Cross-Border M&A: Hidden Friction in International Transactions
The theory is compelling. Selling to international buyers expands your universe of potential acquirers, potentially surfacing strategic fits that domestic buyers cannot match. A European buyer seeking North American market entry, or an Asian conglomerate pursuing technology capabilities, might pay premiums that domestic competitors would not.
The reality is more complicated. Cross-border transactions introduce friction at every stage: regulatory complexity, cultural misalignment, currency exposure, and operational challenges that can derail deals or erode value. For founders in the lower middle market, where deal teams are smaller and margin for error is slimmer, these complications demand serious consideration.
The Current Landscape
Cross-border M&A remains active but increasingly selective. PwC's 2025 mid-year analysis reveals a striking pattern: Americas-based buyers increased investment by 16%, but 91% of this capital stayed within the region, up from 86% the previous year. Dealmakers are expressing stronger preference for domestic and intra-regional transactions over complex cross-border deals.
The divergence reflects a fundamental shift. Geopolitical friction is creating both unprecedented risks and concentrated opportunities. Dealmakers now express greater confidence in local or regional transactions over complex cross-border deals, suggesting momentum is shifting toward familiar territory.
For technology transactions specifically, the landscape has grown more challenging. PwC estimates that current trade measures could mean tariff exposure exceeding $100 billion for the technology, media, and telecommunications sector alone. This uncertainty is muting overall M&A activity as buyers and sellers pause to assess longer-term impacts on costs, supply chains, and valuations.
Regulatory Complexity
The regulatory environment for cross-border investment has tightened substantially, particularly for technology transactions.
CFIUS and National Security Review
In the United States, the Committee on Foreign Investment (CFIUS) reviews transactions that could affect national security. The scope has expanded significantly. White & Case analysis shows that 21% of distinct transactions in 2023 required mitigation measures, up from 18% historically. Eight civil penalties were issued in 2023-2024, triple the entire previous history combined.
Mandatory filing requirements now apply to transactions involving "TID" businesses: those dealing with critical technologies, critical infrastructure, or sensitive personal data. The threshold for mandatory filing is relatively low: foreign government acquisition of 25% or greater voting interest triggers automatic review.
Review timelines have formalised but remain extended. Declaration filings take five to eight weeks for assessment. Full notice filings require three to five months, with potential for presidential review adding another 15 days in rare cases. For founders accustomed to domestic deals closing in 60 to 90 days, these timelines fundamentally alter transaction dynamics.
The Trump administration's "America First Investment Policy" introduced additional complexity. Investments from allied nations like Australia, Canada, the UK, and New Zealand may receive expedited review, while transactions involving designated adversaries face heightened scrutiny. Technology sectors including AI, quantum computing, and semiconductors draw particular attention regardless of investor origin.
European and Global Frameworks
CFIUS is not unique. The European Union has implemented its own foreign direct investment screening framework, and individual member states maintain national security review processes. The UK's National Security and Investment Act created mandatory notification requirements for transactions in specified sectors.
For a software company with customers or operations in multiple jurisdictions, a single transaction may trigger review processes in several countries simultaneously. Coordinating these parallel reviews, each with different timelines and requirements, adds complexity that smaller deal teams struggle to manage.
Due Diligence Challenges
Cross-border transactions demand expanded due diligence that goes well beyond financial and legal review.
Deloitte's survey of more than 500 executives across North America, Europe, Asia-Pacific, and Latin America identified common friction points. Thirty-three percent of respondents wanted greater emphasis on comprehensive pre- and post-deal planning. Thirty-two percent sought more aggressive negotiation strategies. Thirty-one percent desired deeper market and culture research.
Three categories of issues recur in cross-border due diligence:
Labour and employment matters. Employment law varies dramatically across jurisdictions. Termination protections, benefits obligations, works council requirements, and collective bargaining arrangements all differ. What appears straightforward workforce optimisation under one legal framework may be impossible or prohibitively expensive under another.
Regulatory and compliance requirements. Highly regulated industries including life sciences, healthcare, financial services, and chemicals face extensive certification, licensing, and registration requirements that vary by country. A product approved for sale in one market may require years of additional work to gain clearance in another.
