Wachtell Lipton: Cross-Border M&A – 2025 Checklist for Successful Acquisitions

Although M&A activity was up only a bit in 2024 over 2023 – the least active year for global M&A since the great financial crisis – and trailed well below historical averages, at $3.2 trillion, compared to an average of $4.6 trillion over the past ten years (in 2024 dollars), optimists suspect that 2024 may have marked a turning point, and anticipate that 2025 may see a real return of animal spirits.

In 2024, geopolitical and macroeconomic conditions for M&A were mixed. Major elections, political turmoil and armed conflict, along with an aggressive antitrust agenda in the U.S. and elsewhere, deterred some dealmaking, but strong equity market returns, particularly in the U.S. and Japan, the beginning of a monetary easing cycle and U.S. election results that may herald a more tractable antitrust environment in the U.S., contributed to an improving climate for deals.

Against this backdrop, cross-border M&A continued to provide attractive opportunities to dealmakers in 2024. Cross-border deals were 32.4% ($1.0 trillion) of global M&A in 2024, slightly less than the average over the prior ten years (34.7%). Acquisitions of U.S. companies by non-U.S. acquirors accounted for $201 billion in transaction volume and represented 6.3% of 2024 global M&A volume and 19.6% of cross-border M&A volume. Japanese, Canadian, British, Danish and Swiss acquirors (in that order) represented 56.7% of the volume of cross-border acquisitions of U.S. targets, while acquirors from China, India and other emerging economies accounted for only 5.2%.

While only time will tell the impact of political and market changes on M&A and more broadly, we expect cross-border transactions into the U.S. to continue to offer compelling opportunities in 2025. As always, however, careful preparation for the political, regulatory, cultural and technical complexity inherent in cross-border deals are critically important for parties considering a cross-border transaction. Advance preparation, strategic implementation and deal structures calibrated to the current environment and the particular circumstances of each deal will yield superior results.

The following is our updated checklist of matters 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-size-fits-all roadmap to success. These topics, and many other matters relating to cross-border investment and acquisition activity touched on in this memo, are covered in greater depth in our Cross-Border M&A Guide.

Political and Regulatory Considerations. A large part of investment into the U.S. will continue to be well-received and not politicized. A variety of global economic fault lines, however, continue to make it hugely important 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. 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 ofgovernment agencies, employees, customers, suppliers, communities and other interested parties should be thoroughly considered and, if practical, addressed before any acquisition or investment proposal becomes public. Planning for these issues is made all the more complex in the current political climate, in which debates about stakeholder considerations and the role of the state in corporate decision-making and M&A have become politicized.

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 are-as is often complex, and political opponents, reluctant targets, competitors and other stakeholders may seize upon perceived weaknesses in an acquiror’s ability to clear regulatory obstacles as a tactic to undermine a proposed transaction. Finally, depending onthe industry involved, the type of transaction and the geographic distribution of the work-force, labor unions may play an active role during the entirety of the process. Pre-announcement communications plans must take account of all of these interests. It is essential to implement a comprehensive communications strategy prior to the announcement of a transaction, focusing not only on public investors but also on all other core constituencies so that the relevant constituencies may be addressed with appropriately tailored messages. It will often be useful, if not essential, to involve experienced public relations advisors at an early stage when planning a deal, to the extent legally permissible.
CFIUS. The scope and impact of regulatory scrutiny of foreign investments in the U.S. by CFIUS have 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. Most recently, new rules that became effective in December 2024 substantially expanded the scope of CFIUS’s jurisdiction over real estate transactions involving foreign investors, by adding nearly 60 locations to the existing list of military installations whose proximity to a potential real estate purchase could create CFIUS jurisdiction, bringing the total list to over 250 installations. As FIRRMA has been implemented, the role of CFIUS and the need to factor the risks and timing of the CFIUS review process into deal analysis and planning have been further heightened. 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 includes in that rubric “emerging and foundational technologies” used in computer storage, semiconductors and telecommunications equipment and critical infrastructure in a variety of sectors. Supply chain vulnerabilities during the pandemic also increased the likelihood that investments in U.S. healthcare, pharma and biotech companies will be closely reviewed by CFIUS.

