Global corporate transactions: compliance considerations for every phase of the deal
ComplianceJuly 17, 2020

Global corporate transactions: Compliance considerations for every phase of the deal

Global corporate transactions are a fast-paced, high-stakes environment for legal counsel and their clients. Mergers and acquisitions that involve foreign entities are subject to continuously evolving regulatory, legal, and compliance obligations. Therefore, attorneys aim to effectively assess risk factors that may affect their clients during a global deal.

In this article, we explore what legal counsel should consider through each phase of the deal to ensure a successful global transaction.

Pre-transaction considerations

When structuring a global deal not only is it important to identify synergies that can be generated between the companies, there are many factors to consider that affect the outcome. A few of those considerations include local antitrust laws, securities regulations, corporate law, and determining which jurisdictions’ regulations will apply.

There are also tax implications and accounting issues in any global corporate transaction that raises unique obligations that must be met. Local market conditions, as well as available forms of financing, should also be considered.

It is key for the success of an international deal that legal counsel understand the business landscape of the country, regulations that govern the industry of business, and the relevant compliance obligations that apply.

Things to keep in mind as the transaction progresses

Once the companies reach an agreement on the terms of the deal, the next step is to verify that all representations made up until that point are valid, and what the current standing of the target company is. This is accomplished by conducting a due diligence investigation, which is no easy task, especially when multiple countries are involved.

It’s important to understand what you are looking to learn from the target company as this will inform the types of documents that will need to be collected during due diligence. Conducting an international document search and retrieval requires an understanding of the different document types available locally and the nuances in each jurisdiction such as different naming conventions, etc. This can be challenging since U.S. document equivalents may not always be a one-to-one match, so it’s important to know what to look for and the information needed. Additionally, documents are mostly provided in the local language, therefore will require an official translation.

Furthermore, paying attention to local turnaround times for document retrieval can be critical, as this may impact the overall deal timeline. Some countries have a longer lead time than others and in many cases may require supplemental documentation. Global events, national emergencies, or local holidays can also affect turnaround times. A best practice is to set priorities based on timelines and budgets and have a firm grasp of what information is important to obtain and when.

When collecting information about the target company or vice versa, also look at how the global regulatory landscape is changing. This may increase the need for a more comprehensive due diligence to evaluate any potential post-transaction integration issues and mitigate any risk of financial exposure. To protect against any issues that may arise due to unknown factors, it is common to see some agreements include a representation and warranties insurance policy.

International due diligence investigations can be resource-intensive and can burden already overstretched legal teams. Leaning on a trusted partner with the know-how and boots on the ground globally can help ensure investigations are efficient and timely.

Post-transaction “business as usual”

Once the deal closes, both companies work together to merge their operations, which can generate significant compliance implications in the localities involved.

Companies must determine what this integration looks like, will a new entity be formed? And, how will that entity be structured to accomplish the goals of the deal? The merged company must consider what local regulations must be adhered to and how they impact the ownership structure. In Vietnam, for instance, depending on the type of business activity being conducted; 100% foreign ownership is not allowed and a joint venture with a local enterprise will be required.

Another important consideration is what name the entity will carry locally. Choosing a name for the new entity – whether it's adapted from a parent company or is an entirely new name – requires some research. A name search must be conducted to check availability in the jurisdiction and subsequently confirm that locality’s registration requirements. While in some countries names can be reserved for a period of time, in many this not allowed and/or the service may not be available altogether. It is important to also note that when choosing a name, the cultural connotations that it may carry in the country must also be taken into account.

Finally, ongoing entity compliance must be conducted, and periodic health checks performed to ensure the transition and integration is running and will continue running smoothly.

Conclusion

International corporate transactions are complex and there are many considerations to keep in mind as the process moves along. The rules that govern these types of transactions and their requirements can vary from country to country. To avoid any compliance risk, communicate early and often with stakeholders in the deal. Assess and focus on priorities during each phase and conduct thorough due diligence to uncover any issues – then address them in a timely manner.

Since every deal is unique and no country is the same, lean on a trusted partner with experts in each jurisdiction where the deal is taking place. One who can manage the transaction work across multiple countries, via a single point of contact in the U.S., saving valuable time and reducing costs.

Learn more about CT’s Global Transactional Services and how we can help with your next global deal. Get in touch with a CT representative at (844) 322-6993 (toll-free U.S.).

Disclaimer: This article is intended for informational purposes only. It should not be used as legal advice.