Cross-Border M&A: 2022 Checklist for Successful Acquisitions in the U.S.

Adam O. Emmerich and Robin Panovka are partners at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell memorandum by Mr. Emmerich, Mr. Panovka, Jodi J. Schwartz, David A. Katz, Ilene Knable Gotts, and Andrew J. Nussbaum. Related research from the Program on Corporate Governance includes Are M&A Contract Clauses Value Relevant to Target and Bidder Shareholders? by John C. Coates, Darius Palia, and Ge Wu (discussed on the Forum here); and The New Look of Deal Protection by Fernan Restrepo and Guhan Subramanian (discussed on the Forum here).

2021 was the most active year for M&A on record. There can be no other headline for the relentless boom in M&A over the twelve months ended December 31, 2021, during which global M&A volume exceeded $5.8 trillion, the highest annual volume on record. Each of the four quarters of 2021 placed in the top six most active quarters in global M&A by volume since the beginning of 2010. As always, however, the headline figures do not tell the whole story, as M&A in 2021 was not only historically robust, but also as complex and multi-faceted as ever.

Record-breaking M&A volume in 2021 was driven by a surge in large deals of $1 billion to $10 billion. There was $2.8 trillion in large deals in 2021, an 81% increase relative to the volume of such deals in 2020 ($1.5 trillion) and a virtual doubling relative to 2019 ($1.4 trillion), the last full year prior to the onset of the Covid-19 pandemic. Private equity buyers, and their “dry-powder” in need of deployment, participated in the large deal boom in a significant way, with $1.3 trillion in large buyouts in 2021, increases of 114% and 162% relative to volumes in 2020 and 2019 ($589 billion and $479 billion, in aggregate value in 2020 and 2019, respectively).

At the same time, while mega-mergers were more abundant in 2021 than in 2020, the largest deals in 2021 were not as large as in prior years. There were 16 transactions in excess of $20 billion in 2021, totalling $565 billion (an average deal size of $35 billion), compared to 12 such transactions in 2020, totalling $498 billion (an average deal size of $41 billion), and 20 such transactions in 2019, totalling $900 billion (an average deal size of $45 billion). While some industry observers have suggested that dealmakers’ uncertainty as to the approach of the new antitrust regime in the United States (headwinds that do not blow as strongly against private equity) put the very largest deals on hold, there are signs of increasing confidence in strategic tie-ups, including Oracle’s $28.3 billion acquisition of Cerner announced at the end of December.

The promise of cross-border deals proved as enticing in this environment as any other.

Of last year’s deals, $2.1 trillion, or 36% (including four of the 10 largest deals), were cross-border – in excess of averages of $1.3 trillion and 35% over the prior ten years. Approximately 20% of last year’s $2.6 trillion U.S. deal volume involved non-U.S. acquirors. Canadian, French, German, Japanese and U.K. acquirors accounted for approximately 40% of the volume of cross-border deals involving U.S. targets, while acquirors from China, India and other emerging economies accounted for approximately 3%.

M&A in 2021 weathered the rise of coronavirus variants, supply chain disruption, and the consumer price index, and even with the exponential arrival and surge of the Omicron variant, 2022 opens with a sense of optimism that seemed much more fragile just twelve record-breaking months ago.

Despite the inevitable and unique uncertainties inherent in the current climate, we expect cross-border transactions into the U.S. to continue to offer compelling opportunities. As always, transacting parties will do better if they are well-prepared for the cultural, political, regulatory and technical complexity inherent in cross-border deals. Now, more than ever, advance preparation, strategic implementation and deal structures calibrated to likely concerns are critically important.

The following is our updated checklist of issues that should be carefully considered in advance of an acquisition or strategic investment in the U.S. Because each cross-border deal is unique, the relative significance of the issues discussed below will depend upon the specific facts, circumstances and dynamics of each particular situation. There is no one cookie-cutter roadmap to success.

