Anti-trust regulation, cited by more than a quarter of all respondents (28%), will continue to represent a major challenge to successful international M&A, according to Herbert Smith Freehills’ new cross-border M&A report Beyond Borders. Anti-trust concerns are particularly prevalent for companies making acquisitions in North America where 44% of respondents say these regulations are their biggest legal hurdle when doing deals in the region.
One difficult anti-trust challenge is that as cross-border deals increasingly involve less developed markets, competition laws and tests in those jurisdictions may not be as developed, with a risk of rulings being handed down on a case-by-case basis, rather than decided by the letter of the law.
Labour & employment regulations
Labour and employment regulation is a concern for more than a quarter of acquirers in Africa (28%) and only slightly fewer (25%) in both Western Europe and Central and Eastern Europe. The highly regulated markets of the European Union, where labour markets in several countries are sometimes criticised as particularly inflexible, are clearly a factor for many would-be acquirers. Frédéric Bouvet, M&A partner at Herbert Smith Freehills in Paris, says that acquirers in Europe have to plan ahead on this issue, building the time that they need into their deal timelines.
Environmental regulation is of most concern to businesses planning deals in Central and Eastern Europe, where almost a third of respondents (30%) point to this issue, and in Australia, where more than a quarter (26%) flag it up. In Australia, in particular, this may be linked to the country’s pre-dominance in natural resources related industries.
Businesses should expect this issue to rise up the agenda in many countries, argues Austin Sweeney, head of corporate, Asia, at Herbert Smith Freehills in Hong Kong. “It’s going to make this a crucial part of your due diligence process,” he says.
Money laundering regulations
Latin American deals were seen as particularly likely to present money laundering regulation challenges, with more than a fifth (21%) of respondents citing this issue; money laundering was also a prominent challenge in Japan and South Korea, where a fifth (20%) of respondents picked it out and in Africa (17%).
In the EMEA region, respondents to our survey said that problems with import or export regulation accounted for 14% of deal failures. But while 9% of APAC respondents said the same, not a single company in the Americas cited this issue.
Data protection/cyber security regulations
In Japan and South Korea, almost a third of those businesses considering acquisitions in the region (30%) are concerned about data privacy and cyber security regulations – for these buyers, this issue represents their single biggest concern. In Western Europe, meanwhile, where the European Union has passed new legislation on data protection, some 15% of acquirers are concerned. Ralf Thaeter, managing partner, Germany, at Herbert Smith Freehills, feels that this definitely could put a block on certain deals, particularly for non-European Union companies making acquisitions in particular countries. “Germany especially has very strict data protection laws and that is sometimes seen as a barrier,” he warns.
Bribery & corruption regulations
Bribery and corruption regulation is more likely to be a concern in developing markets – most urgently in South Asia, where more than a quarter (28%) of survey respondents point to this worry, and in Latin America, where a fifth (20%) flag it up.
The only way to overcome such problems is through thorough due diligence, stresses Nina Bowyer, energy and infrastructure partner at Herbert Smith Freehills in Paris. “You need to have proper policies in place, as well as manpower and advisers on the ground to monitor what is going on,” she says.