While most transactions that have run into CFIUS opposition in recent years have involved Chinese investors and U.S. businesses engaged in critical technologies—in particular, the design or production of semiconductors—on January 3, 2025, President Biden blocked the proposed acquisition of U.S. Steel Corporation by Nippon Steel, a steelmaker based in Japan, a close U.S. ally. The deal, which was announced in December 2023, was highly politicized during an election year, with the United Steelworkers union, a powerful labor organization with a strong presence at U.S. Steel’s plants in key swing states, playing an important role in the drama. The order blocking the deal came despite Nippon Steel having offered significant mitigating measures to allay CFIUS’s purported national security “concerns.” U.S. Steel and Nippon Steel have filed a lawsuit against the U.S. government, claiming that CFIUS’s review was tainted by political interference in violation of the parties’ due process rights. The complaint alleges that “President Biden made his decision to block the merger before ever considering any possible national security risks” and that CFIUS’s review of the deal “was a sham process from the beginning—because it was designed and conducted with the goal of providing support for the president’s predetermined decision.”

Personal data is also a key area of scrutiny for CFIUS. Most recent enforcement actions involved concerns about Chinese investors’ access to sensitive personal data of U.S. citizens. These concerns were also behind CFIUS’s review of ByteDance’s acquisition of social media startup Musical.ly, the predecessor of TikTok, during President Trump’s first term. In 2020, President Trump issued an executive order mandating the divestiture of TikTok. ByteDance sued the U.S. government, and the divestiture was not effected. After years of litigation, in April 2024, Congress stepped in, enacting the Protecting Americans from Foreign Adversary Controlled Applications Act, which bans operation of TikTok in the U.S. unless the application undergoes a “qualified divestiture” that results in TikTok no longer being controlled by a “foreign adversary.” The prohibition became effective on January 19, 2025, the day before President Trump’s inauguration. Among many executive orders issued by President Trump on his first day in office, one order instructs the Attorney General not to take any action to enforce the TikTok ban for a period of 75 days “to allow the new administration an opportunity to determine the appropriate course forward in an orderly way that protects national security while avoiding an abrupt shutdown of a communications platform used by millions of Americans.”

We expect that CFIUS enforcement in the areas of critical technologies, critical infrastructure and sensitive personal data is likely to continue under the new administration, as is a focus on domestic supply chain security to ensure that the U.S. does not become dependent on critical supplies from certain nations, including China. While CFIUS is likely to continue to focus on investors from China and other countries of concern, investments in sensitive U.S. industries even by investors from allied countries may also be subject to close scrutiny. At the same time, if experience during President Trump’s first term is any guide, the U.S. is likely to remain open to foreign investment, and most foreign investment will still be cleared, although it may get close review and possibly require mitigation actions, especially to the extent involving 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 pre-closing remain subject to potential CFIUS review in perpetuity. A decision whether to make a voluntary filing generally depends on an assessment of the risk that a deal may draw CFIUS’s attention, either because of potential national security issues arising from the identity or nationality of the buyer or the industry involved, or because of political considerations, such as, for example, labor or other stakeholder opposition to the transaction.

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’s 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.
Antitrust Issues. In the final year of the Biden administration, the U.S. antitrust agencies continued their aggressive approach to merger enforcement, scoring some notable victories in court, including the successful challenges of Kroger’s acquisition of Albertsons in the grocery space and JetBlue’s acquisition of Spirit in the airline industry. The agencies continued to pursue novel theories of harm, including those memorialized in the 2023 Merger Guidelines, as well as significant rulemaking and policy actions, in an attempt to reshape antitrust policy. The Trump administration is expected to adopt a more restrained approach to M&A enforcement, and President Trump’s nomination of Andrew Ferguson to lead the Federal Trade Commission and Gail Slater to lead the Department of Justice’s Antitrust Division foreshadows a probable return to more traditional enforcement policies. Notably, we expect the agencies to refocus their enforcement efforts on situations in which an acquiror directly or indirectly competes in the same industry as the target company, and potentially situations in which an acquiror operates either in an upstream or downstream market of the target, with much less emphasis on novel theories of harm that feature prominently in the 2023 Merger Guidelines adopted by the FTC and DOJ during the Biden administration, such as potential competition, labor market competition or private equity roll-up strategies. Under the new leadership, the agencies are also expected to be more willing to enter into settlements with merging parties, allowing mergers to proceed subject to remedies, rather than resort to litigation to challenge fixable deals. However, the growing politicization of antitrust policy is likely here to stay, and there may be industries, such as technology and healthcare, where enforcement policy continues to be more assertive than potential M&A participants might hope.