Political and Regulatory Considerations. A high percentage of investment into the U.S. will be well-received and not politicized. However, a variety of global economic fault lines continue to make it more important than ever that prospective non-U.S. acquirors of U.S. businesses or assets undertake a thoughtful analysis of U.S. political and regulatory implications well in advance of any acquisition proposal or program. This is particularly so if the target company operates in a sensitive industry; if post-transaction business plans contemplate major changes in investment, employment or business strategy; or if the acquiror is sponsored or financed by a foreign government or organized in a jurisdiction where a high level of government involvement in business is generally understood to exist. High-profile transactions may result in political scrutiny by federal, state and local officials. The likely concerns of federal, state and local government agencies, employees, customers, suppliers, communities and other interested parties should be thoroughly considered and, if possible, addressed before any acquisition or investment proposal becomes public. This is especially important in light of the ongoing shift in the U.S. towards “stakeholder governance” and the growing embrace of ESG (environmental, social and governance) principles by shareholders and companies alike, as detailed in our firm’s recent Some Thoughts for Boards of Directors in 2022.

Similarly, potential regulatory hurdles require sophisticated advance planning. In addition to securities and antitrust regulations, acquisitions may be subject to CFIUS review, and acquisitions in regulated industries (e.g., energy, public utilities, gaming, insurance, telecommunications and media, financial institutions, transportation and defense contracting) may be subject to an additional set of regulatory approvals. Regulation in these areas is often complex, and political opponents, reluctant targets and competitors may seize upon perceived weaknesses in an acquiror’s ability to clear regulatory obstacles as a tactic to undermine a proposed transaction. Finally, depending on the industry involved, the type of transaction and the geographic distribution of the workforce, labor unions may well play an active role during the entire phase of the process. Pre-announcement communications plans must take account of all of these interests. It is essential to implement a comprehensive communications strategy, focusing not only on public investors but also on all of these other core constituencies, prior to the announcement of a transaction, so that all of the relevant constituencies may be addressed with appropriately tailored messages. It will often be useful, if not essential, to involve experienced public relations firms at an early stage when planning any potentially sensitive deal.

Transaction Structures. Non-U.S. acquirors should consider a variety of potential transaction structures, particularly in strategically or politically sensitive transactions. Structures that may be helpful in sensitive situations to overcome potential political or regulatory resistance include no-governance and low-governance investments, minority positions or joint ventures, possibly with the right to increase ownership or governance rights over time; partnering with a S. company or management team or collaborating with a U.S. source of financing or co-investor (such as a private equity firm); utilizing a controlled or partly controlled U.S. acquisition vehicle, possibly with a board of directors having a substantial number of U.S. citizens and prominent U.S. citizens in high-profile roles; or implementing bespoke governance structures (such as a U.S. proxy board) with respect to specific sensitive subsidiaries or businesses of the target company. Use of debt or preferred securities (rather than common stock) should also be considered. Even seemingly more modest social issues, such as the name of the continuing enterprise and its corporate location or headquarters, or the choice of the nominal legal acquiror in a merger, can affect the perspective of government and labor officials.

CFIUS. The scope and impact of regulatory scrutiny of foreign investments in the U.S. by CFIUS has expanded significantly over the last decade, particularly following passage of the Foreign Investment Risk Review Modernization Act (FIRRMA) in 2018, and a series of implementing rules adopted by the U.S. Department of Treasury. As FIRRMA has been implemented, the legislation has further heightened the role of CFIUS and the need to factor into deal analysis and planning the risks and timing of the CFIUS review process. Although notification of most transactions remains voluntary, FIRRMA introduced mandatory notification requirements for certain transactions, including investments in U.S. businesses associated with critical technologies, critical infrastructure, or sensitive personal data of U.S. citizens where a foreign government has a “substantial interest” (e.g., 49% or more) in the acquiror. Critical technology and critical infrastructure are broad and flexible concepts, and FIRRMA expanded their scope to include “emerging and foundational technologies” used in computer storage, semiconductors and telecommunications equipment sectors and critical infrastructure in a variety of sectors. Supply chain vulnerabilities during the Covid-19 pandemic have also increased the likelihood that investments in U.S. healthcare, pharma, and biotech companies will be closely reviewed by CFIUS.

