Executive Summary
Cross-border mergers and acquisitions have become increasingly complex as regulatory frameworks evolve and expand globally. Foreign investment review regimes have proliferated and intensified, competition authorities have adopted more aggressive enforcement postures, and geopolitical tensions have introduced new sources of transaction risk. This report examines the current regulatory landscape for cross-border transactions, analyzes key challenges and best practices, and provides strategic guidance for parties contemplating international M&A activity.
Our experience advising on cross-border transactions across Europe, the Middle East, and Asia reveals that successful execution requires early identification of regulatory touchpoints, proactive engagement with authorities, and structural flexibility to address concerns that emerge during review processes. Parties that underestimate regulatory complexity or fail to incorporate realistic timelines and contingencies into transaction planning face heightened execution risk and potential value destruction.
Despite increased complexity, cross-border M&A remains an essential tool for corporate growth, market access, and portfolio optimization. Companies and investors that develop sophisticated approaches to regulatory navigation can successfully execute transformative transactions while competitors struggle with process management. Understanding the current landscape and building appropriate capabilities creates meaningful competitive advantage.
The Evolving Regulatory Landscape
Foreign investment review regimes have expanded dramatically over the past decade, driven by concerns about national security, critical infrastructure protection, and strategic technology transfer. The number of countries with formal foreign investment review mechanisms has more than doubled since 2015, and existing regimes have substantially broadened their scope and deepened their scrutiny. Transactions that would have closed routinely a decade ago now face extended review periods and, in some cases, blocking orders or mandatory divestitures.
The European Union's Foreign Direct Investment Screening Regulation, which took effect in 2020, established a coordination mechanism among member states and encouraged countries that lacked review regimes to implement them. Today, nearly all major European economies maintain foreign investment review authority, with particular focus on sectors including defense, telecommunications, energy, transportation, healthcare, and advanced technology. Review thresholds have declined and notification requirements have expanded, capturing transactions that previously fell below radar.
The United States Committee on Foreign Investment has similarly expanded its jurisdiction and intensified its review processes. The Foreign Investment Risk Review Modernization Act of 2018 extended CFIUS authority to non-controlling investments in critical technology, critical infrastructure, and sensitive personal data businesses. Mandatory filing requirements were introduced for certain transactions, and review timelines were extended. The practical effect has been substantially increased regulatory burden for transactions involving U.S. businesses.
Similar trends are evident across Asia-Pacific markets. Australia, Japan, South Korea, and India have all strengthened foreign investment review regimes in recent years. China's evolving regulatory framework creates particular complexity for transactions involving Chinese acquirers or targets. The Middle East presents a more varied landscape, with some jurisdictions maintaining relatively liberal investment frameworks while others require extensive approvals for foreign ownership.
Competition Law Considerations
Competition authorities worldwide have adopted increasingly interventionist approaches to merger review. The European Commission, Federal Trade Commission, and Department of Justice Antitrust Division have all signaled greater willingness to challenge transactions on competitive grounds, particularly in technology and healthcare sectors. Review timelines have extended, remedy negotiations have become more demanding, and several high-profile transactions have been abandoned following regulatory opposition.
Multijurisdictional merger control adds significant complexity to cross-border transactions. A single transaction may trigger notification requirements in dozens of jurisdictions, each with distinct thresholds, filing requirements, review processes, and timelines. Coordination among authorities has increased through mechanisms like the International Competition Network, but divergent outcomes remain possible, with a transaction receiving clearance in some jurisdictions while facing challenges in others.
Vertical integration and conglomerate effects have received renewed attention from competition authorities. Transactions that would have been viewed as competitively neutral under traditional horizontal overlap analysis are now examined for potential foreclosure effects, data advantages, and ecosystem concentration. Digital platforms and technology companies have faced particular scrutiny, with several jurisdictions proposing or implementing sector-specific merger control frameworks.
Remedy design has become more sophisticated and demanding. Behavioral commitments that were historically accepted to address competitive concerns are increasingly viewed as insufficient, with authorities preferring structural remedies including divestitures. Parties contemplating transactions with significant overlaps should develop remedy strategies early in the process, identifying potentially problematic assets and evaluating divestiture candidates before formal review begins.
Strategic Planning Considerations
Early identification of regulatory touchpoints is essential to successful cross-border transaction execution. Comprehensive analysis should map all potential filing requirements, estimate review timelines, identify likely areas of concern, and assess probable outcomes. This analysis should inform transaction structure, timeline planning, and conditionality in transaction agreements.
