1、 The special legal environment for cross-border mergers and acquisitions
Compared to domestic mergers and acquisitions, cross-border mergers and acquisitions face a more complex legal environment. The transaction not only needs to comply with the laws and regulations of the country where the target company is located, but also needs to meet the relevant regulatory requirements for overseas investment within China. In recent years, major jurisdictions around the world have generally strengthened regulatory scrutiny of foreign mergers and acquisitions, especially for transactions involving critical infrastructure, sensitive technology, and personal data, which requires investors to plan approval strategies in advance.
2、 Core regulatory approval process
01. Foreign investment review and national security review
Mechanisms such as the CFIUS review in the United States, the EU foreign investment review framework, and the UK National Security and Investment Act have become challenges that Chinese companies must address in their overseas acquisitions. These reviews typically focus on whether the transaction affects national security, defense interests, or critical technology protection. It is recommended that the buyer conduct a prudent evaluation before the transaction, proactively communicate with the reviewing authority if necessary, and manage risks by setting a "pull-out clause" in the transaction documents (i.e. terminating the transaction if it fails the review).
02. Antitrust declaration
If cross-border transactions meet the declaration threshold of each jurisdiction, anti-monopoly declaration must be made. Special attention should be paid to the differences in declaration deadlines, material requirements, and review cycles. In recent years, global antitrust enforcement has become increasingly strict, especially for mergers and acquisitions of large technology companies. Enterprises should reserve sufficient time to deal with potential risks of additional restrictive conditions or even prohibitions on transactions.
03. Overseas Investment Management in China (ODI Filing/Approval)
According to the Measures for the Administration of Overseas Investment of Enterprises, domestic investors must obtain approval or filing from the National Development and Reform Commission and the Ministry of Commerce before implementing overseas merger and acquisition projects, and complete foreign exchange registration. For investment sensitive industries, countries, and regions, approval requirements are more stringent. Failure to comply with ODI procedures may result in the inability to export funds or difficulties in repatriating subsequent profits.
3、 Special terms of cross-border merger and acquisition agreements
Cross border M&A agreements typically include special clauses to address the uncertainty of cross-border transactions:
Regulatory approval commitment: agree on the cooperation obligations of both parties in obtaining approval
Major Adverse Effects (MAE): A broader definition that often includes macro factors such as changes in national policies
Reverse breakup fee: If the buyer is unable to complete the transaction without approval from Chinese regulatory authorities, they must pay a fee to the seller
Application of Law and Dispute Resolution: Typically, third country law (such as English law, New York law) is chosen and international arbitration is agreed upon
4、 Response strategies and suggestions
Successful cross-border mergers and acquisitions require:
Early planning: Consider approval requirements during the transaction architecture design phase and design a reasonable transaction path
Expert team: Establish a professional team including Chinese lawyers, overseas lawyers, tax consultants, and financial advisors
Risk allocation: Reasonably allocate approval risks through transaction documents and set protective clauses
Alternative plan: Prepare alternative plans that have not been approved in advance, such as adjusting the transaction structure or divesting some assets
Conclusion
The legal complexity of cross-border mergers and acquisitions is much higher than that of domestic transactions, and the key to success lies in identifying approval requirements in advance, allocating risks reasonably, and developing comprehensive contingency plans. With the constantly changing global regulatory environment, companies need to continuously monitor legislative developments in various jurisdictions, leverage a professional legal team to navigate through the complex regulatory landscape, and ultimately realize transaction value.