For example, as evidenced by CFIUS’s opposition in 2021 to South Korean chip maker Magnachip Semiconductor Corp.’s merger with Wise Road Capital Ltd., a Chinese private equity firm, CFIUS will take an expansive view of its jurisdiction when semiconductor supply, even involving non-military applications, is at stake. CFIUS had “called in” the transaction for its review even though the transacting parties indicated that they had no U.S. nexus except for being incorporated in Delaware, having a Delaware subsidiary, and being listed on the NYSE, with any sales into the United States only occurring through third-party distributors and resellers. Magnachip’s 2020 annual report, though, indicated that it had a facility in San Jose, California, which it used for “administration, sales and marketing and research development functions,” that had been closed only in September 2020. A notable aspect of the deal was CFIUS’s issuance on June 15, 2021 of an interim order preventing Wise Road from completing the acquisition of Magnachip pending its review of the transaction. While FIRRMA gave CFIUS the authority to prevent consummation of a transaction pending its review, CFIUS has so far rarely used that authority. In abandoning the transaction, Magnachip cited its inability to obtain CFIUS’s approval for the merger. Companies operating overseas with even a limited nexus to the United States need to undertake CFIUS due diligence before engaging in a transaction in sectors that may involve core national security areas of interest.

Personal data is also a key area of scrutiny for CFIUS. Most of the recent enforcement actions involved concerns about Chinese investors’ access to sensitive personal data of U.S. citizens. CFIUS enforcement in these sectors is likely to continue during the Biden Administration. In fact, the Biden campaign’s website focused on domestic supply chain security to ensure that neither the U.S. nor its allies will be dependent on critical supplies from certain nations, including China and Russia. At the same time, the U.S. is likely to remain open to foreign investment, even in the national security sector. Most foreign investment will still be cleared, including Chinese investments, although they may get close review and possibly require mitigation actions, especially to the extent they involve intellectual property, personal data, and cutting-edge or emerging technologies. While notification of a foreign investment to CFIUS remains largely voluntary, transactions that are not reviewed remain subject to potential CFIUS review in perpetuity.

Thus, conducting a risk assessment for inbound transactions or investment early in the process is prudent to determine whether the investment will require a mandatory filing or may attract CFIUS attention. Parties may wish to take advantage of the “declarations” process, which provides expedited review for transactions that present little or no significant risk to U.S. national security. Parties should also agree on their overall CFIUS strategy and consider the appropriate allocation of risk as well as timing considerations in light of possibly prolonged CFIUS review.

Acquisition Currency. Cash remains a common form of consideration in cross-border deals into the U.S., with all-cash transactions representing more than 48% of the volume of cross-border deals into the U.S. in 2021 (down from an annual average of 54% over the prior five years), as compared to approximately 42% of the volume of all 2021 deals involving U.S. targets. However, non-U.S. acquirors must think creatively about potential avenues for offering U.S. target shareholders a security that allows them to participate in the resulting global enterprise. For example, publicly listed acquirors may consider offering existing common stock or depositary receipts (g., ADRs) or special securities (e.g., contingent value rights). When U.S. target shareholders obtain a continuing interest in a surviving corporation that had not already been publicly listed in the U.S., expect heightened focus on the corporate governance and other ownership and structural arrangements of the non-U.S. acquiror, including as to the presence of any controlling or large shareholders, and heightened scrutiny placed on any de facto controllers or promoters. Creative structures, such as issuing non-voting stock or other special securities of a non-U.S. acquiror, may minimize or mitigate the issues raised by U.S. corporate governance concerns. The world’s equity markets have never been more globalized, and investors’ appetite for geographic diversity never greater; equity consideration, or an equity issuance to support a transaction, should be considered in appropriate circumstances.

M&A Practice. It is essential to understand the custom and practice of U.S. M&A transactions. For instance, understanding when to respect – and when to challenge – a target’s sale “process” may be critical. Knowing how and at what price level to enter the discussions will often determine the success or failure of a proposal; in some situations it is prudent to start with an offer on the low side, while in other situations offering a full price at the outset may be essential to achieving a negotiated deal and discouraging competitors, including those who might raise political or regulatory issues. In strategically or politically sensitive transactions, hostile maneuvers may be imprudent; in other cases, unsolicited pressure might be the only way to force a transaction. Takeover regulations in the U.S. differ in many significant respects from those in non-U.S. jurisdictions; for example, the mandatory bid concept common in Europe, India and other countries is not present in U.S. practice. Permissible deal protection structures, pricing requirements and defensive measures available to U.S. targets will also likely differ in meaningful ways from what non-U.S. acquirors are accustomed to in their home jurisdictions. Sensitivity must also be shown to the distinct contours of the target board’s fiduciary duties and decision-making obligations under state law. Consideration also may need to be given to the concerns of the U.S. target’s management team and employees critical to the success of the venture. Finally, often overlooked in cross-border situations is how subtle differences in language, communication expectations and the role of different transaction participants can affect transactions and discussions; preparation and engagement during a transaction must take this into account.