For a vast majority of transactions, we expect that the ultimate outcomes will remain predictable and achievable without the need for remedies or litigation. Even in transactions that raise concerns, careful planning and a proactive approach to engagement with the agencies can facilitate getting the deal through. For those transactions, parties should be prepared to deal with the U.S. antitrust agencies’ strong preference for (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. Also, in transactions that raise serious competitive concerns, the parties should continue to be prepared to litigate, possibly with a remedy in place that resolves any concerns that a court may find justified. In all transactions, pre-closing integration efforts should 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.

Finally, an area that bears watching in the coming year is the implementation of the new Hart-Scott-Rodino notification form, which was finalized by the FTC in October 2024. The new form dramatically expands the disclosure requirements under the HSR Act, even for non-problematic transactions, significantly increasing the time and effort required to prepare HSR notifications, with little, if any, relevant benefit to the agencies. The fate of the new form remains uncertain. Originally slated to take effect on February 10, the effective date may be postponed pursuant to a regulatory freeze that was issued by President Trump on his first day in office. Also, while the FTC unanimously approved the new rule, now-Chair Andrew Ferguson issued a lengthy statement criticizing various aspects of the new form.
Debt Financing. Following a turbulent period, 2024 marked a turning point for debt financing markets. Stabilizing interest rates, declining inflation, resilient corporate balance sheets, and improved economic activity in major economies supported near-record levels of issuance. In the first half of 2024, borrowers repriced and refinanced existing debt at near-record levels, availing themselves of the relatively constrained supply of new corporate debt issuance to reduce interest expense. In the second half of the year, deal activity revived, particularly in private equity-led leveraged buyouts, providing debt financing markets with new issuances. By January 2025, the market’s appetite for debt outpaced supply: the premium for investment-grade corporate bonds was close to its tightest since the 1990s, and spreads in the high-yield bond market were their tightest since the great financial crisis.

The strength of the debt markets should facilitate cross-border M&A opportunities in the coming year and present an opportune time for companies to think creatively about their capital structures. A wide array of financing sources is available, each offering distinct benefits and considerations. These include bank credit facilities, syndicated loan markets, senior bond markets, subordinated bond markets, hybrid instruments, and direct lenders/private credit. With this diverse range of options, issuers can tailor their financing to align with corporate objectives, balancing cost, flexibility, and risk management. The abundance of capital and innovative financing solutions allows well-advised companies to design optimal structures that enhance financial stability and strategic agility.

While the future remains uncertain and risks persist, the current financing market conditions are highly supportive of cross-border M&A activity should the animal spirits return.
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 U.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.
Acquisition Currency. Cash is the most common form of consideration in cross-border acquisitions of U.S. targets; all-cash transactions represented 62.4% of the volume of cross-border deals into the U.S. in 2024 (above the average of 52.5% over the prior five years). However, non-U.S. acquirors should also 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 (e.g., ADRs) or special securities (e.g., contingent value rights). If U.S. target shareholders are to obtain a continuing interest in a surviving corporation that is not already publicly listed in the U.S., non-U.S. acquirors should 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. Equity markets have never been more global, 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 realize 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 corporation 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.
Shareholder Approval. Because most U.S. public companies do not have 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.
Litigation. Shareholder litigation continues to accompany many transactions involving a U.S. public company, but generally creates little appreciable deal risk. 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 and properly recorded 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 regulators should be conditioned in advance (to the extent possible) to expect litigation in the U.S. 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 often 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.

