eight to nine months."
Although the national election held in July 2012 has caused some uncertainty and slow-down in projects, attorneys have relatively positive expectations of the new administration. "I expect that the new administration will follow the strong business approach," one partner speculates, with another sharing a similar view: "Regardless of who the new president is, infrastructure needs continue to be there. Any type of party would have to tackle those needs. It's a popular way to create jobs and work and win votes and the election, so the project finance work flow will continue."
MAJOR LATERAL HIRES
Juan Manuel González Bernal
From: Galicia Abogados
To: Greenberg Traurig
Hans Goebel Caviedes
From: Jáuregui y Navarrete
To: Nader Hayaux & Goebel
José Raz Guzmán
From: Mijares Angoitia Cortés y Fuentes
To: Raz Guzmán Abogados
Yves Hayaux-du-Tilly Laborde
From: Jáuregui y Navarrete
To: Nader Hayaux & Goebel
Michell Nader Schekaibán
From: Jáuregui y Navarrete
To: Nader Hayaux & Goebel
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CONTEXT AND TRENDSMexican attorneys report a wide range of transactions in the M&A sector, with one noting: "The volume and range of values is really wide both last year and this." Industries like aviation, mining, car manufacturing and real estate continue to grow and pull the country's economy forward....
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CONTEXT AND TRENDS
Mexican attorneys report a wide range of transactions in the M&A sector, with one noting: "The volume and range of values is really wide both last year and this." Industries like aviation, mining, car manufacturing and real estate continue to grow and pull the country's economy forward. "We believe there will be more pickup in those sectors in the near future," says another.
Private equity-related M&A activity is one area highlighted by attorneys. "Private equity firms have raised a record amount in funds in the past year or so, so we're expecting M&A activities related to private equity funds to be important for the next couple of years," one partner speculates. "These private equity funds are just waiting for opportunities to invest the money they have raised." Additionally, with local private equity funds coming into the existence during the last few years, activities in this area are no longer merely comprised of traditional foreign private equity firms buying and selling Mexican assets. "A number of Mexican funds have been more active than foreign funds," one attorney observes, while another adds: "We expect to see Mexican private equity funds, which are mostly funded by pension funds, to become more aggressive buyers and sellers in the M&A market."
Pharmaceuticals is another area of interest. The traditional emphasis on branded drugs has resulted in limited generics penetration in the country. As a result, there is a consensus in the market that generic consumption in the country's private sector will accelerate in the coming years due to the expiry of patents on a number of drugs selling in high volume, which has generated more transactions on the generics front. "Now big pharmaceutical companies are focusing on playing with generics and buying into generics business - we've seen a number of deals in this," one partner says, with another making a similar observation: "The pharmaceutical industry has been more active than years before with big companies looking closer at generics."
There has also been considerable activity in the natural resources sector during the past year. Known for rich mineral reserves and coupled with favorable international mineral prices, the country has attracted many foreign investors, especially ones from Canada. "We've seen several Canadian companies acquiring mines that are either new or in operation here," one partner remarks. "That trend will continue because of the high commodity price."
Despite the opportunities, concerns like anti-trust restrictions for market participants in the same industry remain. "Players sometimes are not able to acquire assets in the same sector due to the anti-trust restrictions posed on them, so the challenge is to look into other sectors and try to diversify their investments," one partner points out and this is backed by another: "In some sectors where concentration or consolidation is growing, firms need to be more careful with maintaining clearance from the anti-trust authority." One example is broadcaster Televisa's merger with cell phone company Lusacell, in order to challenge Telmex, This was rejected by the country's competition watchdog, though the two firms later appealed to the authority to reconsider its ruling on blocking their bid.
Strong unions alongside protective labor laws are challenging for M&A transactions as well, although unions that used to control mining workers have already been replaced by more business-friendly ones. "Our labour law is extremely protective of workers," one partner says, while another states: "Dealing with the unions is always a challenge."
MAJOR LATERAL HIRES
Eugenio Sepúlveda Cosío
From: White & Case
To: Heather & Heather
Luis Octavio Nuñez
From: Kuri Breña Sánchez Ugarte y Aznar
To: Greenberg Traurig
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