Cross-border mergers and acquisitions (M&A) refer to transactions where companies from different countries combine their operations through a merger or acquisition. These deals allow businesses to expand globally, access new resources, and strengthen competitiveness.
This blog will help you understand the types of cross-border M&A in EU, the regulations around them, and other factors essential for companies to consider when pursuing international growth.
What Is Cross-Border M&A?
A cross-border M&A takes place when one company merges with or acquires another company based in a different country. Unlike domestic mergers, these transactions involve navigating not only commercial negotiations but also complex cross-border merger regulations, including legal, tax, and compliance requirements of multiple jurisdictions.
Such mergers are widely used by companies to establish a stronger presence in international markets, acquire innovative technologies, and gain competitive advantages on a global scale.
Types of Cross Border M&A
Under EU law, businesses can pursue three main types of cross border mergers and acquisitions. These structures define how assets, liabilities, and legal entities are consolidated during the transaction:
- Merger by Absorption
In this structure, the target company transfers all assets and liabilities to the acquiring (transferee) company. Once complete, the target company is dissolved without undergoing liquidation.
For example, a French consumer goods company acquires a Spanish competitor and absorbs all its assets and liabilities. The Spanish company ceases to exist, and the French company continues operations under its own brand, quickly expanding market share in Spain. - Merger by Absorption of a Wholly-Owned Subsidiary
Here, a subsidiary fully owned by the parent company is absorbed into the parent. Since the transferee already owns the target, the process involves fewer formalities and regulatory requirements compared to other merger types.
For example, a German parent company absorbs its fully-owned Italian subsidiary. Since it already owns the subsidiary, the merger is straightforward, allowing the parent to streamline operations and reduce administrative overhead. - Merger by Formation of a New Company
Two or more companies transfer their assets and liabilities into a newly established entity. After the transfer, the original companies are dissolved without liquidation, and the new company becomes the operating entity.
For example, a Belgian tech firm and a Dutch software company merge to create a new joint entity. Both original companies are dissolved, but the new company leverages combined technologies, talent, and customer networks to enter multiple European markets under a unified brand.
Type |
What Happens |
Key Advantage |
|---|---|---|
Merger by Absorption
|
Target company transfers all assets/liabilities to acquirer; target dissolved
|
Streamlined integration, full control
|
Absorption of Wholly-Owned Subsidiary
|
Subsidiary absorbed into parent
|
Fewer formalities, simpler regulatory approval
|
Formation of New Company
|
Two/more companies form a new entity
|
Neutral structure, joint control possible
|
Choosing the Right Structure in Cross Border Mergers and Acquisitions
When considering the types of cross border mergers and acquisitions, selecting the right structure is crucial. The decision depends on several key factors:
- Strategic Goals – Businesses must align the merger structure with long-term objectives. For instance, if maintaining brand identity is a priority, forming a joint venture may be more suitable than a full absorption.
When planning a deal, ask yourself: Does this structure align with your long-term brand and market strategy? Will it simplify integration, or add complexity?
- Financial Considerations – The financial health and resources of the merging entities influence the structure. Companies should carefully evaluate capital requirements, potential synergies, and transaction costs associated with each option.
- Regulatory Environment – Each jurisdiction has its own cross border merger regulations. Seeking legal guidance ensures compliance and helps companies choose a structure that minimizes legal hurdles.
Consulting local legal and tax advisors early can help avoid surprises.
Why Do Companies Pursue Cross Border M&A?
Companies choose cross-border mergers and acquisitions for a range of strategic benefits:
- Market Expansion – Gaining access to new geographic markets and customers.
- Access to Resources – Acquiring new technologies, skilled talent, or raw materials.
- Diversification – Spreading business risk by entering new industries or regions.
- Increased Competitiveness – Combining strengths to improve market positioning.
- Cost Savings – Achieving economies of scale through consolidated operations.
Key Risks to Consider in Cross-Border Mergers
Every merger comes with risks, but cross-border M&As introduce additional layers of complexity. Companies should assess the following risk areas before finalizing a deal:
- Legal Risks – Contract disputes, IP issues, and differing local regulations can slow integration. Conducting due diligence and working with legal experts helps mitigate these risks.
- Financial Risks – Currency fluctuations can significantly affect deal valuation and future performance. Businesses often adopt hedging strategies to protect against exchange rate volatility.
- Operational Risks – Integrating operations, systems, and cultures across countries can be challenging. Companies should identify integration risks early and develop contingency plans to ensure smooth post-merger operations.
Early due diligence and integration planning are critical to reducing these risks.
Jurisdictional Considerations in Cross-Border M&A
The jurisdiction chosen for a merger or acquisition can have a major influence on the transaction’s success. Since laws and cross border merger regulations differ from one country to another, the location of the deal determines not only its feasibility but also its long-term benefits.
For this reason, companies planning any of the types of cross border mergers and acquisitions must carefully evaluate the legal and economic landscape of the target country before proceeding.
Key Factors When Choosing a Jurisdiction
When assessing potential jurisdictions for a cross-border M&A, businesses should take into account:
- Legal Environment – A clear understanding of the target country’s legal framework is essential. Factors such as the predictability of laws, the independence of courts, and the efficiency of dispute resolution can greatly influence the outcome.
- Tax Environment – Tax rules differ widely across jurisdictions and can significantly affect the cost and structure of a deal. Consulting international tax advisors ensures that companies are aware of potential liabilities and opportunities for optimization.
- Political Stability – A stable political climate is critical for long-term success. Companies should evaluate the likelihood of policy shifts or regulatory changes that could disrupt post-merger operations.
How Does an EU Cross-Border Merger Work?
Although the cross border merger regulations may differ, the process to complete it is broadly similar across the EU:
- Pre-Merger Acts – Preparation of a Merger Plan, Directors’ Report, and where required, an Independent Expert’s Report. Shareholder and creditor approval may also be necessary.
- Court Approval – The competent authority of the country where the new or merged entity will be registered must approve the merger.
- Registration and Strike-Off – Once approved, the merger is registered, and the target/transferor company is officially struck off from the company register.
How long does an EU Cross-Border Merger take?
The timeframe for completing a cross border M&A typically ranges from six months or longer, depending on factors such as employee participation rights. Where employees have rights to influence corporate governance, the process may take additional time.
Approval Requirements for EU Cross border mergers
- Shareholder Approval – Generally, 75% majority approval from shareholders is required unless the merger involves a wholly-owned subsidiary.
- Creditor Approval – If applicable, creditors representing 75% in value must also consent.
- Court Certification – A pre-merger certificate is issued confirming compliance with requirements. The merger must then be approved by the relevant national authority within six months.
What Happens After the Completion of the Merger
At completion, all assets and liabilities of the transferor are transferred to the transferee company. The transferor is dissolved without liquidation and removed from the corporate register.
Tax Implications
Tax implications can vary depending on the location of shareholders and assets. Companies may be able to structure deals to avoid immediate corporate tax costs. Consulting international tax advisors ensures you understand VAT, transfer taxes, and potential opportunities for optimization.
You can find more about the tax and auditing obligations in France here.
Cross-border mergers and acquisitions have become a powerful strategy for businesses seeking global growth, resource access, and competitive advantage. By understanding the different types of cross border M&A companies can select the structure that best aligns with their strategic goals.
With careful planning, due diligence, and the right expert guidance, businesses can unlock significant opportunities available under EU and international frameworks.