Compliance » Strategies for M&A Success Amidst Heightened Regulatory Scrutiny

Strategies for M&A Success Amidst Heightened Regulatory Scrutiny

Strategies for M&A Success Amidst Heightened Regulatory Scrutiny

April 2, 2024

In recent years, the landscape of mergers and acquisitions (M&A) has grown increasingly complex due to heightened government scrutiny, particularly in regions like the U.S., U.K., and European Union. According to an article by Skadden, Arps, Slate, Meagher & Flom, regulators have raised concerns over competition, national interest, and security, leading to blocked or abandoned transactions. This regulatory environment has made deal outcomes less predictable, with a higher risk of deals encountering competition issues or failing to materialize within contractual deadlines.

To navigate these challenges, the article suggests that companies must thoroughly understand regulatory priorities and develop clear approval strategies, incorporating terms in transaction agreements to address and allocate regulatory risks effectively. Several key considerations arise during pre-signing analysis, including assessing antitrust/competition risks, industry-specific regulations, and cross-border implications. Antitrust reviews, in particular, have become more stringent, requiring in-depth analysis beyond traditional measures.

Effective preparation involves collecting relevant data, conducting antitrust due diligence, and engaging economists to analyze evidence. Regulators increasingly demand extensive internal documents to assess transaction rationale and impacts comprehensively. Understanding regulators’ enforcement priorities and policy goals, such as those related to climate change or data privacy, is essential.

Companies must negotiate agreement terms to mitigate regulatory risks and allocate responsibilities. Provisions addressing timing, efforts covenants, reverse termination fees, preemptive divestitures, and interim operating covenants are crucial. Efforts covenants, for instance, outline commitments to obtain regulatory approvals and may vary in stringency based on parties’ perspectives and likely outcomes.

The article also highlights the need for clear provisions for litigating regulatory challenges and control over the divestiture process. Maximizing proceeds from divestitures, especially through preemptive divestitures or accordion options, helps manage bargaining power during the disposal process.

Companies navigating M&A transactions in the current regulatory environment should conduct thorough risk assessments, devise informed approval strategies, negotiate robust agreement terms, monitor progress diligently, and be prepared for potential litigation. By addressing these challenges proactively, companies can enhance their chances of successfully completing mergers and acquisitions amidst regulatory scrutiny and mitigate associated risks.

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