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10 Emerging Markets to Watch

MEXICO

In the first quarter of 2013, Mexico was the most targeted nation for announced deals in Latin America

With a population of 116 million, Mexico is a federal constitutional republic, consisting of 31 states and one federal district. Mexico boasts GDP of nearly $1.2 trillion and growth of 4 percent. The climate ranges from tropical to arid, and the terrain consists of coastal lowlands, central high plateaus, deserts and mountains of up to 18,000 feet. Proximity to California, Texas and the Southwest, combined with comparatively low labor, costs make Mexico attractive to U.S. dealmakers.

Opportunity

Mexico is giving Brazil serious competition for Latin America's most favored nation status among global dealmakers. In the first quarter of 2013, Mexico was the most targeted nation for announced deals in Latin America, according to Dealogic, with $6.1 billion.

"Mexico is attracting significant M&A and foreign direct investment because of its growing, dynamic economy," says Frank Aquila (pictured), co-head of Sullivan & Cromwell LLP's general practice group, who is representing Anheuser-Busch InBev SA/NV (ABI), headquartered in Leuven, Belgium, in its pending $20.1 billion acquisition of the remaining stake it does not already own in Grupo Modelo S.A.B. de C.V., based in Mexico City.

"Mexico's youthful workforce and growing middle class are creating an economy with some of the best demographics in the world," says Aquila.

Challenges

"Like cross-border deals anywhere in the world, transactions in Mexico raise regulatory, cultural and business challenges," says Aquila. "These challenges are far more manageable today than they were a decade ago."

Notable Deals

Mexico boasts the most cross-border deals involving U.S. companies in 2012 and the first quarter of 2013 among the 10 countries we examined for this article. (See the accompanying chart.) The most closely watched transaction on the horizon is ABI's deal for the rest of Grupo Modelo. In April, the U.S. Department of Justice announced a settlement requiring the companies to divest Modelo's entire U.S. business - including licenses of Modelo brand beers, its most advanced brewery, Piedras Negras, its interest in Crown Imports LLC and other assets - to Constellation Brands Inc., in order to go forward with the merger. The department said the proposed settlement will "maintain competition in the beer industry nationwide, benefitting consumers."

Future

"Mexico could ultimately be an even more attractive environment for U.S. dealmakers if lenders - not just U.S. lenders but also lenders in Mexico and other countries - are comfortable financing deals there," explains Richard Kohn of Chicago's Goldberg Kohn Ltd. "A couple of years ago, Mexico took a big step forward on this front by establishing a first-rate, modern secured transactions registry system known as the RUG for registering security interests in receivables, inventory and other personal property that can serve as collateral for loans. The current secured lending laws in Mexico are also quite favorable to lenders due to a number of legal reforms in past years. However, there is still a perception among many U.S. bankers and other lenders that the courts in Mexico are not uniformly predictable and efficient. The Mexican government is taking steps to improve the situation."