Recent case law reinforces the importance of cross-border 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 accordance with the parties’ agreement, the busted-deal dispute between MaxLinear and Silicon Motion is being addressed in confidential Singapore arbitration, with Cayman and Delaware law addressing different aspects of the controversy. Travelport Ltd v. Wex, by contrast, played out in the courts of England, culminating in an English High Court ruling interpreting 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 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. The parties, of course, hope these contractual choices never matter. But when they do, they can be outcome-determinative.
Tax Considerations. Understanding the U.S. and non-U.S. tax issues affecting target
shareholders and the combined group is critical to structuring any cross-border transaction. 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., 21% corporate income tax rate and deduction for dividends received from non-U.S. 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 non-U.S. subsidiaries and expansion of such rules to provide for minimum taxation of CFC earnings (GILTI)). Where feasible, it often remains preferable for the combined group to be non-U.S.-parented, although this determination requires careful modeling, taking into account the potential application of recently enacted U.S. and non-U.S. minimum taxes, as well as adjustments to certain U.S. tax rates currently scheduled to occur in 2026 (e.g., increase in GILTI and BEAT tax rates and reduction of the deduction for foreign-derived intangible income). In transactions involving an exchange of U.S. target stock for non-U.S. acquiror stock, the potential application of “anti-inversion” rules—which could render an otherwise tax-free transaction taxable to exchanging U.S. target share-holders and could result in significant adverse U.S. tax consequences to the combined group—must be evaluated carefully. Combining under a non-U.S. 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. The Inflation Reduction Act of 2022 introduced a 15% corporate alternative minimum tax (CAMT) on the “adjusted financial statement income” of certain large corporations effective for tax years beginning after December 31, 2022. The CAMT generally applies to corporations with average annual adjusted financial statement income over a three- year period in excess of $1 billion (but a lower $100 million threshold applies to U.S. corporations that are members of a non-U.S.-parented group that satisfies the $1 billion threshold). The introduction of a parallel set of U.S. minimum tax rules—with broad regulatory authority for the Treasury Department to “carry out the purposes” of the tax—added significant complexity for large taxpayers, and IRS guidance on numerous topics remains to be issued or finalized. While the CAMT shares certain features with the global minimum tax rules under the OECD’s “Pillar Two” rules (which impose a 15% minimum tax on the book income of certain large multinational enterprises and became effective in many jurisdictions in 2024), numerous differences give rise to complex coordination issues and may lead to double taxation.

Potential acquirors of U.S. businesses should carefully model the anticipated tax rate of the combined business, taking into account the CAMT and applicable Pillar Two taxes, limitations on the deductibility of net interest expense and related-party payments, and limitations on the utilization of net operating losses, as well as the consequences of owning non-U.S. 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.

Potential acquirors of U.S. businesses also will need to pay close attention to tax legislation expected from the Republican Congress, which may include extending some or all of the expiring provisions of the 2017 Tax Cuts and Jobs Act and further reductions in corporate tax rates. These changes could potentially be offset, in part, by the imposition of tariffs on imports, which may be implemented through executive order. While these developments could have significant implications for cross-border M&A, it remains to be seen what tax legislation will ultimately emerge under the new administration.
Employee Compensation and Benefits Matters. In the acquisition of a U.S. company,
employee compensation and benefits arrangements require careful review as part of the diligence process and are often a key element of deal-related negotiations. Because compensation arrangements are likely to have a material impact on retention of target employees (and, therefore, the successful post-closing operation of the target’s business) and may have significant associated costs, close coordination among the corporate development, finance, human resources and legal teams at the acquiror, the acquiror’s investment bankers, and the acquiror’s external transaction counsel is critical in order to ensure that all elements are properly accounted for in the valuation analysis, transaction terms and integration plan.

