Mexico: The future is bright

Author: | Published: 1 Mar 2011
Email a friend

Please enter a maximum of 5 recipients. Use ; to separate more than one email address.

Mexico has a population of approximately 112 million and a total area of 1.96 million square kilometres. The country's GDP per capita in 2010 was MX$111,049 ($9,250) considering an inflation rate of 4.4% and a real GDP growth of 5%. As a result of the North American Free-Trade Agreement (Nafta), Mexico's share of US imports significantly increased between 1993 and 2009.

Likewise, the Mexican Commercial Balance has been significantly augmented due to Nafta. As a way of example, Mexican export activity with the United States for 2010 was $213 billion, imports were up to $123.8 billion, and the total amount of commercial activity with the US was $337.7 billion, resulting in a total commercial balance of $87.2 billion.

These figures are important to contemplate, taking into account that Mexico is a country that has a primary importance within Latin America, not only because of the development of its economy over the past years but also due to its close legal and commercial relationship with the US and its strategic position in Latin America.

Economic background

Most Mexican companies are family owned and are governed and managed by family members. A great number of these companies are in constant need of obtaining capital to continue floating in the market and overcome the crisis, including by means of third parties (private funds), the stock market or through other companies. Accordingly, a number of M&A deals in Mexico have developed from the need of these family-owned companies to adapt to the competitive and dynamic markets, often leading to a need to restructure.

The economic situation of a country has a direct impact on M&A activity. In the Mexican case, Mexico's potential for M&A deals can be seen from the fact that for many years it has received more than its fair share of direct foreign investment (DFI). In 2007, the country received $29 billion as DFI, which was higher than that received the previous year.

2007 was actually one of the best years from a DFI standpoint, being the second-best year for entrance of capital investment, just slightly below 2001 on which the acquisition of the Mexican National Bank (Banamex) by Citigroup had a great impact. Banamex was considered at that time to be one of the top banks in Mexico and, as a result of the deal, foreign investment reached at least 80% of the total participation in the Mexican banking system. 2008 was slightly inferior for DFI compared with 2007. In 2008, the country received approximately $24.9 billion.

The year was also marked by the worldwide economic crisis and the effects created on the commercial relationship between Mexico and the US. Notwithstanding such decrease, certain private equity transactions took place during that year, such as concentrations in separate transactions by GPI Investment Holdings (Belgium), Platinum Equity, Advent International Corporation, Merrill Lynch and Kenner Equities IV, in sectors including tourism and industry.

2009 was a particularly difficult year due to the continuing crisis which impacted the M&A field, including in the foreign and local investment fund sectors. Private equity operations decreased during the year, as well as DFI. Approximately 115 M&A public transactions took place, which represented a decrease of 36.8% compared with those reported for 2008. As mentioned, the economic crisis brought diverse consequences to the Mexican economy, including a reduction in the financial resources of banks and lack of capital for projects in the M&A field.

In 2010, Mexico had an important economic recovery. It occupied thirteenth place for the reception of DFI, which implied an upturn compared to 2009, in which Mexico was in eighteenth position. The country received $14.4 billion of DFI up to September 2010. Likewise, Mexico's participation in worldwide DFI was amplified: in 2010 it was 1.7%, compared to 1.1% in 2009.

Thus, as a result of this slight recovery, M&A deals involving Mexican targets increased from 2009 to 2010, including by means of diverse investment funds, mainly foreign. Many of these investment funds have seen Mexico as a land of opportunity for the financing of companies in need of alternative sources of liquid capital. Mexico has been ranked by the World Economic Forum as one of best-positioned economies in relation to its domestic market.

Dynamic sectors.

Within certain Mexican sectors representative of M&A activity over the past years, IT, automobile and mining should be particularly noted. IT represents a global strategic sector, and has been surrounded by M&A transactions. For this sector, Mexico received, until September 2010, DFI amounting to $8.7 million. Based on the importance of this field of economy, a Bill for the Protection of Personal Data in Possession of Private Parties Law was published in the Federal Official Gazette on July 5 2010. Its main objective is to develop the Mexican digital economy.

The Mexican Economic Department, together with the Mexican Internet Association, has strengthened so-called trust seals, which guarantee the fulfilment of data privacy rights and the legality of certain businesses and institutions. The main purpose of trust seals is to offer to internet users a trustable and secure means under which they may submit their information and carry out transactions. As a result of the Mexican increase in these matters, Mexico was recognised by Asia-Pacific Economic Cooperation (Apec) as a leader in its Data Privacy Pathfinder initiative.


The automobile industry represents one of the most significant sectors of the national economy, since it contributes an equivalent of 20% of the value of the production of manufacturing in Mexico and 11.6% of employment in the manufacturing sector. Within the first quarter of 2010, the automobile industry registered an accumulated DFI figure of $900.7 million, an increase of 31.7% towards the first quarter of 2009 and representing proof of the recovery of this sector from the negative tendency seen since 2007. 78.9% more light vehicles were produced during the first semester of 2010 compared with the same period in 2009. Almost 890,000 vehicles were exported in the first semester of 2010, with a value of MX$15.8 billion – over 83% more than during the same period of 2009.

