MEXICO Law and Practice Contributed by: Gabriel Robles, Héctor Cárdenas, Eric Silberstein and Eduardo Aiza, Ritch Mueller
9.2 Shareholder Liability Generally, the private equity fund would have no liabil - ity; however, there are instances under the applicable law where the private equity fund may be deemed liable for the actions of the portfolio companies. Such circumstances include: • piercing the corporate veil if the shareholders are deemed an extension of the fund; • fraud; and • when management of the private equity fund par - ticipates in management of the portfolio company. Unfortunately, in Mexico exiting through an IPO is an option that is difficult to explore as the market for IPOs has been dry. Private equity funds are exiting through either a sale of 100% of the shares of their private equity-backed company or by conducting secondary sales to other private equity funds. These are the typi - cal ways in which private equity investors exit their investments. It is not standard to see rollovers or rein - vestments from private equity in Mexico. 10.2 Drag and Tag Rights 10. Exits 10.1 Types of Exit Drag and tag rights are fairly standard in Mexico; however, these are rarely used, as informal negotia - tions take place ahead of initiating the drag or tag processes. For drag-along provisions to be triggered, generally offers must be for 100% of the company. In some instances, for the drag-along to be triggered, a minimum consideration threshold must be obtained. Regarding tag-along rights, minimum thresholds gen - erally start at 10%. 10.3 IPO In light that there is a fairly illiquid market in Mexico, IPOs are scarce, which makes it difficult to discuss recent trends. However, it used to be that standard lock-up periods ranged from six months to one year. A recently enacted reform to the Mexican Securities Market Law created a simplified offering regime, with the objective to allow mid-sized companies to access the public markets; as of the time of writing, no offer - ing under the simplified regime has taken place.
confidentiality obligations for members of manage - ment or key employees. These remain enforceable for the duration of the employment and for a year or two following termination (in some cases, this could go up to three years). Whether these are part of the equity package, employ - ment arrangement or standalone documents depends on the specific circumstances of the hiring. 8.5 Minority Protection for Manager Shareholders The stock option shares generally enjoy minimal rights aimed to protect the grant and the percentage repre - sented, but avoiding granting rights that are related to the business operation. These shares are granted vetoes regarding critical matters of governance and potential changes (ie, amending the rules of the plan, changing the rights of the shares subject to the plan) and also anti-dilution provisions. Standard information rights are granted as well. 9. Portfolio Company Oversight 9.1 Shareholder Control and Information Rights The level of control a private equity fund has in its portfolio companies varies based on the size of the investment and the percentage owned. Private equity has seats on the board of directors and veto rights over both the board of directors and shareholders’ meeting (the main governing body in Mexico) regard - ing super-majority matters. Some of the matters for which vetoes are granted, include: • amending the by-laws; • conducting strategic transactions; • approving the business plan; • approving annual budgets; • approving capital expenses and financing beyond certain thresholds; • disposing of material assets; and • hiring or removing of high-level executives (ie, the CEO and CFO). Private equity investors have standard information rights.
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