Sooner or later, companies of all sizes start searching for ways to expand their reach and influence. Entering new markets is often the most obvious growth strategy — but is it the easiest?
Compared to domestic deals, cross-border mergers and acquisitions (M&A) often come with added complexities, from tougher legal requirements to challenging post-merger integration.
Nevertheless, 85% of business owners consider cross-border dealmaking their top priority for the coming year. Furthermore, that’s amidst ongoing geopolitical uncertainties and the policy shifts introduced by the new U.S. administration.
With that, we get into the fundamentals of cross-border M&A transactions to uncover their potential benefits and challenges. This article walks you through the main drivers of cross-border M&A activity, lists key considerations and legal requirements, and educates you on how to prepare for a successful cross-border deal.
What is cross-border M&A?
Cross-border mergers and acquisitions happen when a company from one country buys or merges with a foreign company. These deals allow businesses to grow internationally, reach new customers, and gain access to new markets, resources, or technologies.
Unlike domestic transactions, cross-border M&A deals often come with extra challenges. Companies must deal with different legal systems, tax rules, business cultures, and financial regulations. Language barriers and time zone differences also make communication and decision-making more complex.
Here’s how these two types of dealmaking differ:
| Aspect | Domestic M&A | Cross-border M&A |
|---|---|---|
| Location | Companies from the same country | Companies from different countries |
| Legal environment | Single legal system | Multiple legal systems to navigate |
| Regulations | Local laws and tax codes | Varying international laws, tax treaties, and trade policies |
| Cultural factors | Usually similar business cultures and language | Different corporate cultures and possible language barriers |
| Currency and finance | Single currency | Involves currency exchange and forex risk |
| Operational complexity | Easier to integrate systems and teams | Greater complexity in aligning operations and management styles |
| Risk level | Generally lower risk | Higher geopolitical and compliance risks |
However, cross-border M&A deals can become rewarding. As Don Mulligan, ex-CFO of General Mills, once said:
People think of cross-border deals as risky, but my view is that it is more risky for the long-term health of the business not to pursue these deals. Yes, there are short-term risks with moving into new markets, particularly emerging economies, but companies face a much bigger strategic risk from not being there at all.
Key drivers of cross-border M&A activity
According to Goldman Sachs, cross-border M&A activity is picking up again after a slower period. Deals between the U.S. and Europe are leading the way, showing the strongest growth and making up 44% of the total deal volume in Europe, the Middle East, and Africa (EMEA).
So, what exactly makes companies look for strategic alliances abroad? Here are the main drivers:
- Market expansion
Companies often pursue international deals to enter new markets and reach more customers. Instead of building their presence from scratch, they quickly gain local market access by acquiring an established business. This helps increase revenue and brand visibility in other countries.
- Access to new technologies
Cross-border M&A is a common way for companies to acquire new technologies or digital tools. By buying an innovative company abroad, they improve their products, services, or operations. This is especially valuable in fast-moving industries like tech, healthcare, and automotive.
- Tax efficiencies
Some companies look for international deals to reduce their overall tax burden. If the target company is based in a country with lower corporate tax rates or favorable tax laws, the combined business may benefit financially.
- Diversification
Expanding into different regions helps companies reduce their dependence on one market. If one country faces economic issues, political instability, or changing regulations, the business can still perform well in other areas. This makes the company more resilient.
- Gaining a competitive advantage
Cross-border M&A strengthens a company’s position against global competitors. It allows them to expand their product offerings, improve supply chains, or eliminate foreign competition. With a stronger international presence, companies offer more value to customers and stay ahead in the market.
Common types of cross-border M&A transactions
Just like domestic M&A, there are different types of cross-border acquisitions or mergers. The most common include the following:
- Strategic acquisitions
A strategic acquisition happens when a company buys another to support long-term business goals, such as entering a new market, gaining technology, or strengthening product offerings. These deals are usually planned carefully and bring value beyond financial returns. The acquired company often has something unique that the buyer wants to add to its strategy.
- Joint ventures
In a joint venture, two companies from different countries create a new business. They each contribute resources and share control, risks, and profits. This type of deal is common when entering a foreign market where local knowledge or government partnerships are important.
