Why are most SME sales in Mexico by assets rather than shares?

Because the buyer avoids assuming historical liabilities (labor, tax, IMSS, Infonavit) that in a share purchase travel with the company. In a share purchase the buyer inherits everything; in an asset purchase it negotiates which assets and which liabilities it assumes. In addition, the Mexican tax authority (SAT) treats each structure differently: asset purchase generates income tax on the gain in the seller; share transfer may have different treatment depending on whether the securities are listed or not. The choice of structure is negotiated explicitly in the LOI because it can shift millions of pesos of tax burden between buyer and seller.

What is the seller note and why is it so common in M&A in Mexico?

It is financing the seller itself provides to the buyer to close the deal. Unlike the U.S. or Europe, where institutional acquisition credit exists, in Mexico buyers of SMEs do not have access to bank financing for the purchase. The seller note is not a concession: it is the standard mechanism. A typical structure: 15% cash at closing, 50% seller note at 10–12% annual for 3 years, 35% contingent on post-closing performance. The seller effectively becomes the lender.

When must an M&A transaction be notified to COFECE in Mexico?

When the notification thresholds of the Federal Economic Competition Commission (COFECE) are exceeded, based on the value of the transaction relative to GDP and combined market share. Most Mexican SME M&A transactions do not exceed those thresholds, but the advisor must confirm at the LOI stage: a mandatory notification can add 30–60 days to the timeline and introduce regulatory uncertainty. Leaving the check until after the terms are agreed is a mistake.

How does owner-operator dependency affect value in a sale in Mexico?

Buyers incorporate the risk into the price: lower multiples, long transition periods, seller notes that keep the seller economically tied after closing, or contingent tranches tied to customer retention. In Mexican family businesses the founder is at once the operator, the main relationship with customers, and the only person who knows the business in depth. In a distributor in Mexico the owner-dependency ratio can reach 85%; without a succession or transition plan, the buyer discounts that risk in the offer.

M&A (Mergers and Acquisitions): what it is, process, and how it works in Mexico | M&A Glossary

M&A (Mergers and Acquisitions) is the set of transactions by which companies transfer ownership, merge operations, or acquire assets. In Mexico it applies mainly to SMEs, not only large-scale deals: the sale of a family-owned distributor, the merger of two manufacturers, or the purchase of operating assets are M&A transactions. Understanding structure in Mexico — asset vs share purchase, seller note, COFECE — is essential for founders, advisors, and funds.

Full M&A process guide →

What are the types of M&A transactions?

Asset acquisition vs share acquisition
In an asset acquisition the buyer purchases assets (real estate, inventory, contracts, brands) and assumes only the liabilities it negotiates. In a share acquisition it buys the entity’s shares and inherits all assets and liabilities. In Mexico this distinction matters for tax treatment (income tax on the gain in the seller in asset purchase; share transfer with different treatment depending on whether the securities are listed) and for assumption of labor, tax, IMSS and Infonavit liabilities that in a share purchase the buyer assumes without seeing them explicit on the balance sheet. Most Mexican SME M&A transactions are structured as asset purchases, not share purchases, because the buyer avoids historical liabilities that are invisible in a share purchase.
Merger
Two entities are combined into one; one absorbs the other or a new entity is created that merges them. Common in sector consolidations or corporate restructurings.
Leveraged buyout (LBO)
Acquisition financed mainly with debt; the acquired company’s cash flow services the debt. In Mexican SMEs the practical equivalent is the seller note, not bank acquisition debt.
Growth equity
Minority investment without full change of control; the investor comes in to finance growth, not to buy the company. It is M&A in a broad sense but not a full sale.

The buyer chooses what it buys and what liabilities it assumes, and the SAT and liability structure are negotiated from the LOI.

What is the M&A process step by step?

Preparation and decision to sell
The seller decides whether to sell, what to sell (assets vs entity) and on what timeline. It includes aligning expectations with market reality and preparing the business narrative.
EBITDA normalization and capital readiness
Normalized EBITDA is built as the valuation base: adjustments for non-recurring expenses, above-market compensation, and items a buyer would not assume. Without this base, reported EBITDA is not comparable or defensible in negotiation.
Identification and approach to buyers
A list of strategic or financial buyers is drawn up, sale materials (teaser, CIM if applicable) are prepared, and approach under confidentiality begins.
LOI and consideration structure
The chosen buyer presents a LOI that sets enterprise value (typically a multiple of normalized EBITDA), structure in three tranches (cash at closing, seller note, contingent consideration), and exclusivity. Structure is negotiated here; what is not fixed in the LOI is harder to recover later.
Due diligence
The buyer verifies assets, liabilities, contracts, customer concentration, labor and tax situation in due diligence. This is the stage where gaps with what was offered appear; many deals are renegotiated or break here.
Definitive agreement negotiation
The purchase (or merger) agreement, representations and warranties, closing conditions, and mechanics of the seller note and contingent consideration are drafted and negotiated.
Closing and transition
Signing, disbursement per structure, operational handoff, and, if applicable, transition period with the seller. Fulfillment of contingent consideration conditions is measured after closing.

