Key Legal Documents in Mexican M&A Transactions: Navigating Preliminary Agreements with Precision

Introduction
Mergers and acquisitions (M&A) in Mexico require a structured and legally sound approach, particularly during the initial stages of a transaction. Preliminary agreements—such as term sheets, letters of intent (LOIs), and memoranda of understanding (MOUs)—play a pivotal role in setting the tone for the transaction and facilitating efficient negotiations. Although often perceived as non-binding, these documents may create enforceable obligations under Mexican law if not carefully drafted. This article explores the most relevant preliminary legal documents used in Mexican M&A transactions, with practical guidance and insights into recent trends.

The Role of Preliminary Agreements

In the early stages of an M&A transaction in Mexico, preliminary agreements are commonly used to outline the key commercial terms of the deal before full due diligence is completed or final agreements are executed. These documents serve several purposes:

• They streamline negotiations by clarifying deal structure, pricing, indemnification terms, and exclusivity provisions.
• They provide a roadmap that helps align expectations between buyers and sellers.
• They help avoid unnecessary expenses by identifying deal breakers early in the process.

Despite their practical utility, these agreements are not specifically regulated under Mexican law. However, under general contract principles in the Federal Civil Code and Commercial Code, they can be considered binding if they contain sufficiently detailed terms and demonstrate intent to be legally obligated. As a result, parties must clearly specify whether an agreement—or certain provisions within it—is intended to be binding or not.

Binding vs Non-Binding Provisions

A well-drafted preliminary agreement in Mexico should distinguish between binding and non-binding provisions. While the commercial terms of the transaction (such as the proposed purchase price or the contemplated structure) are typically non-binding, certain provisions are often expressly binding. These include:

• Confidentiality: Protection of sensitive business, legal, and financial information disclosed during the due diligence process.
• Exclusivity: Obligations preventing the seller from soliciting or entertaining competing offers for a defined period.
• Cost Allocation: Responsibilities for transaction-related expenses such as legal fees or due diligence costs.

Ambiguity in these provisions can give rise to unintended legal consequences. For instance, the inclusion of “best efforts” clauses without definition or limitation can be problematic under Mexican law, where such obligations may be interpreted broadly and can be difficult to enforce. Clear, objective language is essential.

Confidentiality Agreements (NDAs)

Non-disclosure agreements (NDAs) are fundamental in any M&A context. These agreements safeguard the confidentiality of proprietary information shared during the pre-transaction phase. In Mexico, standard NDAs include:

• Broad definitions of “confidential information” to cover all materials shared during discussions.
• Specific carve-outs for information already in the public domain, independently developed, or disclosed under legal compulsion.
• Clauses addressing the duration of confidentiality obligations (commonly ranging from 12 to 36 months).

In transactions involving competitors, parties may implement clean room protocols, limiting access to sensitive data to a select team or independent third parties to mitigate antitrust risks.

Exclusivity Provisions

Exclusivity provisions, often embedded in term sheets or LOIs, are designed to grant a buyer a defined negotiation window free from competition. These periods typically last between one to six months, depending on the complexity of the transaction and the industry involved.

From a legal standpoint, breaching an exclusivity obligation can result in liability for damages or specific performance, depending on how the clause is drafted. Courts in Mexico have enforced such provisions when they are clearly worded and limited in scope.

Cost-Sharing Agreements (CSAs)

In cross-border or intra-group transactions, particularly those involving intangible assets or shared services, cost-sharing agreements (CSAs) may be used to delineate how development, maintenance, or service costs are allocated among entities. Although not unique to M&A transactions, CSAs are relevant when the transaction involves intellectual property or long-term collaboration.

To comply with Mexican transfer pricing rules, CSAs must reflect arm’s-length principles and be properly documented. Mischaracterization of such agreements can lead to significant tax exposure, especially considering recent tax reforms aimed at curbing aggressive tax planning.

Emerging Trends and Considerations

Recent developments have influenced how preliminary agreements are structured in Mexican M&A deals:

• Greater Detail in Term Sheets: The economic uncertainty arising from the COVID-19 pandemic has led parties to draft more comprehensive term sheets, reducing the likelihood of future disputes.
• Increased Binding Commitments: In highly competitive or time-sensitive transactions, parties are more willing to accept binding preliminary agreements to secure the deal early.
• Tax Reforms: Revisions to the Mexican Income Tax Law and stricter enforcement by the Mexican tax authority (SAT) have increased the importance of considering tax risk early in the M&A process, although detailed tax structuring is often left to final agreements.
• Nearshoring and Chinese Investment: The relocation of supply chains to Mexico has sparked a surge in M&A activity, especially in the manufacturing and logistics sectors. Foreign investors, including Chinese entities, are increasingly active, making the use of robust preliminary documentation more important than ever.

Conclusion

Preliminary agreements are a cornerstone of M&A transactions in Mexico. While they offer flexibility and efficiency, they also carry legal risks if not carefully structured. Parties should ensure that these documents include clear delineations between binding and non-binding provisions, robust confidentiality protections, and well-defined exclusivity terms. With the increasing complexity of cross-border investments and heightened regulatory scrutiny, expert legal advice is essential to navigate these agreements effectively and secure successful outcomes.

About the Author

Mauricio Junquera Fernández is a partner at Junquera Legal and a highly recognized legal professional both nationally and internationally for his expertise and quality of service across multiple disciplines. Mauricio has worked in both the Federal Public Administration and the private sector, and is a leader in pro bono services, demonstrating a strong commitment to social responsibility and actively contributing to societal improvement. Since the firm’s founding, he has fostered a culture that emphasizes the importance of pro bono work.