- Vertical and horizontal integrations
Horizontal integration happens when a company acquires a foreign competitor to expand its market share. Vertical integration involves buying a company at a different stage of the supply chain (for example, a manufacturer acquiring a supplier) to improve efficiency and control over operations.
- Inbound and outbound M&A
Inbound M&A means a foreign company invests in or acquires a local business, while an outbound M&A is when a company acquires a foreign business.
Learn more about horizontal merger and vertical merger in our dedicated articles.
Major benefits of cross-border M&A
Now, let’s take a look at why companies still pursue cross-border dealmaking despite various complexities, such as Russia’s ongoing invasion of Ukraine, supply chain disruptions, and food and energy insecurity.
- Increased revenue potential
By entering new regions, companies reach more customers and boost sales. A broader geographic footprint also protects against slowdowns in another market.
- Access to talent and innovation
Acquiring a foreign company helps businesses tap into skilled workforces, research teams, or innovative technologies. This speeds up product development and improves competitiveness.
- Cost savings and operational synergies
When two businesses combine, they often reduce costs by sharing resources, cutting duplicate roles, and improving supply chains. These synergies make the combined company more efficient and profitable.
- Stronger global brand
A successful cross-border deal raises a company’s profile and reputation worldwide. This attracts new customers, business partners, and investors.
Explore the key joint venture vs merger differences to learn which deal type best suits your needs.
Risks and challenges in cross-border deals
While cross-border M&A offers many benefits, it also comes with a set of unique challenges that companies need to manage carefully.
Let’s briefly review the most common cross-border M&A challenges.
Legal and regulatory differences
Each country has its own rules for business ownership, antitrust laws, labor regulations, and foreign investment. What’s legal or standard practice in one country may not be acceptable in another.
Getting the right approvals can take longer than expected and involve strict reporting or compliance obligations. Failure to meet local legal requirements delays the deal, leads to penalties and other regulatory implications, or even causes the deal to fall apart. That’s why local legal expertise is essential.
Tax implications
Tax systems also vary widely across countries, and cross-border deals can trigger unexpected tax costs. These include double taxation, changes to tax residency, or complex transfer pricing rules. If not planned properly, tax issues can significantly reduce the financial benefits of the deal.
Cultural differences
Employees from different countries may have different expectations about leadership, work pace, and decision-making. These cultural mismatches can affect employee morale, cause turnover, or slow collaboration. In fact, 47% of employees leave the company within one year after an M&A.
Even small differences, such as how meetings are run or how people give feedback, impact daily operations.
Integration challenges
Merging two companies is often difficult, but cross-border integration adds layers of complexity. There may be different systems, time zones, languages, or reporting practices. Aligning departments, combining workflows, and integrating IT platforms takes time and careful planning.
If integration is rushed or poorly managed, the merged company may struggle to realize the full value of the deal. That’s why it’s important to have a detailed roadmap for an efficient integration.
Due diligence
In international deals, the due diligence process becomes more important yet more difficult.
Language barriers, lack of transparency, or unfamiliar legal environments make key risks tougher to identify. Without a thorough investigation, buyers may overlook debts, legal issues, or operational weaknesses. This can lead to unexpected expenses after the deal closes.
Currency and financial risks
Exchange rate changes can impact the actual cost of a deal or future earnings from the acquired business. A weakening foreign currency reduces profits once converted back to the parent company’s currency. There’s also the risk of inflation or unstable banking systems in some markets.
Political and economic risks
Changes in government policy, trade restrictions, or public opinion affect foreign-owned companies. Some countries may tighten regulations or increase taxes on foreign businesses. Economic downturns or instability can also reduce customer demand and business growth.
These risks are often unpredictable and hurt long-term success. That’s why companies must monitor political and economic conditions carefully during planning and execution.
Legal and regulatory considerations
Cross-border transactions present more legal and regulatory complexities than domestic deals, especially when in highly-regulated industries like defense, banking, or energy.