What does M&A look like in Mexico?

In practice four mechanics stand out that every advisor must have clear: the choice between asset purchase and share purchase (and its tax impact in the LOI), owner-operator dependency and its effect on multiple and structure, the prevalence of the seller note as standard financing given the scarcity of acquisition credit, and the COFECE threshold that may require notification and add time to closing.

Why do M&A transactions fail?

Deals break or get renegotiated for reasons that appear again and again in practice, not from textbook theory.

EBITDA that does not survive normalization.
The seller presents EBITDA that includes family expenses, above-market compensation, or one-off items. In a distributor with annual customer churn above 35% and 85% owner dependency, reported EBITDA can collapse after normalization. In due diligence the buyer builds normalized EBITDA and the valuation base drops; the deal is renegotiated or falls apart.
Customer concentration discovered in diligence not disclosed.
If a substantial part of revenue depends on one or few customers and that was not disclosed, the buyer adjusts price or demands guarantees; if concentration is extreme, it may walk away.
Owner dependency with no succession or transition plan.
The buyer discounts the risk in the multiple or in the structure (more contingent, more seller note). If no one can operate the business without the founder, the deal may not close or may close at a value well below expectations.
Liabilities (labor, tax, environmental) that appear after the LOI.
What emerges in due diligence that was not in what was offered reduces the net value the buyer is willing to pay; it is often discounted from the contingent consideration peso for peso or the price is renegotiated.
Seller expectation anchored to a multiple the business cannot support.
The seller hears “5x EBITDA” in the market and assumes it applies to its company without considering normalization, concentration, or dependency. When the offer comes in lower, distrust or rejection breaks the process.

What do buyers and sellers ask about M&A?

Why are most SME sales in Mexico by assets rather than shares?: Because the buyer avoids assuming historical liabilities (labor, tax, IMSS, Infonavit) that in a share purchase travel with the company. In a share purchase the buyer inherits everything; in an asset purchase it negotiates which assets and which liabilities it assumes. In addition, the SAT treats each structure differently: asset purchase generates income tax on the gain in the seller; share transfer may have different treatment depending on whether the securities are listed or not. The choice of structure is negotiated explicitly in the LOI because it can shift millions of pesos of tax burden between buyer and seller.
What is the seller note and why is it so common in M&A in Mexico?: It is financing the seller itself provides to the buyer to close the deal. Unlike the U.S. or Europe, where institutional acquisition credit exists, in Mexico buyers of SMEs do not have access to bank financing for the purchase. The seller note is not a concession: it is the standard mechanism. A typical structure: 15% cash at closing, 50% seller note at 10–12% annual for 3 years, 35% contingent on post-closing performance. The seller effectively becomes the lender.
When must an M&A transaction be notified to COFECE in Mexico?: When the notification thresholds of the Federal Economic Competition Commission (COFECE) are exceeded, based on the value of the transaction relative to GDP and combined market share. Most Mexican SME M&A transactions do not exceed those thresholds, but the advisor must confirm at the LOI stage: a mandatory notification can add 30–60 days to the timeline and introduce regulatory uncertainty. Leaving the check until after the terms are agreed is a mistake.
How does owner-operator dependency affect value in a sale in Mexico?: Buyers incorporate the risk into the price: lower multiples, long transition periods, seller notes that keep the seller economically tied after closing, or contingent tranches tied to customer retention. In Mexican family businesses the founder is at once the operator, the main relationship with customers, and the only person who knows the business in depth. In a distributor in Mexico the owner-dependency ratio can reach 85%; without a succession or transition plan, the buyer discounts that risk in the offer.

In this glossary:

LOI — where value and structure are agreed.

Normalized EBITDA — base of valuation.

Earn-out — typical contingent tranche.

Due diligence — stage where risks are validated.

Consideration structure — how EV is split between cash, seller note, and contingent tranches.

Investor list — early access to deal flow in Mexico.

Sources

M&A in Mexico is mainly SME sale structured as asset purchase, with seller note and earn-out as standard tools. For a full guide from preparation to closing, see the guide to selling a business in Mexico.