The energy sector is a natural hub for diverse M&A transactions. It is common practice for sponsors to initiate energy projects at a “greenfield” stage, establish a special purpose vehicle (SPV) and advance the project to “ready-to-build” status. At this stage, these projects are often sold to developers, who take on the construction and bring the facility to commercial operation. Typically, these developers secure financing under “project finance” structures, investing only a portion of the total project cost. In addition, it is standard in the energy industry for developers to sell operational projects to energy companies that specialise in owning and managing energy assets.

There are also a significant number of transactions involving the acquisition of operational energy portfolios, which often require highly complex analysis and bespoke financing structures.

The evolving circumstances in Mexico’s energy sector have also been a key driver of M&A activity. The Mexican government has publicly shifted its stance on private participation in the energy sector, adopting aggressive measures to regain control and expand the role of state-owned entities in energy activities. This policy shift has led to fundamental legal and constitutional amendments, creating a new regulatory framework and a more challenging business environment. These changes have triggered various M&A deals, as some participants have chosen to exit the Mexican market, while others see new opportunities arising from the current landscape. These dynamics have made the Mexican energy sector a uniquely complex and compelling market for M&A transactions.

Due to the high costs and risks associated with energy projects, they are typically structured through an SPV. Mexican regulations require a permit for most energy-related activities, and such permits can only be granted to Mexican corporations. As a result, new companies are usually incorporated under Mexican law to meet these regulatory requirements.

The incorporation process takes approximately one month and must be formalised before a Mexican notary public. The legally required initial capital is minimal, but energy companies typically need additional funds to initiate organisational and development activities.

To isolate the risks associated with energy projects from the rest of the corporate group holding equity in the SPV, investors typically select a limited liability company, a legal structure available under Mexican law.

Early-stage financing for energy projects is typically provided through equity contributions or debt from the project owners. The industry attracts a wide range of investors, both domestic and international, including traditional energy companies, investment funds, project developers and even state-owned companies. This financing is generally documented through shareholder agreements and intercompany loan agreements tailored to the specific needs of the project.

Please see 2.3 Early-Stage Financing. Venture capital in the energy sector often overlaps with early-stage financing, involving both local and foreign investors.

There are no well-developed standards for venture capital documentation in Mexico. Initial investors often include:

• small developers planning to sell the project during its early stages;
• traditional energy companies; or
• investment funds seeking long-term returns.

Due to regulatory requirements and risk allocation concerns, companies involved in energy activities in Mexico must retain the legal form of a Mexican limited liability corporation. This structure complies with the country’s energy regulations and ensures alignment with financing and operational needs.

When energy projects originally financed through “non-recourse” or “project finance” schemes reach commercial operation, the project debt is often refinanced through project bonds placed with institutional investors.

In addition, Mexican law allows for the refinancing of mature energy projects through special-purpose trusts known as “FIBRA – E”. These trusts issue debt securities acquired by institutional investors, such as retirement funds (AFORES) and investment funds.

IPOs of energy companies are rare in the Mexican market, as sponsors typically pursue refinancing or sale options instead.

Please see 3.1 IPO v Sale. Listings on securities exchanges are uncommon for Mexican energy companies.

This is not applicable in the Mexican energy market, as IPOs and listings are not typical for energy projects or companies.

When the sale of a company is chosen as a liquidity event, initial investors in energy projects typically realise their returns by either selling the project at a higher price after creating added value, or receiving a development fee for taking the project to the construction or operational stage.

The sale process is generally conducted through auctions managed by an investment bank, which also serves as the sales adviser. These auctions attract multiple interested parties and are the preferred method for maximising value.

In Mexico, the transaction structure for selling a privately held energy and infrastructure company with venture capital investors varies based on several factors, including the nationality of the sponsors and the applicable tax treatments under local laws and tax treaties with Mexico. Typically, the entire company is sold to provide a complete exit for investors. However, in certain cases, venture capital funds may opt to retain a minority stake, allowing them to continue as shareholders and benefit from the company’s future growth. This decision is influenced by the specific objectives and agreements of the investors involved.

Transactions in this sector are predominantly structured as all-cash transactions. Stock-for-stock or mixed transactions are rare and typically arise in cross-border deals involving foreign buyers.