Transaction agreements must incorporate appropriate regulatory conditionality to protect parties against execution risk. Closing conditions should require receipt of necessary approvals without burdensome restrictions or remedy requirements. Hell-or-high-water provisions that require buyers to accept any remedy necessary to obtain approval have become rare except in strategic situations where regulatory risk is well understood and priced. Outside dates should reflect realistic assessment of review timelines with appropriate extension provisions.
Regulatory risk allocation between buyers and sellers has become a significant negotiation focus. Reverse termination fees payable by buyers upon regulatory failure provide sellers with some protection against opportunity cost and reputation risk. The magnitude of these fees has increased substantially, with termination payments now commonly ranging from 3-6% of transaction value for deals with meaningful regulatory risk. Sellers may also negotiate for specific efforts covenants detailing buyer obligations to pursue regulatory approvals.
Proactive engagement with regulatory authorities can significantly improve outcomes. Pre-notification discussions allow parties to understand authority perspectives, address concerns before formal review, and identify potential remedies early in the process. Building relationships with key authorities before specific transactions arise creates foundation for productive engagement when deals do emerge. Parties with track records of cooperation and transparency often receive more favorable treatment.
Regional Considerations
Europe
European cross-border transactions face a complex web of national foreign investment review regimes in addition to EU-level competition review. The coordination mechanism established by the FDI Screening Regulation means that transactions notified in one member state may attract scrutiny from others, extending timelines and introducing additional uncertainty. Transactions involving targets with operations across multiple member states should anticipate parallel review processes and potential for divergent outcomes.
Middle East
Middle Eastern regulatory frameworks vary significantly by jurisdiction. The UAE has progressively liberalized foreign ownership restrictions, particularly in designated free zones, but certain sectors remain subject to local ownership requirements. Saudi Arabia's Vision 2030 reforms have opened many sectors to foreign investment, though regulatory implementation continues to evolve. GCC harmonization efforts have progressed but significant differences among member states persist.
Asia-Pacific
Asia-Pacific markets present diverse regulatory environments requiring jurisdiction-specific analysis. Japan has strengthened foreign investment review, particularly for transactions involving technology and infrastructure companies. India's regulatory landscape includes both investment restrictions in certain sectors and complex approval requirements even where investment is permitted. Southeast Asian markets generally welcome foreign investment but maintain sector-specific restrictions and approval requirements that require careful navigation.
Best Practices for Execution
Successful execution of cross-border transactions requires disciplined process management from initial strategy through closing. Regulatory workstreams should be initiated immediately upon transaction launch, with dedicated teams responsible for filing preparation, authority engagement, and issue resolution. Regular coordination between deal teams and regulatory advisors ensures alignment and rapid response to emerging issues.
Stakeholder communication deserves particular attention in cross-border contexts. Employees, customers, suppliers, and partners in multiple jurisdictions will have questions and concerns about transaction implications. Governments and regulators may respond to media coverage and public commentary. Coordinated communication strategies that address stakeholder concerns while avoiding inflammatory statements that could complicate regulatory review require careful planning and execution.
Contingency planning for regulatory challenges should be incorporated into transaction strategy from the outset. Parties should identify potential remedy options, evaluate their commercial acceptability, and establish clear decision-making frameworks for responding to regulatory demands. Having analyzed these scenarios in advance enables faster and better decisions when issues arise during review processes.
Post-closing integration planning should account for regulatory commitments and ongoing compliance obligations. Merger remedies may include monitoring provisions, hold-separate requirements, or ongoing behavioral commitments that affect integration timelines and approaches. Foreign investment approvals may come with conditions regarding governance, operations, or reporting that must be incorporated into combined company structures.
Conclusion
Cross-border M&A execution has become substantially more complex as regulatory frameworks have expanded and intensified globally. Foreign investment review, competition law, and sector-specific regulations create multiple approval requirements that must be navigated successfully to close transactions. Parties that underestimate these challenges face execution risk that can destroy significant value.
However, cross-border transactions remain essential to corporate strategy and value creation. Companies seeking market access, technology capabilities, or portfolio optimization must navigate the regulatory landscape effectively. Investors pursuing attractive opportunities in foreign markets must develop sophisticated approaches to regulatory risk assessment and mitigation.
Palmstone Capital's global practice combines deep regulatory expertise with extensive cross-border transaction experience. Our presence across Europe, the Middle East, and Asia enables us to advise clients on complex multijurisdictional transactions and navigate regulatory processes effectively. We work closely with leading legal advisors in each relevant jurisdiction to ensure comprehensive coverage of regulatory requirements.