Bridging the Gap: Market Valuation and IR Practices Between the U.S. and Mexico

As Mexican companies consider listing in the United States, they face opportunities and challenges. The U.S. market offers enhanced visibility, often higher valuation multiples, and potential access to global investors. However, these benefits come with costly regulatory frameworks and the risk of losing local investor participation, such as AFORES, which prioritizes domestic indices.

Myth vs. Reality: U.S. IPOs

A common misconception is that a U.S. listing always attracts incremental investors compared to a 144A/Reg S IPO. In reality, the investor base usually remains largely the same, as U.S. retail or sector-specific funds typically don’t participate in Latin American IPOs due to complexities like regulations and currency differences. For example, despite its U.S. listing, Auna failed to attract U.S. healthcare specialists and missed out on local pension funds like AFORES, which didn’t use their international equity allocations to buy into the deal.

What a U.S. listing can deliver is an increase in ticket sizes from global funds already participating in a 144A/Reg S IPO. It also enhances perceptions of governance and facilitates internal advocacy within institutions for broader participation. Furthermore, strong performance post-IPO and liquidity improvements can increase the likelihood of U.S. specialist funds participating in follow-on offerings. Perhaps most importantly, US-only listing allows founding shareholders to award themselves super voting rights and keep control of the company even if their economic ownership falls far short of a majority. This is especially important in PE-financed companies.

Risks and Opportunities

A U.S.-only listing can even in some cases deter global investors if local investors are absent, creating a perception of weak support (orphan stock). Dual listings address this concern effectively, preserving local participation while accessing U.S. markets. This approach, as seen with Vesta, allows companies to maintain domestic investor engagement while benefiting from the U.S. market’s visibility and governance standards. Contrary to another myth, dual listings can enhance liquidity instead of dividing it, by attracting arbitragers who capitalize on price differences between local and U.S. shares.

The Regulatory Landscape

Listing in Mexico has become increasingly challenging due to a lack of transparency in implementing rules, and bureaucratic hurdles. Companies often face unpredictable processes with the CNBV and risks of delays due to tax-related disputes, as illustrated by FUNO and Next. Additionally, the SAT’s aggressive stance on extracting taxes adds further complexity. In contrast, the U.S. regulatory environment, while stringent, offers greater predictability and alignment with market timing. As mentioned, the US allows for different voting shares, and liquidity bonuses to founders on IPO more easily than the CNBV.

For Mexican companies aiming to list in the U.S., careful preparation is essential:

1. Adopt Robust IR Practices: Emphasize detailed metrics, strategic goals, and forward-looking statements.
2. Align Financial Reporting: Ensure compliance with U.S. accounting standards and disclosures.
3. Strengthen ESG Messaging: Tie measurable ESG progress to financial outcomes.
4. Engage Analysts Globally: Build trust through consistent communication and leadership accessibility.

While a U.S. listing offers potential growth opportunities, it comes with trade-offs. Dual listings can mitigate risks by retaining local investor participation while accessing global capital. Companies should carefully assess their strategic objectives and regulatory environments before proceeding.

At Miranda Investor Relations, we specialize in guiding companies through cross-border listings, ensuring successful transitions by navigating compliance, investor engagement, and strategic communications.

Note: This analysis reflects the regulatory landscape as of December 2024.