Standard representations and warranties (R&W) and related indemnifications for breaches are a common feature in M&A transactions within the Mexican energy sector. Beyond the customary R&W covering share title, taxes, employee benefits and environmental liabilities, energy deals typically include R&W specific to commercial arrangements, regulatory compliance and permitting, given their critical importance to energy projects. Escrow or holdback mechanisms are common to address post-closing contingencies. While not widely used, R&W insurance is becoming more common in larger, complex transactions involving international parties.

Because most energy projects are structured as SPVs that typically develop and operate a single facility, spin-offs are uncommon in this market. However, in rare cases, a spin-off may become necessary when a project involves multiple facilities – such as a power plant and a transmission line, a fuel storage tank, or an LNG facility and a pipeline – and regulatory requirements mandate the separation of these assets. In such scenarios, a detailed analysis is required, as the original structure was designed to encompass the ownership of both asset types.

Similarly, spin-offs may occur as part of a corporate restructuring aimed at isolating specific risks, enhancing financing opportunities or streamlining operations.

Spin-offs can be structured as tax-neutral transactions under Mexican law, provided they comply with strict requirements, including proportional ownership retention and prior approval from the Mexican tax authorities (SAT).

Spin-offs are rarely seen in the Mexican energy sector. In the limited instances where they are necessary, the spun-off assets typically remain independent.

Spin-offs followed by a business combination are possible but require strict compliance with corporate, tax and antitrust regulations. These transactions must be carefully structured to avoid triggering additional tax liabilities or attracting heightened regulatory scrutiny.

The typical timeline for a spin-off ranges from six to 12 months, depending on its complexity. A tax ruling from SAT is generally required, adding an additional three to six months to the process.

This section is not applicable to the Mexican energy and infrastructure sector, as transactions involving public (exchange-listed) companies are extremely rare in this industry. Consequently, the questions and responses in this section apply to publicly listed companies in general and are not relevant to the specific context of energy and infrastructure companies in Mexico, which is the purpose of the article.

This is not applicable in Mexico.

This is not applicable in Mexico.

This is not applicable in Mexico.

This is not applicable in Mexico.

This is not applicable in Mexico.

This is not applicable in Mexico.

This is not applicable in Mexico.

This is not applicable in Mexico.

This is not applicable in Mexico.

This is not applicable in Mexico.

This is not applicable in Mexico.

This is not applicable in Mexico.

This is not applicable in Mexico.

Under Mexican law, there are no special requirements for setting up a company to engage in energy-related activities. However, to obtain a permit for such activities, the company’s corporate purpose must include a description of the activities requiring authorisation.

The primary regulatory body responsible for granting energy permits in Mexico is the Energy Regulatory Commission (CRE). While regulations stipulate that permits should be issued within three to four months, delays have been significant in recent years due to a lack of support for private energy projects under the past administration. As a result, obtaining a permit has often taken more than one year.

The primary securities market regulator in Mexico is the National Banking and Securities Commission (CNBV). However, as noted in 6.1 Stakebuilding, there have been very few acquisitions of public companies in the energy sector.

The CRE’s consent is required in M&A deals if the transaction results in a change of control of the regulated entity.

There are no restrictions on private or foreign investment in the energy sector, except for the planning and control of the national electric system, nuclear energy and the transmission and distribution of electricity, which are reserved exclusively for the Mexican state.

Acquisitions in the Mexican energy sector are subject to regulatory oversight, including review and approval by the CRE. To date, there is no record of an acquisition being rejected on national security grounds.

Mexican regulations do not impose specific restrictions based on the buyer’s country of origin. However, certain activities require permits from the CRE, such as exporting electricity. Similarly, the export of hydrocarbons, including oil, is regulated by the Ministry of Energy, and permits must be obtained under applicable laws.

Antitrust clearance from the Federal Economic Competition Commission (COFECE) is required for acquisitions, mergers or combinations that exceed thresholds related to transaction value, asset value or market share. These thresholds are commonly surpassed in the energy sector due to the high value of energy projects and facilities, as well as sales volumes.

Because state-owned companies hold dominant positions in the power and hydrocarbons sectors in Mexico, acquisitions by other participants are generally viewed as promoting competition and are typically well received by COFECE.

Acquirers must comply with Mexico’s stringent labour laws, which prioritise employee rights. Recent outsourcing reforms limit the ability of companies to transfer employees or labour obligations to third parties through operations or services agreements. The underlying principle is that employees involved in the company’s core activities must be directly employed by the energy project company. While labour consultations with employees or unions are generally not binding on corporate decisions, it is essential to ensure compliance with collective bargaining agreements and statutory employee profit-sharing obligations.