Legal entity complexity. Cross-border transactions often create overly complex corporate structures with subsidiaries in multiple jurisdictions. This complexity creates administrative burden, delays in operational integration, and difficulties engaging with local markets effectively.
Currency and Economic Exposure
Cross-border transactions introduce currency risk that affects both deal economics and ongoing operations.
A UK acquirer purchasing a US company faces GBP/USD exposure from the moment they begin negotiating. If the deal is priced in dollars and sterling weakens during the transaction process, the effective cost in the acquirer's home currency increases. Sophisticated buyers hedge this exposure, but hedging has costs that affect their willingness to pay.
Post-acquisition, the combined entity faces ongoing translation exposure as foreign subsidiary results convert to the parent's reporting currency. Operating in multiple currencies also creates transaction exposure on intercompany payments, customer contracts, and supplier arrangements.
For founders, currency dynamics affect who can afford to pay premium valuations. A US dollar that has strengthened against multiple currencies makes US assets expensive for foreign buyers, potentially reducing international interest at moments when domestic markets are soft.
Cultural and Operational Integration
The challenges that sink cross-border transactions often emerge post-close, in the integration phase where cultural and operational differences surface.
Communication norms differ across cultures in ways that affect daily operations. Decision-making processes vary: some cultures expect rapid escalation and executive involvement, while others prefer consensus-building at working levels. Management styles that motivate employees in one context may alienate them in another.
Time zones create practical friction. A US company acquired by a European parent may find that key decisions require coordination across six or more hours of time difference. An Asian acquirer faces even greater challenges. Video calls at inconvenient hours become routine, and response times stretch.
These factors are difficult to quantify in due diligence but meaningfully affect integration success. Deloitte's research emphasised that firms increasingly recognise comprehensive planning, external expertise, and thorough due diligence as essential for navigating these challenges.
When Cross-Border Makes Sense
Despite the friction, cross-border transactions remain compelling in specific circumstances.
Market entry premium. An acquirer seeking entry into a market they cannot access organically may pay premiums that justify the complexity. A European industrial software company seeking North American distribution might value a US target beyond what domestic buyers would pay, because the alternative, building from scratch, is more expensive still.
Technology acquisition. Buyers seeking specific technical capabilities may have no domestic alternatives. If your technology solves a problem that buyers in multiple geographies face, the competitive dynamics of a cross-border process can drive valuation.
Strategic consolidation. In fragmented global markets, acquirers pursuing international roll-up strategies may see your business as a geographic piece of a larger puzzle. Your value in that context exceeds standalone valuation.
Regulatory arbitrage. Some businesses benefit from operating across multiple regulatory regimes. An acquirer with complementary geographic presence may unlock value through regulatory diversification that neither business could achieve alone.
Managing Cross-Border Process
Founders considering international buyers should approach the process with realistic expectations and appropriate preparation.
Extend timelines. Cross-border transactions take longer. Regulatory reviews, expanded due diligence, and coordination across time zones all add weeks or months. Build this reality into your planning and ensure you have runway to accommodate delays.
Engage specialised advisors. Cross-border M&A requires expertise that generalist advisors may lack. Legal counsel with experience in relevant regulatory frameworks, tax advisors who understand multi-jurisdictional structures, and bankers with genuine international networks all contribute to successful outcomes.
Understand buyer motivations. International buyers pursue acquisitions for strategic reasons. Understanding those motivations helps you position your business effectively and identify where you can command premium pricing.
Plan for integration. Discuss integration planning during the transaction process, not after. Understanding how the combined entity will operate, who will make decisions, and how teams will collaborate reduces post-close friction.
The Decision Framework
For founders evaluating whether to pursue international buyers, the calculus involves weighing potential premium against certain friction.
A robust domestic process with multiple interested parties may deliver better risk-adjusted outcomes than a cross-border transaction with a single international bidder. The premium required to justify cross-border complexity should be meaningful, not marginal.
Conversely, if domestic buyer interest is limited, international markets may offer alternatives that would not otherwise exist. A founder with a niche product that fits strategically with foreign acquirers may find better outcomes abroad than at home.
The key is entering the decision with clear-eyed understanding of the trade-offs involved. Cross-border M&A can deliver exceptional outcomes, but the path to those outcomes is neither simple nor guaranteed.
If you are weighing international options for your transaction and want perspective on how to evaluate them, we are happy to discuss.