Vicente Corta Fernandez (left) of White & Case and Fernando De Orvando of Jones Day
Vicente Corta Fernandez (left) of White & Case and Fernando De Orvando of Jones Day (Rodrigo Ceballos)

Since December, when the Mexican government passed sweeping constitutional reforms to create a more competitive businesses climate, change has come at a dizzying pace. New tax, education and labor laws have been enacted, the telecom sector is being revamped, and the country’s competition laws are being rewritten. Most significantly, the government is set to end its monopoly on the energy sector this year, opening it to competition for the first time in 75 years.

“These are some of the most ambitious reforms ever seen in Mexico, especially in the energy sector,” says Vicente Corta Fernández of White & Case’s Mexico City office. Andrés Ochoa-Bünsow of Baker & McKenzie’s Mexico City office says the changes have come so quickly it’s been a challenge to stay current: “All law firms are scrambling just to keep up to date with a whole slew of reforms. The energy reform is the mother of reforms.”

This transformation began soon after the 2012 election of President Enrique Peña Nieto, who outlined his vision for the country’s future in his Pacto por Mexico (Pact for Mexico). Many in the business community greeted the plan with skepticism, given the disappointing track record of previous presidents’ attempted reforms. But in a striking example of collaboration, Mexico’s political parties have worked together to craft wide-ranging economic reforms.

In February, Moody’s upgraded Mexican sovereign debt to single A status, making Mexico one of only two Latin America countries with a rating so high (the other is Chile). At the Davos economic summit that same month, Peña Nieto announced that PepsiCo Inc., Nestle S.A. and Cisco Systems Inc. would be making combined new investments of more than $7.3 billion.

For years, law firms and their clients interested in South America focused on Brazil and its booming economy. But much of that attention has shifted north with Brazil struggling with a stalled economy and political unrest. “Brazil was the sexy lady of the region,” says Luis Riesgo, who heads Jones Day’s Latin American operations from São Paulo. “Now Mexico is the sexy lady.”

Unlike Brazil, Mexico doesn’t ban international law firms from practicing local law. “In Brazil we have to keep ourselves small,” says Riesgo. “In Mexico we can be as big as we want to be. It’s a huge difference.”

But it can be a challenge for a U.S.-based or international law firm to gain a solid foothold in the Mexican market and integrate that practice. “It is a very different environment—very dynamic,” says Corta of White & Case. “It’s full of opportunity and also full of risk.”

Since 2008, six U.S. firms have opened offices in Mexico staffed almost entirely with local lawyers: Jones Day, Greenberg Traurig, DLA Piper, Thompson & Knight, and Littler Mendelson.

Most ambitious has been Jones Day, which opened in Mexico in 2008 with 23 lawyers and has tripled in size to 68. “We want to be more than 100 lawyers in a short time,” says partner Riesgo. The firm initially acquired the Mexico City firm De Ovando & Martinez del Campo, which was headed by Fernando de Ovando, who had worked with Jones Day in the past. The firm has since brought in other prominent Mexican lawyers. Last year, Jones Day hired Héctor Tinoco, the former general counsel for the Mexican Central Bank. He has since been retained by the Mexican banking trade group, Asociación Mexicana de Bancos, to advise on the reforms, as well as by individual banks, including Citigroup’s Mexican unit Banamex and HSBC Holdings. In January, it brought in Alberto de la Parra, the former general counsel for Grupo Mexico, one of the largest mining, railroad, and infrastructure companies in Mexico.

Newcomers like Jones Day are competing against a handful of firms that have been in Mexico much longer. Baker & McKenzie, which has 290 lawyers in five offices, has been there since 1961. White & Case, with 60 lawyers, has had an office for 23 years. Haynes and Boone has 25 lawyers in Mexico City and has been operating in the country for 20 years.

Amid this growing competition, there’s been a gold rush-like race for talent, which has caused waves of lateral moves. Last August, Holland & Knight opened an office by taking all nine lawyers from Chadbourne & Parke’s Mexico City office, including the office’s managing partner, Boris Otto. (Two associates have since returned to Chadbourne.) Then in February, Holland & Knight lured away a corporate finance partner and several associates from DLA Piper. White & Case has lost nine partners in the last couple of years, including one to Greenberg Traurig, which also hired several White & Case associates.

Chadbourne partner J. Allen Miller says the firm still has a strong Mexican practice, and plans to rebuild that office. Lawyers in other offices continue to do Mexican finance work for Australia’s Macquarie Group and handle financing for Mexican renewable energy projects and corporate acquisitions, Miller says. White & Case’s Corta notes that of the nine partner departures, one went to client Wal-Mart Stores Inc. and another joined the Ministry of Finance. Despite the overall losses, he says, White & Case’s Mexico City office had a record year last year.

Jeffrey Liebster, a partner at legal recruiter Major, Lindsey & Africa, says he expects more activity. “A lot of firms are talking about perhaps establishing presence,” he says. “It has accelerated in the last year at a very rapid pace.”

