Managing uncertainty in cross-border M&A

July 2025 | SPOTLIGHT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

July 2025 Issue

As 2025 unfolds on the heels of a modest and uneven 2024 recovery in global M&A, dealmakers face renewed caution amid persistent geopolitical tensions, evolving regulatory landscapes and economic uncertainties. Cross-border transactions continue nonetheless, as dealmakers, particularly in the private M&A market, employ increasingly sophisticated tools and strategies to navigate volatility.

Innovative legal structuring, talent-driven transactions and innovative financing techniques are being applied with greater precision and coordination. Although not entirely new, their disciplined and proactive use is redefining deal practice across jurisdictions and has become imperative in managing transactional risk during periods of uncertainty.

Proactive dealmaking infrastructures

Certainty begins at home. In an environment of geopolitical volatility and regulatory fragmentation, successful cross-border dealmakers rely less on institutional memory or deal instinct, and more on structured, formalised processes that directly confront jurisdictional complexity. These processes often involve robust internal frameworks for risk assessment, jurisdictional mapping and clear decision-making protocols. Exceptional deal teams integrate project management best practices and established methodologies, embedding consistency into their workflows from inception through closing.

These teams typically centre around a stable core of organic members and trusted external advisers, including legal, tax and accounting specialists, who combine a nuanced understanding of broader business strategy with transactional expertise. This collaborative structure enables proactive identification and mitigation of risks and ensures that transactional decisions align with the client’s long-term objectives and market realities. When niche regulatory or jurisdictional issues arise, these teams can quickly onboard subject-matter experts within established processes, preserving deal continuity and responsiveness.

Legal analysis is no longer a downstream exercise; rather, it is proactively integrated early and directly into commercial strategy. Dealmakers navigating present uncertainty in the global M&A environment are responding with coordinated strategies to multiple legal and regulatory risks. Enhanced diligence, expanded warranties and indemnities, and targeted termination rights have become common tools addressing environmental, social and governance (ESG) compliance, sanctions exposure and antitrust scrutiny. Structurally, reverse break fees, pre-emptive carve-outs, staggered closings, and proactive divestitures are proving useful for managing heightened national security reviews and antitrust concerns. Meanwhile, tightening export controls, local-content mandates, such as US Inflation Reduction Act incentives, and ESG-driven supply-chain oversight are prompting acquirers to renegotiate sourcing agreements and establish escrows linked to compliance milestones. Embedding these flexible, forward-looking mitigations directly into deal structures improves confidence of close amid regulatory uncertainty.

Adaptive transaction design

In a turbulent cross-border environment, standardised terms and reliance on generic market norms often fall short. Today’s sophisticated dealmakers increasingly employ customised, adaptive transaction structures that explicitly allocate risk and capture value early, minimising disputes and uncertainty later.

Among these adaptive approaches, all-cash deals remain one of the simplest responses to volatility. Cash-rich buyers leverage liquidity strategically, providing sellers immediate value and transaction certainty. This approach reduces prolonged negotiations, valuation drift and dependence on uncertain financing, which is particularly attractive amid macroeconomic instability.

Earnouts – contingent payments tied to achieving post-closing performance goals – bridge significant valuation gaps, particularly in sectors with uncertain growth trajectories. Commonly employed in the US and gaining traction in Europe and Asia, recent market conditions have encouraged shorter earnout periods, typically less than four years, to reduce ambiguity and litigation arising from disputed criteria.

Where performance metrics for earnouts may prove too uncertain or contentious, deferred payments offer a simplified and more predictable alternative. Fixed instalments secured through subordinated notes or dedicated escrows provide predictable compensation to sellers and liquidity flexibility to buyers. Cross-border deferred payments must carefully consider enforceability, tax implications and appropriate default protections.

Purchase-price adjustments (PPAs), once standardised, now frequently incorporate adaptive, customised definitions and dedicated escrows designed to isolate and mitigate specific risks such as working capital variances arising from sudden tariff changes, currency fluctuations, or supply-chain disruptions driven by geopolitical instability or regulatory compliance issues. These tailored PPAs reduce ambiguity, minimise post-closing disputes and provide heightened certainty in volatile environments. Nevertheless, the locked-box mechanism – a traditionally seller-friendly approach prevalent in Europe that fixes the price based on a pre-signing balance sheet with no subsequent adjustments – is poised for broader consideration in the US. This is largely because dealmakers increasingly prioritise efficiency and predictability amid ongoing unpredictability.

Staged or milestone-linked escrows segment post-closing risks into distinct silos, allowing buyers targeted recoveries and providing sellers earlier escrow releases upon fulfilment of specific obligations. Transactional risk insurance, which encompasses warranty & indemnity (W&I) insurance or representations and warranties (R&W) insurance in the US, tax insurance, litigation buyout coverage, and other contingent risk policies – is increasingly leveraged by dealmakers globally to manage uncertainty.

In the US, R&W insurance provides recovery for breaches of representations and warranties in the purchase agreement and related disclosure schedules. Due to stricter exclusions in R&W insurance policies, known or specifically identified high-risk issues typically remain outside policy coverage, necessitating supplementary staged escrows to manage these exposures. As a result, pairing broad-based indemnification from insurers with staged escrows that cover excluded contingent liabilities commonly functions as part of a broader risk allocation strategy.

