A little more than a year has passed since the populist Mexican President Andrés Manuel López Obrador – frequently referred to as AMLO – was elected in a landslide victory. Since then, fears of political risk and U.S. threats to restrict and hamper trade have persisted, inhibiting investment and clouding the outlook for economic growth in Mexico.

For lawyers, this has meant a slowdown in some profitable work, such as deal activity, but an increase in advisory work as Mexicans look to sell assets at home and abroad.

"I would describe the anxiety that I'm seeing inside the c-suite, in the boardroom, as the highest I've seen since probably around the Tequila Crisis in the mid-1990s," says Jones Day partner Michael McGuinness, referring to the financial crisis sparked by the sudden devaluation of the peso. That crisis led to hyperinflation, thousands losing their homes, banks collapsing and, eventually, a $50 billion bailout orchestrated by the International Monetary Fund.

Sliding confidence more recently has resulted in a marked decline in merger and acquisition activity.

According to Transactional Track Record, which tracks M&A transactions, 125 Mexican deals with a combined reported value of $15.5 billion have been made in the 12 months through June 2019 – the year following López Obrador's sweeping July 1, 2018 electoral win. That's down from 184 transactions with a combined reported value of $34.5 billion in the 12 months leading up to the election.

The dropoff came amid ongoing unease related to trade relations – even though Mexico has already agreed to the terms of a new North American free trade agreement, the USMCA. Canada and the U.S. still must ratify the agreement, however, and as recently as June, U.S. President Donald Trump was threatening to slap a 25% tariff on all Mexican imports.

Some of the decline might also be attributable to a rush to get deals done ahead of the 2018 Mexican election, out of fear of what might come, says Chantal Kordula, a New York-based partner with Cleary Gottlieb Steen & Hamilton who has worked on Mexico transactions since 1997.

McGuinness, a New York-based partner who has worked on cross-border corporate transactions in Mexico for more than two decades, sees clients "sandwiched" between two unpredictable forces: on one side, hostility from the Trump administration and on the other, a nationalist president in Mexico who is retreating from the liberalisation trend that has dominated the country for much of the past 25 years.

López Obrador has been swift to enact change, killing an ambitious international airport project even before he took office last December. The $13 billion aviation hub for the capital was already about a third-built. He also cancelled energy auctions.

Last week, the IMF trimmed its forecast for 2019 economic growth in Mexico to 0.9%, citing lacklustre investment, slumping confidence and sluggish consumer spending. López Obrador, who calls his government the "Fourth Transformation", equating it with key milestones such as Mexico's independence from Spain, lambasted the IMF as an organisation that "imposed neoliberal economic policy that caused much misfortune in Mexico".

But the downturn does not necessarily mean all M&A work for lawyers has dried up. Under the current economic and political climate, a growing number of wealthy Mexican families and conglomerates have been looking to diversify their holdings. That means selling assets and hunting for opportunities in places like the U.S., Spain and South America.

There are some bright spots as well. Kordula sees ongoing interest in Mexico from Canadian pension funds, for example. And she points to a recent uptick in capital markets activity to show that Mexican firms continue to raise money to invest and grow businesses in their home market.

"Life goes on, right? You do the best you can to manage the potential risks, but I think people can't be at a standstill for six years," Kordula says.

Mexican presidents are limited to a single, six-year term.

Jean Michel Enríquez, a partner at Creel, García-Cuéllar, Aiza and Enríquez – a top Mexican firm for M&A work – compares the structural shifts in Mexico's economy under AMLO to a change in regime.

"This is not business as usual," he says. "When there's such a fundamental change in a country view, in the philosophy of what a country should look like and how it should work, there's bound to be short-term instability."

Nevertheless, Enríquez says he is as busy as ever.

Some foreign investors who see Mexico as a strategic country both geographically and as a key player in supply chains, view the current rough patch as a buying opportunity and are actively searching for assets, lawyers say.

Strategic investors that acquire companies in their own fields can squeeze synergies and savings from those acquisitions. But for financial investors such as private equity firms, which look to make U.S. dollar returns within 10 years, Mexico has become a tougher sell – especially when analysing businesses with peso-denominated sales.

"There's a ton of buyers out there, it's just that they're willing to pay less than the [sellers] want," Enríquez says.

Luis Nicolau, a partner at another top Mexican M&A firm – Ritch, Mueller, Heather and Nicolau – describes recent deals as lower profile and limited to specific growth sectors, such as healthcare and consumer goods.

And to some, Mexico still has strong appeal. Lawyers and investors active in parts of the developing world view the risks in Mexico as relatively low compared with other markets. Mexico ranks 54th out of 190 countries in the World Bank's Doing Business Report, in which a lower number means greater ease in doing business.

In addition, Mexico is not the only country that has been rocked recently by political uncertainty: lawyers note that plenty of developed countries have been affected by Britain's looming exit from the European Union, for example.

Even with slow economic growth, Mexico's 120 million consumers and $1.2 trillion economy make for a large enough market to entice investors, says Enríquez, who remains optimistic about M&A activity. He is working on a $1 billion transaction involving a foreign investor that he expects to be signed this year, and has another multibillion-dollar transaction in progress for a large portfolio of industrial properties in which all the interested buyers are overseas.

"I think people will hunker down for the next couple of years and sort of wait it out and find pockets of growth and invest there," he says.

Investors with a long-term vision and strong negotiating skills, he added, "are going to make a killing".

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