Mexican Private Acquisitions: A Guide to Due Diligence

As Mexico’s economy continues to grow and attract foreign investment, private acquisitions have become an increasingly popular strategy for businesses looking to expand their operations or enter new markets. However, due diligence is a critical step in the acquisition process, and failure to conduct thorough investigations can lead to costly mistakes.

Factors Influencing Due Diligence

The scope of due diligence is influenced by several factors:

Deal Structure

• The type of transaction being undertaken (e.g., stock acquisition or asset purchase) will impact the extent of the investigation.

Industry

• Businesses operating in heavily regulated industries such as financial services or pharmaceuticals require more comprehensive due diligence.

Global Presence

• Companies with international operations must assess compliance with trade controls and anti-bribery laws.

Competition

• If the buyer and seller compete, COFECE authorization may be required, and certain information must remain confidential until the transaction is complete.

Practical Considerations

In addition to these factors, practical considerations such as access to the target business, expense, and time constraints will also impact the scope of due diligence. Buyers may need to balance their desire for comprehensive investigation with the need to complete the transaction within a specific timeframe or limit expenses.

Contractual Protection

While contractual protection is no substitute for thorough due diligence, it can offer some comfort in situations where time is short and due diligence is limited. Key considerations include:

Warranties and Indemnities

• Ensure that these are sufficiently wide and specific to protect the buyer.

Retention of Purchase Price

• Consider negotiating a retention of the purchase price to cover potential warranty claims or price adjustments.

Closing Conditions

• Determine what conditions must be met before the transaction is completed, and ensure that these are carefully reviewed.

Risk Management

Effective risk management is critical in private acquisitions. Buyers should consider their risk tolerance level and engage in thorough discussions with their legal advisors about potential risks involved in the transaction.

Conclusion

In conclusion, due diligence is a critical step in Mexican private acquisitions, and failure to conduct comprehensive investigations can lead to costly mistakes. By understanding the factors that influence the scope of due diligence and implementing contractual protection and risk management strategies, buyers can mitigate potential risks and ensure a successful acquisition.