Equity incentive compensation is an area that requires significant focus, as it is highly
utilized at U.S. companies, and it would not be uncommon for equity awards to represent a significant percentage of a company’s fully diluted equity value and for such awards to be held by a substantial percentage of the employee population. Consequently, outstanding equity awards will need to be addressed at multiple stages of the deal process, including the valuation analysis, purchase price negotiations, and transaction agreement drafting. The documents governing equity awards (generally a plan document and award agreement) typically set forth the required or permitted treatment of the awards in connection with an acquisition. Some award terms are prescriptive, but in many cases the documents provide discretion to the company’s board of directors or compensation committee. In those cases, the treatment of the awards, which could be accelerated vesting and payment (so called “single trigger” vesting), conversion of the awards into acquiror equity awards or cash awards (with or without a term providing for accelerated vesting on a qualifying termination of employment, so called “double trigger” vesting), or, less commonly, full or partial forfeiture, is an important item to be negotiated between the acquiror and the target company. Acquirors should also be mindful that, in part because U.S. employment laws are generally less prescriptive than the laws of many other jurisdictions, some matters that are covered by applicable law outside the U.S. are generally negotiated on a bespoke basis in U.S. transactions. For example, it is customary in U.S. transaction agreements to include a covenant requiring that the acquiror maintain compensation and benefits for target company employees at specified levels (generally linked to either pre-closing levels or levels applicable to similarly situated acquiror employees) for a specified period of time following the closing (generally 12 months). While this covenant is not individually enforceable by target company employees as a contractual matter, it is a specific indication of the acquiror’s intended treatment of target employees and, because the terms of the covenant are communicated to employees, a failure of the acquiror to comply with the covenant may have significant consequences both as to employee satisfaction and retention at the target company and more broadly for the acquiror’s reputation when entering into future transactions. Another example is that, in the U.S., severance benefits are generally a matter of contract rather than statute, and negotiation of specific severance protections for target employees—generally in the form of a commitment from the acquiror to maintain existing severance protections or to allow the target company to implement new or enhanced protections in advance of closing—is
common.

An acquiror seeking to enter into noncompetition agreements with key target company executives, whether in connection with the sale of their equity in the target company or in connection with their post-closing employment arrangements, should be aware that non-competes have become increasingly restricted in the U.S. in recent years. The Federal Trade Commission’s proposed noncompete ban (which was enjoined by the U.S. District Court for the Northern District of Texas in a case that is currently on appeal) would prohibit all employment-related noncompetes (subject to a narrow grandfathering exception), though it does include an exception for certain selling shareholder noncompete provisions. Even if the FTC’s ban does not come into effect, an increasing number of U.S. states are adopting statutes regulating and, in some cases, prohibiting noncompete covenants. This area of the law is changing dynamically and it may be necessary for an acquiror to consider alternatives to traditional noncompete covenants in situations where such covenants would not be enforceable with respect to key executives. Another area that requires careful analysis and planning in U.S. acquisitions is the potential adverse tax consequences—for both target companies and executives—imposed under Sections 280G and 4999 of the U.S. tax code. Together, these provisions result in a dual penalty, consisting of a loss of federal income tax deduction for the company and a 20% excise tax for the executive, on change in control-related payments and benefits payable to certain officers and other highly compensated employees of a corporation undergoing a change in control to the extent that the value of such payments and benefits exceeds a threshold calculated based on average historic compensation paid by the corporation to the applicable individual. Consequently, in general, a calculation of the amount of payments and benefits potentially subject to these penalties should be performed by specialized accounting experts retained by the target company. If the target company is privately held, it may be possible to avoid the application of the dual tax penalty by obtaining the approval of the applicable payments and benefits by the target company’s shareholders. If the target is a public company, it is customary for the acquiror and the target company, their respective legal counsel and the accounting firm performing the calculations to work together to use widely accepted techniques in order to mitigate, to the extent possible, the potential adverse consequences. One such technique involves the valuation of a noncompete covenant applicable to an impacted executive, which value can be used to offset certain change in control payments that would otherwise be subject to the tax penalties and thereby reduce or eliminate such penalties. However, the ability to use this mitigation technique depends on the existence of a valid and enforceable noncompete covenant which, as discussed above, is far from a certainty given the evolving status of noncompete law in the U.S.
Corporate Governance and Securities Law. Current U.S. corporate governance and securities 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 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 U.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.
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 (the deadlines for which have recently changed) 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 crossed. 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 private M&A transactions, the U.S. disclosure regime is subject to greater judgment and analysis than the strict requirements of other jurisdictions. In addition, non-U.S. acquirors of U.S. public companies should be aware of the requirements under federal securities laws to make disclosures about the background of the transaction and negotiations, as well as other information about the transaction and the parties, which may differ from the disclosure obligations of other jurisdictions. Treatment of derivative securities and other pecuniary interests in a target other than common stock holdings can also vary by jurisdiction.
Due Diligence. Wholesale application of the acquiror’s domestic due diligence standards and customs to a process in a different target 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 company. 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 or earn a reputation as difficult. 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 many 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.
Distressed Acquisitions. In 2024, bankruptcy filings in the U.S. increased as companies dealt with the challenges of a rising interest-rate environment. Amid that upturn, the U.S. has remained the forum of choice for cross-border restructurings. Multinational companies across a range of sectors including retail, manufacturing, healthcare, and airlines have continued to take advantage of the debtor-friendly and highly developed body of re-organization laws, as well as the specialized bankruptcy courts, that have long made the U.S. Chapter 11 process attractive.

Advantages of a U.S. bankruptcy include: the expansive jurisdiction of the courts (such as a worldwide stay of actions against a debtor’s property and liberal venue requirements); the ability of the debtor to maintain significant control over its normal business operations; relative predictability in outcomes; the ability to bind holdouts to debt compromises supported by a majority of holders and two-thirds of the debt; and the ability to borrow on a super-senior basis to fund the company during and upon exit from bankruptcy. However, one potential advantage of U.S. bankruptcy was substantially limited in 2024 by the United States Supreme Court in Harrington v. Purdue Pharma, L.P., where the Court held that a Chapter 11 plan of reorganization cannot be used to compel creditors to release their claims against a debtor’s parent companies or affiliates, even when the plan has overwhelming support.

A significant aspect of U.S. bankruptcy law that makes it attractive is the protections it
offers to acquirors of assets. The U.S. Bankruptcy Code allows a debtor to sell assets, or its entire business, pursuant to a court order that authorizes the sale “free and clear” of claims and liens. The ability to sell assets free-and-clear can be particularly attractive for businesses facing mass tort liability, as it allows a buyer to buy operating assets without the overhang of the seller’s legacy liabilities. Another attractive feature of Chapter 11 is that it can afford buyers the ability to decide which of the debtor’s contracts and leases to assume and which ones to reject and leave with the debtor.

Chapter 11’s liberal venue requirements are also beneficial to distressed companies and potential acquirors. As an example, in November 2024, Swedish credit management company Intrum AB, which claimed some prior U.S. business connections but no U.S. operations or employees, commenced a Chapter 11 case in Texas, predicated on a Texas-based subsidiary that guaranteed its parent’s debt and Texas bank accounts, which were created right before the filings. Creditors moved to dismiss the case, in part based on their claim that the venue was improperly “manufactured.” The motion was denied. Companies can also take advantage of Chapter 15 of the U.S. Bankruptcy Code, which authorizes the “recognition” of foreign insolvency proceedings. The legal requirements for obtaining recognition are fairly limited, and the Chapter 15 process can facilitate restructurings and asset sales by providing debtors with many of the same protections as Chapter 11, including the ability to bind U.S. creditors.

The high cost of U.S. bankruptcies has become a matter of increasing concern. In re-
sponse to this, companies and their creditors have increasingly turned to “prepackaged” or “pre-negotiated” bankruptcies, which are cases filed with the requisite creditor support for a plan already intact. In cases where broad creditor support can be obtained in advance, a “prepack” can facilitate a rapid restructuring of debt or sale of assets in a matter of a few months (or even shorter).
Contingent Liabilities. The U.S. has an often-exaggerated but not entirely unjustified
reputation as the world’s most treacherous jurisdiction for tort, product liability and securities law litigation. Each U.S. target company or business will have its own history of interaction with customers, suppliers, employees, investors and others who may have pending or future claims against the acquisition target or its owners. Care should be taken in investigating such matters and assessing their likely and possible outcomes. Some will be deal-killers. Many will not be. Early and expert familiarity with the relevant subject matter and its litigation and liability history in the U.S. and the particular enterprise involved in an M&A transaction is an essential part of planning for every deal, as is negotiation of relevant counterparty arrangements, and third-party insurance and other risk- mitigation mechanisms.
Collaboration. More so than ever in the face of current 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 decision makers and influencers 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 transacting parties in a consistent, collaborative and cooperative fashion.