Calfee Connections

Firm Vice Chair and Corporate and Finance Partner Jennifer Vergilii discusses the top strategic deal considerations and unique challenges involved in cross-border transactions and explains how Calfee's membership with Lex Mundi, the world's leading network of independent law firms, enables Calfee to seamlessly serve clients in any jurisdiction across the U.S. and globally.

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Video Transcript

Jennifer Vergilii:

Hello. My name is Jennifer Vergilii, and I am Vice Chair of Calfee, Halter & Griswold.

What are the top strategic deal considerations for cross-border M&A transactions?

When a company is looking to do a cross-border transaction, they're looking at a lot of different issues. First and foremost, they may be looking at portfolio diversification; and by that, that may mean geographic diversification, it may be product diversification, it may be labor diversification, but there are a lot of factors that go into what I'd call portfolio diversification. In addition, a client may look to do a national or an international transaction because of the more favorable regulatory environment. Perhaps they're in a jurisdiction that has a lot of regulatory issues or criteria that they have to satisfy, and there are other more favorable regulatory environments. We saw that historically with the insurance industry, where there were certain areas where insurance companies gravitated because of the favorable laws. We also see that with the formation of corporate entities in the United States where folks gravitate towards New York and Delaware.

In addition, when looking at international M&A transactions, there may be cost synergies and there may be scale efficiencies. Those could be labor costs. Those could be just combining entities within multiple jurisdictions that may make sense. Oftentimes, when doing a multinational transaction, there's a focus on acquiring new intellectual property or technology. There may be adding production capability or new talent. Finally, there's obviously access to new distribution networks and growth in new geographic markets. So, there's a whole host of reasons why a company may decide to embark on either a multinational or international transaction. Those touch upon the most commonly thought of.

What are the unique challenges in international M&A transactions, and how can an attorney assist their client with these challenges?

There are a whole host of issues that are unique to international transactions on the M&A front. First and foremost, at the beginning of a transaction, there'll be new diligence issues that might not be in existence if the transaction were local. For example, companies may have to recalibrate their perceptions of risk, and they may have to re-evaluate their traditional due diligence process to look at those risk factors in connection with a cross-border M&A transaction. The deal team will need to focus on:

• Diligence items that are common risk factors, such as national and regional tax laws.
• The availability and reliability of the target company's financial information.
• You need to look at a country's political and economic stability.
• And, there are certain specific laws that will have to be looked at. For example, if a U.S. company is looking to do business internationally, we'll have to look at the U.S. Foreign Corrupt Practices Act, similar anti-bribery, anti-money laundering, and other regulations.

In addition to those diligence issues, there will be corporate, legal, and regulatory considerations that should be evaluated. For example, there may be enterprise-level issues that have to be evaluated. There may be specific country legal and regulatory issues that have to be looked at.

The most common legal and regulatory considerations include labor issues, investment issues, and anti-trust and tax issues. Those are the ones that we see most commonly in cross-border transactions.

Additionally, there may be product registration or industry-specific regulations that have to be looked at. On the diligence side of things, it's essential to understand industry-relevant product registration, any certifications that are necessary, and labeling requirements. This is particularly important and necessary in highly regulated industries, such as the healthcare sector, chemical sectors, and financial services.

Large integrations often result in integration issues. I cannot emphasize enough coordinating your front end of a transaction with your integration on the back end. Many transactions failed not because the diligence wasn't performed on the front end, but because the integration on the back end is not seamless. So, thoroughly planning and integrating your post-closing integration is one of the key-mark items for success.

Describe Calfee's membership in Lex Mundi and how it helps Calfee with national and cross-border transactions.

Calfee is a founding member of an organization called Lex Mundi. Lex Mundi is an affiliation of approximately 150 member firms and has 23,000 lawyers represented in 125 countries and over 700 offices. Lex Mundi is a unique legal organization because membership is regularly vetted. It is not a pay-to-play organization. Membership includes a rigorous interview process, an application process that includes analysis of chambers rankings, as well as making sure each member firm has expertise both on the ground and with a wide array of legal issues.

In addition to having firms represented both globally and nationally, Lex Mundi provides training and online tools such as global practice guides, best practice guides, and country and state guidelines to doing business.

Within the international and national M&A context, this organization is invaluable because it provides our clients with the best attorneys and contacts in each jurisdiction where they want to do business.