Mastering cross-border deals
Deal appetite remains strong. Execution is where the pressure is building.
Tighter Foreign Direct Investment (FDI) screening is lengthening timelines, increasing costs, and introducing greater uncertainty into pricing and structure. In some cases, it is stopping deals before diligence can even begin.
Over half of survey respondents (53%) have modeled longer timelines or higher costs because of tighter national security screening, rising to 68% among U.S. respondents. Meanwhile, 45% of dealmakers are relying more on JVs or minority investments in response to more stringent FDI rules, while 26% have abandoned deals before diligence when the level of vulnerability to FDI restrictions became clear.
How FDI screening is reshaping deal strategy
How tighter FDI screening and national-security reviews have materially altered transatlantic M&A strategies:
U.S.
have modeled longer timelines or higher costs.
france
have shifted away from critical technology/infrastructure.
Germany
have abandoned deals prior to diligence.
FDI has become quite burdensome, particularly in aerospace and government contracting. The rules can be broad and difficult to navigate, and, in some countries, relatively limited activity can trigger a filing. That creates challenges around certainty and timing of closing.
Justin Levy Partner, U.S.
Geopolitics is the biggest perceived threat to transatlantic M&A over the next three years, cited by 25% of respondents. In the U.S.–U.K. transatlantic corridor specifically, geopolitical tensions have eased since Liberation Day. However, U.S. businesses are adopting a more cautious approach to foreign investment than was common under the previous administration. Recent policy reforms, such as the Investing in All of America Act, are incentivizing investments into local targets and U.S. companies rather than abroad.
say geopolitical tensions are the biggest threat to transatlantic M&A growth over the next three years.
say regulatory risk allocation creates the most friction between U.S. buyers and European/U.K. sellers.
The intensity has eased slightly since Liberation Day, but U.S. businesses are still being more conservative about foreign investment than they were in recent years, given emphasis on investing locally and spending money in the U.S. versus elsewhere.
Paddy Quinlan Partner, Ireland
The big differences we see involve the difference approach to disclosure schedules, locked box versus completion accounts, and the fact that U.S. buyers expect breaches of reps and warranties to be backed by an indemnity. I don’t see these differences as points of friction, however. It is almost always possible to get deals over the line.
Andrew Edge Partner, U.K.
The current economic context has its challenges, but if you look at the U.S., the U.K., most of Europe and neighboring markets, the economies and consumer groups are similar. A Dutch company expanding into the U.S., or a U.S. company expanding into the Netherlands, therefore has a more natural path than expansion into markets with much larger cultural and commercial differences.
Zabdaj Pollen Partner, The Netherlands
Transatlantic M&A deals can lose momentum to multiple points of friction. U.S. and European deal processes still differ on regulatory risk allocation, disclosure, warranties, and completion mechanics.
Regulatory risk allocation was ranked as the greatest source of friction by 30% of respondents, followed by valuation mechanisms such as completion accounts versus locked box, at 22%.
Legal and compliance factors are not the most significant impediments to completing a transatlantic deal. IT and technology integration were most cited as a hurdle to successful execution, followed by cultural factors such as differences in management style.
Labor relations, employee benefits, and healthcare can also change the cost of a transaction. The key is to identify those differences early enough to reflect them in valuation, planning, and integration.
If there are two willing parties involved, there are few legal or cultural barriers that can’t be overcome with the right preparation and legal advice. In fact, if a U.S. buyer is the most likely outcome, some U.K. and European buyers may even be willing to start from a position of U.S.-style documentation in the hope of ensuring a smoother process or better terms.
Any properly prepared business can overcome differences in deal style. Over the course of my career, I would also say that friction has become less and less.
Paddy Quinlan Partner, Ireland
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