There are no currency control regulations in Mexico. Central bank approval is not required for M&A transactions.

As noted in 1.1 Energy & Infrastructure M&A Market, the Mexican government has implemented numerous legal and regulatory actions to restrict or obstruct private participation in the energy sector, with the intent of bolstering state-owned companies. These measures were widely perceived as violating constitutional provisions prohibiting monopolies and promoting free competition.

Market participants challenged these measures through judicial processes, which led to significant rulings declaring the government’s actions unconstitutional and nullifying various policies. These legal battles underscored the judiciary’s critical role in maintaining a balance between government initiatives and private rights in the energy sector.

However, the landscape shifted dramatically following the elections on 2 June 2024, when the Morena party and its allies secured a supermajority in Congress. This allowed for the constitutional amendments that fundamentally restructured Mexico’s judiciary and energy framework. The constitutional reform, enacted on 1 November 2024, introduced the following main changes.

Reclassification of CFE and Pemex

The Federal Electricity Commission (CFE) and Petróleos Mexicanos (Pemex) were reclassified as state-owned public companies, moving away from their “productive company” status established in 2013. This shift prioritises social responsibility over profitability, signalling a renewed focus on public service rather than commercial objectives.

State Monopoly on Transmission and Distribution

Electricity transmission and distribution remain exclusive to the state, reaffirming its strategic control.

Private Sector’s Permitted Activities

Private participation in electricity generation and commercialisation is upheld, but with a new emphasis on the “pre-eminence” of CFE. While this term remains undefined, it hints at a potential push for CFE to control at least 54% of the country’s electricity generation.

Strategic Priorities for the National Grid

The reform mandates that the planning and operation of Mexico’s electricity system focus on energy security, affordability and sovereignty. These objectives reinforce the state’s central role in shaping the energy landscape.

Lithium and Internet as State-Controlled Resources

The state retains exclusive rights to lithium exploitation, and state-provided internet is officially designated as a non-monopolistic service.

While the reform underscores the government’s intent to consolidate control over strategic areas, it is still very broad and conceptual. Specific details and operational rules will have to be implemented through secondary legislation, particularly in balancing state dominance with private investment. Ensuring compliance with international trade agreements, safeguarding existing projects and modernising infrastructure remain critical challenges.

The general rules governing due diligence processes and disclosure requirements are also applicable to energy projects.

In the energy sector, due diligence typically focuses on three main areas:

• permitting and regulatory – ensuring that the company holds all required permits and is in compliance with applicable laws and regulations;
• land-related matters – verifying land rights, including ownership, leases or easements, and confirming compliance with agrarian laws where applicable; and
• commercial agreements – reviewing power purchase agreements (PPAs), interconnection agreements and other key contracts.

Public companies are obliged to provide the same information to all bidders, in order to ensure a fair process. Boards of directors must exercise caution when determining the level of disclosure, balancing transparency with the need to protect sensitive or proprietary information.

Due to the technical and commercial sensitivity of energy projects, confidentiality provisions in contractual arrangements often limit the disclosure of information during M&A transactions. Consent from counterparties is typically required to share sensitive data.

Furthermore, Mexican data privacy laws impose obligations on companies to protect personal and sensitive data. These laws require companies to adopt measures to safeguard information and obtain consent before disclosing it to third parties, including potential buyers.

Acquisitions of energy companies through tender offers in securities markets are very rare in Mexico. The responses in this section refer to the disclosure rules applicable to publicly traded companies in general.

A bid must be made public once it has been formally submitted to the CNBV and approved for launch. Early announcements are typically voluntary.

A prospectus is required for stock-to-stock transactions. Buyer shares do not need to be listed on Mexican exchanges but must comply with CNBV regulations.

Bidders must produce financial statements in IFRS format for public disclosure, especially in stock-for-stock deals.

Transaction documents must be filed with the CNBV, including offer memorandum and shareholders' agreements.

Directors owe duties to shareholders and must act in the company’s best interest. Stakeholder interests are secondary but may be considered in specific scenarios.

Ad hoc committees are common to address conflicts of interest, especially in related-party transactions or contested offers.

Boards actively negotiate and recommend transactions. Shareholder litigation challenging board decisions is rare but increasing in complex M&A deals.

Financial advisers often provide fairness options. Independent legal counsel is common for boards during significant transactions.