SEPTEMBER 8, 2022
By: Luis Gerardo Ramírez Villela
In Mexico, mergers and acquisitions operations have been increasing over the
over time and have been based on transactional documents
cross-border, mainly from the United States of America.
In this sense, the determination of the purchase price has always depended
of the financial and legal audit processes carried out by the potential
buyer, as well as the consideration of the valuation mechanisms more
market relevant.
Today, we can consider that the most widely used valuation mechanisms
for this type of operations are the following:
➢ Net Asset Value – It is the simplest form of valuation that
comprises the sum of all the assets of the company minus the liabilities
corresponding; in the understanding that this mechanism does not consider
no future income.
➢ EBITDA (Earnings Before Interest, Tax, Depreciation &
Amortization/Earnings Before Interest, Taxes,
Depreciation and amortization) – This mechanism measures performance
of a company and can be compared with other companies in the
same industry, based primarily on its cash flow generation
cash.
➢ P/E Ratio (Price Earning) – The price/earnings ratio is a
mechanism used to establish a value considering the utilities
of a company and deducting tax profits.
➢ Income Multiple – Under this mechanism, a
valuation of multiples of income which is the most common methodology
used to determine the value of a company. Provides a
useful metric when comparing companies with different profits, but
with similar margins, products, markets and competition.
Based on the aforementioned mechanisms, the negotiation of the price of
purchase will depend on how the transaction is structured and the outcome of the
audit processes, always taking into account compliance with the
applicable provisions and that the parties may agree on the terms and
conditions that they decide, which will be required under the contract
of corresponding sale.
From a legal perspective, it is important to share information with the team
to determine the warning signs that could have an impact
in the analysis of the transaction and that would result in an adjustment in the price of
purchase (for example: reserves for contingencies, unpaid taxes,
social security contributions, etc.).
It should be noted that the Federal Civil Code and each local civil code
establish specific payment obligations and, therefore, must be verified with
its legal advisors that the transaction complies with all the provisions
applicable.
