Cross-border mergers and acquisitions (M&A) stand as some of the most complex and compelling undertakings in the global business landscape. These transactions are driven by ambitions of strategic growth, market expansion, and leveraging advanced innovations. They represent far more than business deals, reflecting the skill of merging distinct corporate aspirations, bridging complex legal systems, and navigating the (often challenging) realities of international commerce.
The peculiarity of cross-border M&As lies in their sophistication: the interplay of diverse regulatory regimes, the harmonization of legal and financial objectives, and the pursuit of synergies that transcend borders. Such operations require not only technical mastery but also a deep understanding of the interconnected global economy, turning challenges into avenues for innovation and success. How fascinating!
A key distinction is between “strategic acquisitions” and “private equity” deals. Strategic acquisitions involve companies seeking long-term growth through expansion, integration, or diversification, aiming to create synergies and improve competitiveness (pure M&A). In contrast, private capital deals focus on generating short-term returns by investing in undervalued or distressed companies, restructuring them, and selling for profit. The goals behind these deals shape their different approaches: strategic acquisitions aim at operational integration, while private equity focuses on financial optimization.
The structure of an M&A deal plays a critical role in determining its complexity and potential outcomes. In an “asset deal”, the buyer acquires specific assets and liabilities of the targeted company, which offers more control over what is purchased but often involves a more detailed and complex process, as each asset and liability must be individually identified and valued. On the other hand, in a “share deal”, the buyer acquires the entire share capital of the targeted company, including all assets and liabilities, which simplifies the process since the buyer takes ownership of the company as a whole, but it also means assuming more risk, as hidden liabilities may exist. Ultimately, the decision between an asset and share deal depends on the buyer's strategic goals and risk tolerance.
Another key distinction in M&A deals is between “private” and “public M&A”. Private M&A’s are generally less regulated as they involve privately held companies and are not subject to the same disclosure requirements as public companies. Public M&A’s, on the other hand, are highly regulated to protect minority shareholders and ensure market fairness. In Europe, public M&A transactions are governed by legal texts like the UK Takeover Code and Italy’s OPA regulations, which provide rules on transparency, bid thresholds, and shareholder protection.
The stages of M&As follow a well-structured plan, starting with business assessments and due diligence. This phase involves evaluating the target company’s financial health, potential synergies, and risks. Preliminary documents such as a letter of intent (LOI) are often drafted, outlining the general terms of the deal. Afterward, a Sale and Purchase Agreement (SPA) is negotiated, formalizing the deal’s terms. Regulatory scrutiny is also a crucial stage, especially for cross-border transactions that require antitrust approval from authorities like the European Commission, or national regulators such as Italy’s AGCM. Deals in regulated industries or those involving strategic national interests may need additional approvals, including from authorities exercising Golden Power, such as Italy's government in sectors critical to national security. For instance, other countries such as the United States (with the CFIUS, Committee on Foreign Investment in the United States) and Germany (with the Foreign Trade and Payments Act) have similar mechanisms that allow governments to intervene in foreign acquisitions and investments in sensitive sectors. However, the specifics of their application and scope may differ across jurisdictions.
The conflict of laws represents a key challenge in cross-border M&As. The divergence of legal systems across jurisdictions can complicate the negotiation and execution of transactions. While international private law provides a framework for resolving such conflicts, it does not always offer clear solutions. Nevertheless, these challenges are not impossible to overcome. Involving legal experts familiar with the relevant legal systems is crucial to navigating these complexities. With the appropriate expertise and strategic planning, the issues arising from differing legal frameworks can be effectively managed, ensuring the smooth progression of the deal.
Skilled legal professionals play a pivotal role in transforming potential legal obstacles into opportunities for successful cross-border transactions. While financial advisors focus on valuations and deal structuring, lawyers ensure that the transaction complies with legal requirements across multiple jurisdictions. Their expertise is crucial, as a single word in one jurisdiction’s legal framework may have a different meaning in another, potentially leading to disputes. Parties and their legal advisors often include contract clauses that provide for termination in the event of non-performance, or that clearly define the allocation of responsibilities and damages for a breach of contract. However, when these measures are not enough, to avoid the complications of domestic legal proceedings and the challenges given by the nature of the transaction, parties tend to choose international commercial arbitration as the preferred method of dispute resolution.
Cross-border M&As are both complex and impactful, demanding a unique mix of legal, financial, and strategic expertise. Success relies on skilfully handling regulatory challenges, aligning diverse objectives, and overcoming jurisdictional divergence. Every stage requires meticulous planning and insight to ensure deals’ success by creating enduring value. In the end, cross-border M&As are more than transactions they are forces that shape the future of global business.
Bibliography:
“The Law and Practice of Private Company Share Acquisitions in Italy, a Student’s Guide” By Luca Arnaboldi and Federico Modugno
"International Business Transactions: Contracting Across Borders" by Ralph Haughwout Folsom
“An Introduction to Cross-Border M&A: Deal Flow, Regulatory Issues and Corporate Governance” Seminar, Corporate Law Academy and LSESU Law Society. Speakers: Cesare Cavallini, Giovanni Colantuono, Marco Gubitosi, Maria Grazia Mazzaglia, Matilde Finucci
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