Some significant M&A transactions in the automobile sector between 2008 and 2010 were:

  • the acquisition by the Federal Treasury of the United States, the Government of Canada and the Fiat group of the totality of the shares of the Chrysler Group, including its division in Mexico, mainly focused in the commercialisation and distribution of automobiles;
  • the merger of Chrysler de Mexico with Daimler Benz Mexico by means of the creation of a new entity under a joint venture basis;
  • the acquisition by Volvo de México of shares representing the capital stock of Mexicana de Autobuses; and
  • the acquisition by International Truck and Engine Corporation Cayman Islands Holding Company of the patrimonial rights of the capital stock of Blue Diamond Truck, an entity owned by Ford Motor Company.

This evidences the strength of this sector despite the world economic crisis; it is envisioned that M&A transactions will continue in this sector.


It should be pointed out that the mining industry in Mexico is under exclusive federal jurisdiction and the state has direct ownership over mineral resources. The country is located within the best 12 worldwide producers of 18 minerals. Between January and May 2010, the value of the mining and metallurgic national production was MX$48.7 billion, 61.8% greater than in the same period of 2009.

Mexico is not only a country with great mining potential, but also one of the best worldwide destinations for the reception of mining investment. An increase of M&A transactions is therefore expected during 2011 and subsequent years.

Mexico is in second place among Latin American countries, and in sixth place worldwide, for investment in mining exploration. It received over $385 million, equivalent to 5% of the total investment worldwide. Between January and August 2010, the total investment in the mining sector was approximately $1.5 billion, out of which $1.15 billion went to national and foreign entities that are affiliated to the Mexican Mining Chamber, and $343 million to Mexican entities with foreign investment.

On the other hand, there are more than 76 companies registered with the Mexican Mining Industry, which represents an aggregate of over 2,111 mining entities carrying out business in Mexico. From these 76 companies, 49 were integrated with 100% of Mexican capital and the remaining with foreign investment. Likewise, during 2010, more than 284 agreements or acts were registered under such registry. Significant M&A mining transactions between 2008 and 2010 were:

  • the acquisition by Goldcorp of the totality of the shares representing the capital stock of Canplats Resource Corporation, which resulted in the expansion of Goldcorp's mining business and economic and market presence in Mexico;
  • the acquisition by Aluminum Corporation of China of Rio Tinto, which was the owner of diverse Mexican entities whose main activity is the production and sale of aluminium, steel, gold and diamonds, among others;
  • the previously-mentioned corporate restructuring of Grupo Carso, including its mining division.

As a general comment, over 2010 as a result of the slight economic improvement, diverse M&A transactions took place, of which some noteworthy deals were:

  • the transaction involving Mexican entity Fomento Económico Mexicano, which exchanged its interest in the beer business for a 20% of the Heineken group for a total value of approximately MX$7.35 billion – a record M&A operation in Mexico; and
  • the acquisition of the English company Ineos Fluor by Mexichem of its fluorine business in the United States, Europe and Asia. The transaction was worth approximately $350 million.

Over the course of 2010 more than 407 transactions were filed with the Mexican Federal Competition Commission (CFC). These notified transactions are an example of M&A activity in Mexico, since out of the same, 67 corresponded to concentration notifications and notices of corporate restructuring. Among these transactions within 2010, some relevant M&A transactions are:

  • the acquisition by diverse individuals and entities from Guatemala and El Salvador of the totality of the business of the YUM Group under the KFC and Pizza Hut trademarks;
  • the acquisition by the Corn Products International of all of the assets and shares of the Akzo Nobel Group;
  • the merger at the Mexican level of JK Tornel, a subsidiary of tyre company JK Tyre & Industries with headquarters in India;
  • the cross-border acquisition by Blue Acquisition Holding Corporation of shares of Burger King International, and indirectly of various Mexican subsidiaries related to the Burger King fast food restaurants;
  • The corporate restructuring of Grupo Carso, owned by Carlos Slim, involving the real estate and mining business of such group; and
  • the acquisition by the BASF Handels Group of Cognis Mexicana.

As for 2011, things in Mexico kicked off with the merger between Grupo Financiero Banorte and IXE Grupo Financiero, two of Mexican best-positioned financial institutions.

Government measures

The Mexican government has implemented structures and programmes to create incentives for foreign investment, which should accordingly result in more M&A transactions. Among these structures is the creation of the National Infrastructure Trust Fund, gazetted on February 7 2008. The Fund is designed to be a financing strategy for the modernisation and expansion of Mexico's infrastructure. It will operate as a public trust of which the National Public Works and Services Bank will act as trustee. The trust will have duration of 50 years.

The main function of the Fund is to promote the participation of the private sector in the development of infrastructure, operating as a venture capital fund for infrastructure projects, channelling resources through different financial instruments by offering various types of security, guarantees, subordinated debt and recoverable and non-recoverable cash grants.