U.S. Board Practice and Custom. Where the target is a U.S. public company, the customs and formalities surrounding board of director participation in the M&A process, including the participation of legal and financial advisors, the provision of customary fairness opinions and the inquiry and analysis surrounding the activities of the board and financial advisors, can be unfamiliar and potentially confusing to non-U.S. transaction participants and can lead to misunderstandings that threaten to upset delicate transaction negotiations. Non-U.S. participants must be well advised on the role of U.S. public company boards and the legal, regulatory and litigation framework and risks that can constrain or proscribe board or management action. These factors can impact both tactics and timing of M&A processes and the nature of communications with the target company.

Distressed Acquisitions. The U.S. continued to be the location of choice for the restructuring of large multinational corporations in 2021. Although the advent of vaccines has eased the world-wide lockdown, supply chain issues have exacerbated difficulties, and several industries, including aviation, automotive, retail, consumer finance, shipping and the energy sector continued to suffer as a result of the Covid-19 pandemic. Multinational companies continued in 2021 to take advantage of the debtor-friendly and highly developed body of reorganization laws, as well as the specialized bankruptcy courts, that have long made U.S. bankruptcy filings attractive. Among the advantages of a U.S. bankruptcy are the expansive jurisdiction of the courts (such as a worldwide stay of actions against a debtor’s property and liberal filing requirements); the ability of the debtor to maintain significant control over its normal business operations; relative predictability in outcomes; and the ability to bind holdouts to debt compromises supported by a majority of holders and two-thirds of the U.S. bankruptcy courts have been increasingly receptive in recent years to large sales of assets or of the whole company while in, or in connection with emergence from, a bankruptcy case. Features of the Bankruptcy Code of particular importance to M&A transactions include the ability to obtain a sale order providing title free and clear of all prior liabilities and liens, the ability to borrow on a super-senior basis to fund the company during and upon exit from bankruptcy, the ability to reject undesirable contracts and leases while keeping those desired by the buyer, and the easing of certain antitrust and securities regulatory burdens.

Those evaluating a potential acquisition of a distressed U.S. target or U.S.-based assets should consider the full array of tools that the U.S. bankruptcy process makes available. These include acquisition of the target’s fulcrum debt securities that are expected to be converted into equity through a restructuring, acting as a plan investor or sponsor in connection with a plan of reorganization, backstopping a plan-related rights offering, or participating as a bidder in a court-supervised “Section 363” auction of a debtor’s assets.

Transaction certainty is critical to a debtor and its stakeholders and thus to a potential acquiror’s success in a distressed context. Accordingly, non-U.S. participants need to plan carefully (particularly with respect to transactions that might be subject to CFIUS review, as discussed above) to ensure that their bid will be considered on a level playing field with U.S. bidders. Acquirors must also be aware that there are numerous constituencies involved in a bankruptcy case that they will likely need to address (including bank lenders, bondholders, distressed-focused hedge funds and holders of structured debt securities and credit default protection, as well as landlords and trade creditors), each with its own interests and often conflicting agendas, and that there exists an entire subculture of sophisticated investors, lawyers and financial advisors that must be navigated.

Various options are available to troubled companies seeking to take advantage of the U.S. bankruptcy laws. Multinational debtors often file bankruptcy petitions in the U.S. and link the confirmation or consummation of a plan of reorganization with successful administration of related foreign insolvency proceedings. Large non-U.S. companies can file cases under Chapter 15 of the U.S. Bankruptcy Code to obtain “recognition” of foreign insolvency proceedings in a U.S. bankruptcy court. The legal requirements for such recognition are minimal, and can include minor connections to the U.S. such as debt instruments with U.S. choice of law or venue provisions or payment of a retainer to U.S. counsel. Recognition of a foreign proceeding under Chapter 15 facilitates restructurings and asset sales by providing debtors with protection from creditors in the U.S. and the ability to administer U.S. assets. Chapter 15 also provides the ability to bind U.S. creditors to the terms of a restructuring plan implemented in a foreign proceeding, as well as protection against counterparties’ termination of U.S. contracts and leases.

