MEXICO Law and Practice Contributed by: Gabriel Robles, Héctor Cárdenas, Eric Silberstein and Eduardo Aiza, Ritch Mueller
are those that require third-party approvals in respect of the business. These conditions include waivers or consents from financial institutions, as well as poten - tial consent requirements from suppliers, landlords and so on. Whether shareholder approval is required is based on the by-laws of each target, but in Mexico, to conduct a primary issuance of shares, a waiver from the exist - ing shareholders is required in respect of their statu - tory right to subscribe and pay any capital increase proportionally. This is generally addressed at closing, within the corporate resolutions (which is a standard closing deliverable). Additionally, given that Mexico is a highly regimented country, conditions may sometimes involve actions directly related to the proper functioning of the target, such as registering its intellectual property rights with the relevant authorities or ensuring that agreements with employees retained by the target comply with applicable Mexican labour law. The following are conditions to any M&A or private equity transaction in Mexico – material adverse effect, the absence of judgments and orders, as well as true and correct R&W insurance. However, the importance and scope of these concepts varies from deal to deal, based on the parties, the industry and the current mar - ket conditions. 6.5 “Hell or High Water” Undertakings “Hell or high water” provisions in Mexico are related to antitrust approval and, in respect of other regula - tory approvals, they are negotiated on a case-by-case basis but are rarely seen, as antitrust agencies may impose conditions while other regulatory agencies may only approve or not approve the transaction. “Hell or high water” provisions are considered aggres - sive and are not really customary in Mexico but they can be a starting point in seller-driven negotiations or in sellers’ initial drafts. Ultimately, parties should agree to share the risk of the authority approving the transaction with condi - tions, except for in very specific circumstances. It has become increasingly common to find “burdensome
conditions” providing that if the conditions imposed by CNA (formerly COFECE) materially affect the buyer, then the buyer has the right not to close the trans - action. This applies both for M&A and private equity deals. 6.6 Break Fees Break fees in Mexico are more common in competitive processes than in private deals. The reason for this is that when a seller decides to close a transaction with a specific buyer to the detriment of others, the expectation is that a successful closing will occur and the break fee will cover the trade-off of closing with another buyer. Break fees range from 1% to 3% of the purchase price and the main triggers are – to the extent the buyer has an obligation – failure by the buyer to obtain regulatory approvals, failure by the buyer to secure financing, and breach by the buyer of the underlying purchase agreement. 6.7 Termination Rights in Acquisition Documentation Termination provisions are fairly standard in Mexico. • the buyer or seller if any of the conditions prec - edent to their respective benefit are not satisfied or become impossible to satisfy (provided that the other party is not in breach at such time); • either party if the other party breaches the agree - ment; or • either party not in breach if any of the conditions have not been met at the longstop date. The longstop date varies depending on the type of transaction and the conditions applicable to it, but six months is the usual timeframe when antitrust approval is required. 6.8 Allocation of Risk Allocation of risk for private equity buyers is the same or more aggressive than it is for corporate buyers (as private equity buyers strive to protect a fiduciary duty and justify investments before investment commit - tees). Agreements may be terminated by: • mutual agreement of the parties;
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