Takeaways from the Cross-Border M&A Roundtable Hosted by The American College of Governance Counsel and Les Club des Juristes

The roundtable on “New Developments in Cross-Border M&A” hosted recently by the American College of Governance Counsel and Les Club des Juristes conveyed a series of actionable insights. 

The participants in the roundtable were Freshfields’ Co-Head of US Corporate and M&A partner Ethan Klingsberg; moderator David Katz of Wachtell, Lipton, Rosen & Katz; Christiaan de Brauw, a Corporate Partner at Allen & Overy in Amsterdam; Benjamin Kanovitch, a Corporate Partner at Bredin Prat in Paris; and Amanda Linett, an M&A Partner and Co-Head of the Mining Group at Stikeman Elliott in Toronto. 

Here are the top takeaways from the panel discussion.

Current State of the Cross-Border M&A Market

• Lower deal volume primarily in the large-cap category is being caused by the unfavorable financing environment globally.
• One bright spot is that there’s been an arbitrage between trading multiples on US exchanges versus non-US exchanges that has led to, and is expected to continue to lead to, acquisitions of non-US-listed targets by US-listed companies, as well as stock combinations between such parties that end with a primary listing for the combined company on a US exchange.   
• Europe’s tech sector has been an attractive space for US companies to go shopping for targets.  The tech companies worth purchasing are no longer necessarily based only in Silicon Valley or Israel.

Evolving Global Regulatory Regimes Are Lengthening Deal Timelines and Heightening Execution Risks  

• Acquisition agreements for high profile transactions that contemplate 18- to 24-month periods between signing and closing have become common. 
• Foreign investment and antitrust regulatory regimes are increasingly infused with local politics, which can be dynamic and less predictable. 
• There is increasing divergence among different regulators on merger control determinations and remedies, especially between the EC and UK CMA. 
• CFIUS requirements for mitigation agreements, CFIUS requests for short-form declarations to be expanded into long-form notices, and CFIUS requests for notices to be submitted where rules do not mandate a notification have all increased – even though  the number of sensitive transactions with China and Russia have declined steeply. 
• DOJ and FTC would rather litigate and lose than enter into a settlement agreement. The consequence is that many transactions fail to manage the timeline efficiently and end up hitting the “outside date” before there is a chance to litigate against the DOJ and FTC. Thus, transactions are terminating as a result of the US agencies’ “running out the clock” rather than a victory by the regulator in court.
• Jurisdictions that historically provided little to no regulatory impediments are now adopting aggressive foreign investment regimes. 

Approaches to Navigating Regulatory Hurdles 

• Due Diligence: 
  • Acquirors need to be aware of and diligence jurisdictional compliance requirements, such as those relating to ESG and data privacy. New ESG reporting requirements adopted by the EU will require non-EU companies with EU subsidiaries to issue ESG reports starting in 2028. 
  • Targets are starting to ask to review internal business documents from bidders to see if there are any “hot documents” that would make it easier for an antitrust or foreign investment regulator to block the proposed combination. Provision of access to such documents before signing a definitive agreement is not currently market practice. 
     
• “Hell or High Water” No More: 
  • On both sides of the Atlantic, “hell or high water” (HoHW) provisions have become rare. 
    • It is often more efficient for parties to take remediation measures on their own before interacting with the agencies (fix-it-first) to avoid regulatory challenges, or to agree to “litigate the fix,” than for the acquiror to commit to make all concessions that a regulator may request. 
    • In jurisdictions where regulators are not offering up any potential remedies to permit clearance, or where approvals are a “black box” (as with the EU’s recent “subsidies” regulation), it is unclear that a HoHW provision would provide sufficient grounds for an order of specific performance by a court. 
    • Aggressiveness of regulators has led bidders to refuse to subject themselves to the breadth of a HoHW undertaking. 
       
• Reverse Termination Fees: Termination fees payable by the acquirer to the target in the event of regulatory failure have been in the 5-6% (of the transaction value) range and are now pervasive for high profile combinations regardless of the nature of the “efforts” covenant.
   
• Interim Operating Covenants: Due to the length of time between sign/close due to regulatory timelines, the negotiation of interim operating covenants (IOCs) has become a hornet’s nest. Among the challenges are the degree of detail and length of time that must be covered and the question of the extent to which extrinsic (macro) developments ought to provide leeway for compliance by targets.  
   
• Interim Financing: Many targets are burning cash, and having a long pre-closing period means the target’s business may be jeopardized by having to wait for regulatory clearance. Accordingly, some acquirors have started to commit to provide targets with interim financing if and when the time period between signing and closing extends beyond a specified date.