In the global M&A market, W&I insurance defines its insured warranties within the policy itself, independent from the parties’ transaction documents. European dealmakers commonly fill coverage gaps with a structured package of additional policies tailored to address known contingent liabilities, thus creating a comprehensive, insurer-driven risk allocation solution without resorting to staged escrows. Meanwhile, the rarity of staged escrows in Asia reflects regulatory complexities and dealmaking norms emphasising trust and the allocation of risk between the parties themselves.

By carefully tailoring transaction mechanics, experienced dealmakers increasingly embed flexibility directly into deal structures, making uncertainty manageable and enhancing transaction resilience.

Talent-driven transactions

Skilled teams, specialised expertise and unique intellectual property frequently underpin deal rationale, directly affecting valuation and transaction structure. The widespread adoption of remote and hybrid work has enhanced workforce mobility, expanding talent pools but introducing significant cross-border compliance considerations. Geopolitical volatility and shifting regulatory frameworks have made talent retention and integration critical, and increasingly complex, in cross-border transactions.

Increasingly stringent global data privacy regulations, such as the European Union’s General Data Protection Regulation, China’s Personal Information Protection Law and various US state privacy laws, have significantly complicated employee data management in cross-border deals. Acquirers must carefully navigate rules governing employee consent, cross-border data transfers and post-closing data integration, directly influencing diligence processes and post-closing integration.

The enforceability of restrictive covenants differs widely across jurisdictions and is generally trending toward shorter durations, redefining a buyer’s protectable interest and the role restrictive covenants play in talent retention. In jurisdictions where the enforcement of restrictive covenants is limited or culturally disfavoured, structuring founder equity purchases, or incorporating rollover equity where founders or key management retain a stake in the acquiring entity, over time can offer de facto protection, even where long-term restrictions are unlikely to be upheld.

Similarly, negotiated management carve-outs – compensation packages crafted during deal negotiations rather than pre-existing arrangements – have become essential retention mechanisms in private equity-driven transactions, especially prevalent in US and UK cross-border deals. European acquirers approach such carve-outs more cautiously, influenced by strict labour laws, works council approvals and cultural sensitivities around executive compensation. In Asia, meanwhile, cultural norms and regulatory frameworks discourage compensation structures disconnected from formal employment arrangements, favouring employment agreements or equity incentives instead.

Successful cross-border dealmakers anticipate these concrete legal and operational issues by adopting flexible, jurisdiction-specific transaction structures, with the counsel of advisers possessing truly global data privacy, labour and employment, and executive compensation expertise. Rather than relying on standardised employment terms or rigid contractual commitments, they design adaptable frameworks responsive to practical integration challenges, significantly enhancing their ability to preserve talent value amid geopolitical and regulatory unpredictability.

Innovative financing solutions

As geopolitical uncertainty and regulatory scrutiny reshape the landscape of cross-border transactions, traditional financing mechanisms increasingly fall short. Innovative financing structures, such as green bonds, cross-border crowdfunding and blockchain-based instruments, offer attractive alternatives, yet they inherently introduce distinct legal and regulatory complexities requiring careful navigation.

Green bonds have emerged as favoured financing tools for sustainable infrastructure and renewable energy acquisitions, appealing strongly to ESG-conscious investors. Yet their attractiveness is tempered by potential legal exposure: misalignment between bond criteria and a target’s post-closing operations may lead to covenant breaches, regulatory enforcement or reputational risks tied to greenwashing allegations, particularly heightened by current political sensitivities around ESG.

Cross-border crowdfunding similarly expands access to capital, especially in consumer-oriented industries like FinTech or healthcare. While providing valuable investor diversification, crowdfunding raises significant legal and regulatory considerations. Variations in securities regulations and investor accreditation standards across jurisdictions increase complexity, potentially leading to enforcement actions or operational disruptions – risks amplified amid shifting geopolitical dynamics.

Blockchain-based financing, including tokenised securities and smart-contract arrangements, promises transparency and transactional efficiency. Nonetheless, these innovative structures often lack clear regulatory frameworks, leading to uncertain enforceability across jurisdictions, potential non-compliance risks, and added complexity from data localisation and governance requirements heightened by geopolitical tensions.

In cross-border deals, successfully integrating these innovative approaches demands sophisticated assessments and proactive management of their unique legal and regulatory challenges. Likewise, adaptive valuation approaches, such as scenario-based modelling or probabilistic forecasts, increasingly underpin cross-border deal structures. While traditionally financial in nature, these techniques have direct implications for deal terms, helping legal counsel design flexible earnouts and price-adjustment mechanisms responsive to geopolitical instability, regulatory unpredictability and currency risk.

Conclusion

As 2025 progresses, global M&A remains suspended between recovery and retrenchment. Yet for dealmakers willing to recalibrate their risk management, through innovative legal frameworks, talent-focused strategies and advanced financing, uncertainty becomes a manageable design challenge. A clear trend toward proactive risk mitigation in global M&A suggests that those constructing smarter, more resilient deal architectures are positioning themselves to better navigate uncertainty and close transactions, even as others await a stability that may never fully materialise.

Michael J. Delaney is a partner and James Dorough-Lewis is an associate at Seyfarth Shaw LLP. Mr Delaney can be contacted on +1 (404) 881 5473 or by email: mdelaney@seyfarth.com. Mr Dorough-Lewis can be contacted on +1 (713) 222 6159 or by email: jdoroughlewis@seyfarth.com.

Michael J. Delane and James Dorough-Lewis

Seyfarth Shaw LLP