Debt Financing. Unhindered by the second year of the pandemic, 2021 was a record breaker for the financing markets. High-yield bond and loan new issuance volumes both set full-year records before Thanksgiving, and those record high volumes were accompanied by record low yields. New investment grade bond issuance was likewise among the highest for any year on The attractive financing available in 2021 supported booming dealmaking, including M&A transactions such as’s $27.7 billion acquisition of Slack; Jazz Pharmaceuticals’ $7.2 billion acquisition of GW Pharmaceuticals; Herman Miller’s $1.8 billion acquisition of Knoll; and Siris Capital’s $1.5 billion double-acquisition of Equiniti Group and American Stock Transfer & Trust Company, and spin-offs such as XPO Logistics’ spin of GXO Logistics.

2021 was a unique year in many ways, but fits and starts in the pandemic reaffirmed an old lesson for deal-makers: financing windows can open as quickly as they shut, and the best strategy is to be the right mix of patient and prepared. Doing deals in 2022 with leverage will require careful planning and thoughtful approaches to negotiating a financing commitment, particularly as to ensuring the conditionality of banks’ commitments will withstand a disrupted market, as well as to capture momentum in a good window to obtain the best terms and economics.

Important questions to ask when considering a transaction that requires debt financing include: what is the appropriate level of leverage for the resulting business; which financing market has the most favorable after-tax costs, terms and conditions for a particular cross-border deal; how committed the financing is or should be; which lenders have the best understanding of the acquiror’s and target’s businesses; whether there are transaction structures that can minimize financing and refinancing requirements; whether there are ways to share financing risk between a buyer and seller; which banks are in the strongest position to provide acquisition financing commitments; how many banks should be included in a process to line up the financing so as to best determine current market conditions; and how comfortable a target will feel with the terms and conditions of the financing.

Litigation. Shareholder litigation continues to accompany many transactions involving a U.S. public company but is generally no cause for concern. Excluding situations involving competing bids – where litigation may play a direct role in the contest – and going-private or other “conflict” transactions initiated by controlling shareholders or management – which form a separate category requiring special care and planning – there are very few examples of major acquisitions of U.S. public companies being blocked or even delayed due to shareholder litigation or of materially increased costs being imposed on arm’s-length acquirors. In most cases, where a transaction has been properly planned and implemented with the benefit of appropriate legal and investment banking advice on both sides, such litigation can be dismissed or settled for relatively small amounts or non-financial “therapeutic” concessions. Sophisticated counsel can usually predict the likely range of litigation outcomes or settlement costs, which should be viewed as a cost of the deal.

While careful planning can substantially reduce the risk of U.S. shareholder litigation, the reverse is also true: the conduct of the parties during negotiations, if not responsibly planned in light of background legal principles, can create an unattractive factual record that may both encourage shareholder litigation and provoke judicial rebuke, including significant monetary judgments. Sophisticated litigation counsel should be included in key stages of the deal negotiation process. In all cases, the acquiror, its directors and shareholders and offshore reporters and regulators should be conditioned in advance (to the extent possible) to expect litigation and not to view it as a sign of trouble. In addition, it is important to understand that the U.S. discovery process in litigation is different, and in some contexts more intrusive, than the process in other jurisdictions. Here again, planning is key to reducing the risk. Turning back a high-profile litigation campaign by the plaintiffs’ bar, the New York courts recently made clear that deal-related fiduciary duty claims not arising under U.S. law should generally not proceed in the U.S. These rulings provide welcome comfort that U.S. courts will refuse to export their expansive discovery and procedural rules in the mine run of situations.

The pandemic has reinforced the importance of merger agreement provisions governing the choice of law and the choice of forum in the event of disputes between the parties— particularly disputes in which one party may seek to avoid the obligation to consummate the transaction. In Travelport Ltd v. Wex, for example, the English High Court interpreted the material adverse effect provisions of the parties’ agreement under English law in a manner that surprised many U.S. observers. Similarly, in separate decisions examining whether and when a party can exit a merger agreement because the counterparty breached its interim operating covenants, the Superior Court of Justice in Ontario reached a different result than the Delaware courts. These disputes, reflecting the transactional disruption occasioned by the pandemic, have taught again an important lesson: cross-border transaction planners should consider the courts and laws that will address a potential dispute and consider with care whether to specify the remedies available for breach of the transaction documents and the mechanisms for obtaining or resisting such remedies.

Tax Considerations. Understanding the U.S. and foreign tax issues affecting target shareholders and the combined group is critical to structuring any cross-border transactions. In transactions involving the receipt of acquiror stock, the identity of the acquiring entity must be considered carefully. Although some of the U.S. tax law changes enacted in 2017 (e.g., reduced corporate income tax rate and introduction of a deduction for dividends received from foreign subsidiaries) have ameliorated certain of the adverse tax consequences traditionally associated with being U.S.-parented, others remain or have been exacerbated (e.g., continued application of “controlled foreign corporation” (CFC) rules to foreign subsidiaries and expansion of such rules to provide for minimum taxation of CFC earnings (GILTI)). Where feasible, it often will be preferable from a U.S. tax perspective for the combined group to be foreign-parented. In transactions involving an exchange of U.S. target stock for foreign acquiror stock, the potential application of “anti-inversion” rules—which could render an otherwise tax-free transaction taxable to exchanging U.S. target shareholders and could result in significant adverse U.S. tax consequences to the combined group—must be evaluated carefully. Combining under a foreign parent corporation frequently is feasible only where shareholders of the U.S. corporation are deemed to receive less than 60% of the stock of the non-U.S. parent corporation, as determined under complex computational rules.

Potential acquirors of U.S. target businesses should carefully model the anticipated tax rate of such businesses, taking into account limitations on the deductibility of net interest expense and certain related-party payments, limitations on the utilization of net operating losses, as well as the consequences of owning foreign subsidiaries through an intermediate U.S. entity. Such modeling requires a detailed understanding of existing and planned related-party transactions and payments involving the combined group. In particular, the combination of the relatively low U.S. corporate income tax rate and limitations on the deductibility of interest expense have made it less attractive to “push” acquisition debt into the U.S. group.

The “Build Back Better Act,” passed by the House of Representatives in 2021, would introduce numerous changes to U.S. business taxation, including a 15% minimum tax on the profits of corporations that report more than $1 billion in adjusted financial statement income, a 1% excise tax on corporate stock buybacks, additional limitations on interest expense deductions for certain multinational corporations, increasing the GILTI rate to 15%, and applying the GILTI provisions and foreign tax credit limitation on a country-by-country basis. Given the razor-thin margin of Democratic control in Congress, it appears doubtful that these proposals will be enacted in their current form.

Disclosure Obligations. How and when an acquiror’s interest in the target is publicly disclosed should be carefully controlled and considered, keeping in mind the various ownership thresholds that trigger mandatory disclosure on a Schedule 13D under the federal securities laws and under regulatory agency rules such as those of the Federal Reserve Board, the Federal Energy Regulatory Commission (FERC) and the Federal Communications Commission (FCC). While the Hart-Scott-Rodino Antitrust Improvements Act (HSR) does not require disclosure to the general public, the HSR rules do require disclosure to the target before relatively low ownership thresholds may be Non-U.S. acquirors should be mindful of disclosure norms and timing requirements relating to home jurisdiction requirements with respect to cross-border investment and acquisition activity. In many cases, the U.S. disclosure regime is subject to greater judgment and analysis than the strict requirements of other jurisdictions. Treatment of derivative securities and other pecuniary interests in a target other than common stock holdings can also vary by jurisdiction.

Shareholder Approval. Because most U.S. public companies do not have one or more controlling shareholders, public shareholder approval is typically a key consideration in U.S. transactions. Understanding in advance the roles of arbitrageurs, hedge funds, institutional investors, private equity funds, proxy voting advisors and other market players – and their likely views of the anticipated acquisition attempt as well as when they appear and disappear from the scene – can be pivotal to the success or failure of the transaction. These considerations may also influence certain of the substantive terms of the transaction documents. It is advisable to retain an experienced proxy solicitation firm well before the shareholder meeting to vote on the transaction (and sometimes prior to the announcement of a deal) to implement an effective strategy to obtain shareholder approval.

Employee Incentives and Integration Planning. Employee compensation and benefits arrangements, both as legal and cultural matters, require careful review and planning during both the diligence and execution process in any cross-border deal. The impact a transaction can have on executive compensation, as well as the personal tax implications and payment expectations of executives especially, can differ across jurisdictions, so understanding these implications and expectations early in the deal process can be critical to ensuring a smooth path to the closing of any In the last year, there has been an increase in the number of deals where U.S. company boards have established bonus pools intended to make executives whole for compensation that is subject to an excise tax as a result of the transaction, at the time of the transaction.

Post-acquisition integration of employees, compensation and benefits structures also will require close attention to the arrangements in place at the target company, consideration of the totality of arrangements in place at the acquiror, and the U.S. legal, tax and regulatory framework, which sometimes limits changes to existing arrangements. If possible, the team who will be responsible for integration should be involved in the early stages of the deal so that they can help formulate and “own” the plans that they will be expected to execute. Too often, a separation between the deal team’s modeling of expected synergies and the integration process of the execution teams invites slippage in execution of a business plan, which in hindsight is labeled by the integration team as overly ambitious, whether in scale or timing, or simply fails to take into full consideration corporate cultural differences. Integration planning also should be carefully phased in during the period between signing and closing, as certain steps will require sensitivity to regulatory matters.

Corporate Governance and Securities Law. Current U.S. securities and corporate governance rules can be troublesome for non-U.S. acquirors who will be issuing securities that will become publicly traded in the U.S. as a result of an acquisition. SEC rules, the Sarbanes-Oxley and Dodd-Frank Acts and stock exchange requirements should be evaluated to ensure compatibility with home jurisdiction rules and to be certain that a non-U.S. acquiror will be able to comply. Rules relating to director independence, internal control reports and loans to officers and directors, among others, can frequently raise issues for non-U.S. companies listing in the S. Non-U.S. acquirors should also be mindful that U.S. securities regulations may apply to acquisitions and other business combination activities involving non-U.S. target companies with U.S. security holders.

Antitrust Issues. To the extent that a non-U.S. acquiror directly or indirectly competes or holds an interest in a company that competes in the same industry as the target company, antitrust concerns may arise either at the U.S. federal agency or state attorneys general level. Recent enforcement actions show that concerns can also arise if a non-U.S. acquiror operates either in an upstream or downstream market of the target. The pandemic, record deal volume, and procedural and substantive changes at the U.S. antitrust agencies have slowed the clearance timing for deals subject to review under the Hart-Scott-Rodino Act. In addition, the changes in the leadership of the U.S. antitrust agencies and the scope of issues being reviewed in strategic transactions could result in delay and further efforts being required by the parties to get the deal cleared as quickly as possible. For a vast majority of transactions, though, the outcomes of most transactions remain predictable and achievable without the need for remedies or litigation. The U.S. antitrust agencies will continue to scrutinize the remedies offered by transaction parties, and to require (1) divestitures in lieu of conduct remedies that require ongoing oversight to ensure compliance and (2) acquirors of the divestiture assets to be approved prior to closing rather than permitting divestiture acquirors to be identified by the parties and approved by the agency after closing. Even in transactions that raise concerns, careful planning and a proactive approach to engagement with the agencies can facilitate getting the deal through.

Also, as noted above, pre-closing integration efforts should also be conducted with sensitivity to antitrust requirements that can be limiting. Home jurisdiction or other foreign competition laws may raise their own sets of issues that should be carefully analyzed with counsel.

Due Diligence. Wholesale application of the acquiror’s domestic due diligence standards to the target’s jurisdiction can cause delay, waste time and resources or result in missing a problem. Due diligence methods must take account of the target jurisdiction’s legal regime and, particularly important in a competitive auction situation, local norms. Many due diligence requests are best channeled through legal or financial intermediaries as opposed to being made directly to the target Due diligence requests that appear to the target as particularly unusual or unreasonable (which occurs with some frequency in cross-border deals) can easily create friction or cause a bidder to lose credibility. Similarly, missing a significant local issue for lack of jurisdiction-specific knowledge or understanding of local practices can be highly problematic and costly. Prospective acquirors should also be familiar with the legal and regulatory context in the U.S. for diligence areas of increasing focus, including cybersecurity, data privacy and protection, Foreign Corrupt Practices Act (FCPA) compliance, and other matters. In some cases, a potential acquiror may wish to investigate obtaining representation and warranty insurance in connection with a potential transaction, which has been used with increasing frequency as a tool to offset losses resulting from certain breaches of representations and warranties.

Collaboration. More so than ever in the face of current U.S. and global uncertainties, most obstacles to a deal are best addressed in partnership with local players whose interests are aligned with those of the non-U.S. acquiror. If possible, relationships with the target company’s management and other local forces should be established well in advance so that political and other concerns can be addressed together, and so that all politicians, regulators and other stakeholders can be approached by the whole group in a consistent, collaborative and cooperative fashion.

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