Depending on location, the acquirer and the target should consider the following:
- Antitrust and competition laws
These are designed to prevent monopolies and protect fair competition. In cross-border M&A, companies often need approval from multiple antitrust authorities — for example, the U.S. Department of Justice (DOJ), the European Commission (EC), or China’s State Administration for Market Regulation (SAMR). If regulators believe the deal could reduce competition, they might require the buyer to sell part of the business or block the deal entirely.
- Foreign investment restrictions
Many countries limit or closely monitor foreign ownership in sensitive sectors like defense, energy, telecom, or finance. In the U.S., for instance, the Committee on Foreign Investment in the United States (CFIUS) reviews foreign deals that pose a national security risk. Similarly, India, Australia, and EU countries have their own foreign direct investment screening processes. Deals in these sectors may need government approval or be subject to specific conditions.
- Employment and labor laws
Mergers and acquisitions must follow local labor rules, including how employees are treated during and after the transaction. Some countries, like those in the EU, require companies to consult with employee representatives or unions before making changes. For example, the UK’s Transfer of Undertakings (Protection of Employment) Regulations (TUPE) regulations ensure employee contracts are protected during a business transfer. Failing to follow labor laws leads to fines, delays, or lawsuits.
- Intellectual property (IP) and contract laws
When acquiring a company, buyers must ensure that all IP, such as patents, trademarks, and copyrights, is legally protected and properly transferred. In some countries, contracts or licenses may not automatically carry over after a merger. For example, software licenses or distribution agreements might need to be renegotiated. A clear IP and contract review is essential to avoid losing valuable assets.
- Data privacy regulations
Cross-border deals often involve transferring customer or employee data between countries, which can trigger strict privacy laws. In the EU, for example, the General Data Protection Regulation (GDPR) sets tough standards for handling personal data, and violations lead to large fines. In the U.S., the California Consumer Privacy Act (CCPA) gives consumers rights over how their data is collected and used. Companies must ensure data transfers are lawful and that both sides follow privacy rules.
- Anti-corruption laws
In cross-border deals, companies must ensure they are not exposed to bribery or corrupt practices, especially when acquiring businesses in high-risk regions. The Foreign Corrupt Practices Act (FCPA) is a U.S. law that prohibits American companies and foreign companies incorporated in the U.S. from bribing foreign government officials.
How to prepare for a cross-border M&A deal
Getting ready for a cross-border M&A deal takes more than just financial interest — it requires a solid strategy, thorough research, and strong collaboration across teams.
Here are several recommendations for a successful international transaction:
- Define strategic goals
Understand what you want to achieve from the deal. Are you looking to enter a new market, acquire key technology, or expand your customer base? Having clear goals helps you focus your search and evaluate potential targets more effectively.
- Research the target market
Analyze the target country’s economic environment, political climate, and legal landscape. Research local market trends, consumer behavior, and competitive dynamics in the industry you’re entering. This helps assess whether the market aligns with your goals and risk appetite.
- Understand the regulatory landscape early
Review foreign investment laws, antitrust rules, sector-specific regulations, and data privacy requirements in the target country. If you’re targeting a regulated industry, expect more scrutiny and plan accordingly. Early legal review helps you avoid roadblocks later.
- Build a local advisor network
Work with legal, tax, and financial experts who understand both your home country and the target market. Local advisors can guide you on deal structures, approval processes, and cultural norms. They can also help you identify red flags before you commit to due diligence.
- Develop a risk assessment framework
Create a checklist or framework to assess key risks, including political instability, currency volatility, regulatory barriers, IP protection, and cultural misalignment. Use this to evaluate and compare potential targets objectively before entering deeper talks.
Key takeaways
- A cross-border M&A deal is when a company from one country acquires or merges with a company from another country.
- Unlike domestic M&A, cross-border transactions typically come with extra challenges, as companies must deal with different legal systems, tax rules, business cultures, and financial regulations.
- The main drivers of cross-border M&A are market expansion, access to new technologies, tax efficiencies, diversification, and gaining a competitive advantage.
- The most common challenges include legal and regulatory differences, tax implications, cultural differences, integration challenges, stricter due diligence, financial and currency risks, and political and economic risks.