In addition, the Fund operates as a project assessment centre that will help establish investment priorities in four main areas: (i) highways, roads and bridges; (ii) water, irrigation, drainage, and sewer systems; (iii) railroads, ports, airports, urban and interurban transport; and (iv) projects related to the environment and biodiversity, such as the management of solid waste, management of natural resources, and the production of renewable energy, among others.

The Fund was created with assets from the Highway Concessions Rescue Fund Trust and the Infrastructure Investment Fund. In total, at its beginning, the Fund's resources were MX$40 billion, and it is expected that in five years the Fund may have channelled resources of up to MX$270 billion. Entities from the public and private sector may receive financial assistance, including federal, state and local government departments and agencies. With respect to the private sector, companies holding infrastructure concessions, permits or contracts that permit public-private co-participation may receive help.

Regarding antitrust matters, it is important to mention the role of the CFC. The principal objective of the CFC has been to protect the free market processes by means of the prevention and suppression of monopolistic practices and of such restrictions that prevent the efficient functioning of markets.

Based on these goals, on April 5 2010 a Bill was submitted to the Chamber of Deputies to amend the Federal Economic Competition Law.

The amendments are intended to facilitate compliance with competition legislation, improve effectiveness and transparency in the operation of the CFC and strengthen competition policy through effective mechanisms for investigating and punishing anti-competitive practices. Clearer laws and legal frameworks create the path for the increase of M&A deals.

On a separate matter, in order to continue with the development of small and medium companies, the Mexican Federal Government has implemented government acquisition as a tool for such a purpose, with a total investment within 2010 of MX$46.2 billion.

It is also important to mention that the Mexican and Brazilian economies represent 70% of the gross national product of all countries in Latin America. Likewise, commerce between Mexico and Brazil has increased threefold in the last eight years. The Mexican president, Felipe Calderon, is in the process of submitting a proposal for a free trade international treaty with Brazil that will benefit commercial relations and opportunities to investment and M&A transactions.

Looking forward

Financial and economic crisis have had an impact over M&A transactions in Mexico. However, 2010 showed a recovery compared with 2009 in this regard. It is expected that within 2011 and subsequent years, M&A activity will continue and it is expected to be promising.

2011 kicked off with the merger between Grupo Financiero Banorte and IXE Grupo Financiero. Various Mexican entities will be in constant implementation of corporate and tax transactions, including M&A through foreign investment, private funds and financial institutions.

It should also be pointed out that, unfortunately, over the course of time, it is common for companies to be unable to meet their financial commitments and debts. However, despite their financial condition, many of these companies continue to have a reasonable ordinary course of business with sufficient cash flow that allows them to stay afloat. During 2010 there were a number of M&A transactions that involved injection of private equity, bankruptcy proceedings and insolvency processes or acquisitions by larger corporations or funds; it is expected that this course of action will continue during 2011.

About the author

Daniel Del Río has been a partner since 1991. He has written articles in law business publications and participated as an invited speaker on the North America Free-trade Agreement. Del Rio also has extensive experience working with foreign companies and focuses on corporate law, mergers and acquisitions, foreign investment, international and financial transactions, real estate, associations, banking, insurance and monopolies.

After graduating from the Universidad la Salle, he was admitted to practise in Mexico in 1980. He then undertook postgraduate studies, gaining an MBA from Tulane University, New Orleans. He is council member of the Latin American forum of the International Bar Association, as well as council member for the legal practice division, a board member of ICC Mexico, the University Club and the Mexican Financial Executives, chairman of the Mexican chapter of the Friends of the John Paul II Foundation, and a Trustee Member of the IBA Trust Foundation and the Basham, Ringe y Correa Pro-Bono Foundation.

Contact information

Daniel Del Río
Basham Ringe y Correa

Paseo de los Tamarindos No. 400-A, Piso 9
Bosques de las Lomas
05120, México, D.F.

Tel: +52 55 5261 0400
Fax: +52 55 5261 0496
E mail:

About the author

Juan Carlos Serra is a partner of the firm’s energy and mining practice. He became an associate in 1998 in the corporate practice. He now specialises in international business transactions and corporate law. His specific experience includes: joint ventures, M&A, reorganisations, and Investments. He has solid experience participating in national and international public bidding as well as giving extensive advice on energy and mining issues.

Serra graduated from the National University of Mexico (Universidad Nacional Autónoma de México) and has a Master’s from Georgetown University (Fulbright Scholarship) as well as a diploma degree in
corporate and economic law from the Panamerican University and in energy law from the Iberoamerican University. He is an active member of the Mexican Legal Bar (Barra Mexicana del Colegio de Abogados), Institute of Energy Law, as well as the International Bar Association.

Contact information

Juan Carlos Serra
Basham Ringe y Correa

Paseo de los Tamarindos No. 400-A, Piso 9
Bosques de las Lomas
05120, México, D.F.

Tel: +52 55 5261 0400
Fax: +52 55 5261 0496
E mail: