The execution of private M&A transactions is becoming increasingly complex, with regulatory issues perhaps forming the biggest challenge. With the continued heightened tensions in global trade, this trend is expected to continue and impact more and more transactions.

Execution risk is still on the rise
Over the last few years, execution risk in M&A transactions has been rising with more transactions requiring antitrust, foreign investment or other regulatory clearances.

As part of Allen & Overy’s ongoing private M&A research, analysing more than 1,000 deals we’ve advised on over the last seven years, we have looked carefully into provisions regulating antitrust or regulatory approval.

In 2018, 58% of our deals with a value of less than USD 250 million and 85% of our deals of more than USD 250 million required at least one such clearance. This is an increase of 11%, respectively, 8% over 2017. The primary drivers are the stricter application of both merger control and foreign investment regulations and the proliferation of foreign investment regimes. This is ongoing – we see no indication of the appetite to intervene in M&A transactions diminishing in the near future.

Foreign investment screenings
National interest screenings are a new(ish) regulatory dimension to be considered when preparing, evaluating and executing international M&A transactions.

Historically, foreign investment screenings were mostly undertaken in Australia, the US and parts of Asia, e.g. China. But in recent years, while some Asian countries became more open to foreign direct investment (FDI), various Western governments have grown sensitive towards the potential risks of FDI. This has seen the introduction of (more restrictive) FDI regimes combined with more active enforcement.

As part of this trend, the EU Council adopted new EU foreign investment legislation in March 2019 which will apply as of 11 October 2020. The new regulation provides a co-ordinated approach to the screening of FDI across the EU Member States by setting minimum standard for national regimes (without the obligation to have such a regime). It also implements a system of cooperation and information-sharing between Member States and the European Commission and introduces a new power for the European Commission to review (but not block) certain investments of “Union interest” and to issue a non-binding opinion to the relevant Member State involved.

In the US, existing review mechanisms were strengthened by extending the powers of the Committee on Foreign Investment in the United States (CFIUS) through the Foreign Investment Risk Review Modernisation Act (FIRRMA).

While the risks of FDI are often characterised as threats to national security, increasingly, many governments are taking a broader view of the sectors which should be regarded as strategically important. The focus is no longer just on the defence sector, now sensitive technologies and data, dual-use products, critical commodities, media, high tech industries and critical infrastructure are often also in the spotlight.

Implications for businesses and mitigating actions
As investment screening regimes become more widespread and expand their reach, businesses will be faced with increased complexity, uncertainty and risk in addition to the competition-focussed merger review.

Parties to M&A transactions would be well advised to conduct an early assessment on possible FDI and antitrust impediments. This should include a substantive analysis of the prospects of success, but also focus on process, timelines and remedies which may need to be offered. Deal terms allocating risk and responsibility will need to be agreed. Depending on the outcome it may be wise to engage with the relevant authorities early on.

This article only describes a selection of our findings from our research on Global Trends in Private M&A and National Interest Screenings. If you would like a detailed presentation on all our findings on Private M&A Trends or our report on National Interest Screenings, please get in touch with me at I would be happy to share our insights.

Danielle du Bois-Buné Counsel, Corporate Department of A&O Amsterdam
Allen & Overy LLP

Danielle specialises in private M&A and equity capital markets transactions. She has wide ranging corporate experience in advising clients on domestic and cross-border acquisitions and disposals as well as controlled auctions and joint ventures. She advises both national and international public and private companies, including private equity clients. She joined Allen & Overy in 2006 and has worked in A&O’s Amsterdam and Shanghai offices.