Jones Day’s de Ovando notes that some large oil companies have told him that other firms have offered to open a Mexico office or buy an established Mexican firm if the company will give them work there.

Some firms have succeeded in Mexico without a localoffice, especially the New York-based firms. Cleary Gottlieb Steen & Hamilton has a prominent Mexican capital markets practice, as well as a close relationship with the country’s national oil company, Petróleos Mexicanos (Pemex). Although the firm has nine partners who spend at least half their time on Mexico work, it doesn’t plan to establish an office there.

“There’s a lot of friction involved in opening an office in Mexico,” says Cleary Gottlieb New York partner Nicolas Grabar, who does work for Pemex and the Mexican electricity commission. “It’s expensive and difficult and creates challenges.” Plus, he says, there would be cultural hurdles because Cleary doesn’t hire many laterals. “Ninety percent of the firm’s partners are home grown,” he says. “At least one person from Cleary Gottlieb is in Mexico nearly every day, so we’re kind of always there. But we don’t see the need to open an office.”

One point of friction is billing rates. The rate for top Mexican lawyers rarely exceeds $500 an hour. “If we were to use our U.S. rates we would be basically out of the market,” says Luis Moreno Trevino, a Mexican lawyer at Haynes and Boone. Instead, he says, they apply a Mexican market rate for 90 percent of the office’s matters.

Liebster of Major Lindsey points out that Mexican offices can still be a good investment, despite the rate difference. “There are firms there that are extremely profitable,” he says. “Their costs are dramatically lower.”

Mexico City partner Juan Manuel González Bernal of Greenberg Traurig, however, says he expects rates to rise. “I think [local rates] will have to change,” he says. “As work becomes more sophisticated, you can charge more.”

The opening of the energy market will create the most tantalizing opportunities. Tens of billions of dollars in investments are expected, according to a White & Case report. Pemex will no longer control every aspect of energy exploration, extraction and delivery in Mexico—it even owns every gas station in the country. Undeveloped oil fields will be open to exploration and Pemex will likely partner with international companies to help operate the fields it keeps. Secondary legislation containing the details of this reform in the oil and gas industry faced a deadline of late April, but at press time that date looked as if it could be pushed back. The electricity market is scheduled to be open to competition next year.

Because of this long government monopoly, few Mexican lawyers have worked on private sector energy deals, leaving an opening for lawyers in the U.S. and other countries. “One dynamic that’s unique here is that most Mexican lawyers don’t have underlying oil and gas expertise,” says Baker Botts Houston partner Carlos Solé III.

Chantal Kordula of Cleary Gottlieb says some Mexican lawyers have been trying to catch up by taking classes on profit sharing and production sharing practices. “They have a whole generation of Mexican lawyers who have never done [these types of deals],” she says.

The limited energy opportunities in Mexico in years past may help explain why so few Texas firms have set up shop there, despite the close connection between the two regions. Haynes and Boone is the only Texas firm with a significant presence. “I think the fact that Mexico is so much a part of daily economic life in Texas, some Texas firms think they can manage without an office there,” says Haynes and Boone Houston partner George Gonzalez. “But I don’t think that will be a successful mode over long terms. Relationships are so important.”

With so much crucial legislation still being draft ed, lawyers are focused on keeping their clients informed. Several lawyers insisted that U.S.-style lobbying—where lawyers attempt to sway lawmakers—doesn’t occur in Mexico. “The process of lobbying like we do in the U.S. is not generally accepted in the region, says Stuart Berkson, the chair of the Latin America practice at DLA Piper. “Lobbying is viewed with a very bad connotation.”

Moreno of Haynes and Boone says lawmakers haven’t been very receptive to input from the business community. “The government has been very closed to listening to opinion,” he says. “Still, we have very aggressive due diligence by international oil companies. They want to know how things are developing and who is being considered for certain positions.”

Yet powerful interests have ways of exerting influence. “Political horse trading is going on,” says Solé of Baker Botts. De Ovando of Jones Day adds: “These are very big players and they know how to play hardball.”

Yosbel Ibarra, who cochairs the Latin American practice at Greenberg Traurig, says that even if all the anticipated reforms don’t happen, he’s confident the firm’s Mexico City office should thrive. He notes that the 40-lawyer office last year posted a 30 percent increase in revenue over 2012. “Even if they don’t become the dream reforms that everyone is hoping for,” he says, “we’ll still have a very successful office.”

Francisco Cerezo, a Miami partner who chairs the Latin America practice at Foley & Lardner, says he’s optimistic about the opportunities, but adds, “It’s not a utopia to be sure.”

Safety, security and corruption are still problems. The White & Case report warns of the “pervasiveness of corruption,” noting that an estimated 15 percent of investments made by companies in Mexico City are spent on bribes. The report also says there’s an urgent need to improve the judicial system.

But for now, the opportunities appear to overwhelm the risks. Says Gonzalez of Haynes and Boone: “This is not a once in a generation event, but a once in three generations event.”

Susan Beck can be contacted at sbeck@alm.com.