By: Luis Gerardo Ramírez Villela
Environmental, Social and Governance (ESG) standards help shareholders and stockholders not only for risk management purposes, but also to identify opportunities in connection with environmental, social and governance criteria to be applied within a corporation.
In this respect, and for purposes of a merger and acquisition, it is really important to consider that from a compliance perspective the due diligence must consider in these transactions the analysis of ESG standards to verify the sustainability of the corporation to be acquired.
In Mexico, environmental analysis is more complex and requires the assistance of experts not only from a legal perspective but also for purposes of the analysis and study to be performedt to identify any potential risks associated with hazardous materials or contamination.
From a social perspective, full and detailed analysis from a labor perspective , supply chain and resources management, connected as well with anti-bribery practices, will allow you to identify any potential risks for purposes of the closing of transaction.
Regarding corporate governance, it is not only important to perform the due diligence on the basis of the compliance under the applicable Mexican General Law of Commercial Corporations (Ley General de Sociedades Mercantiles) but also to interview the key officers and members of the Board of Directors to fully understand how the target corporation is led and managed and also understand whether or not the shareholder rights are being protected and if the corporation values are aligned to the expectations of the stockholders.
Depending on the nature of the industry of the target corporation, it will be necessary to have an analysis team comprised by legal, accounting, financial, tax, environmental and other experts – to the extent necessary – for having a real comprehension of the business to be acquired and then define with your legal advisors the best way to draft the corresponding stock purchase agreement.
It is important to mention that in Mexico, structuring stock purchase acquisitions is the common practice due to tax recent amendments that have been explained in other articles and, therefore, a full and comprehensive due diligence must be performed.
Note should be taken that depending on the conclusions of the analysis made by the corresponding advisers, the structure of the stock purchase purchase acquisition must be prepared and drafting of corresponding agreements and relevant provisions (i.e. representation and warranties, indemnification, etc.) .
