There are several key factors to consider when completing an M&A transaction of any kind. However, cross-border deals are more complicated and nuanced than nation-specific deals. It’s critical to understand the potential cultural, legal, and strategic differences by geographic region. 

Closing Adjustment vs Locked Box Deal Structures

In the United States, it’s common for deals to favor the “closing adjustment” style. This way of doing things helps ensure that the acquirer in question receives a “turn-key” business free from additional investment needs. The accepted price between the buyer and seller is negotiated under the assumption that the business will be ready to go for the buyer on day 1. Across the Atlantic, they tend to favor the “locked box” structure wherein the deal price is finalized at signing. Comparatively, this mechanism creates more risk for the buyer.

Earn-Outs

Earn-outs are a common practice in North America and Europe, but they are generally structured differently. In the United States, revenue-based earn-outs are common. In Europe, EBIT(DA) prevails. This isn’t likely to be a major pain point when navigating a transatlantic market, but the difference is worth noting. 

Cultural Considerations

It’s important to consider cultural differences in any M&A transaction– it’s imperative to consider it in a cross-border context. Generally speaking, American dealmaking culture is more relaxed and informal than European culture. Europeans have a tendency to favor more traditional hierarchical structures and communication styles. Contemplate this, as well as the cultural differences between companies, when considering a cross-border deal.

Regulatory Landscapes

When completing a cross-border M&A deal, the regulatory landscape of each business’s home country must be considered. United States dealmakers will need to consult with the Committee on Foreign Investment in the United States (CFIUS) in order to go forward with an M&A transaction involving a foreign buyer. All mergers with one party in Europe and one outside must go through the European Commission's competition review process.

Dispute Resolution

While there are multiple ways to resolve a dispute in both North America and Europe, each region has their preferred method. In the United States, litigation is more common. Arbitration only accounts for 17% of deals. In Europe, arbitration is used in 42% of deals. While this may not seem like the most notable difference, 70% of European arbitration clauses apply national rules, not international ones. North American residents looking to complete a deal should educate themselves on the local rules and regulations of the other country.

Conclusion

While the above was written through the lens of a merger between American and European companies, the foundational skills of dispute resolution, regulatory awareness, and cultural consideration apply to cross-border deals of all kinds. Not every country’s M&A landscape is the same– keep this in mind when researching potential deal structure differences.

Interested in a cross-border deal, but unsure where to start? Contact Stony Hill Advisors to speak to an experienced M&A advisor today!