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Moving your Business forward with a Cross-Border Merger

March 2017 - Corporate & Commercial . Legal Developments by Giambrone Law Studio Legale Internationale.

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During the course of 2016 there were approximately 144 mergers and acquisitions (M&As) of UK businesses by foreign companies and around 104 mergers and acquisitions by UK companies of foreign businesses.  A merger or acquisition frequently provides the dominant partner with increased traction and market share in its industry sector.  It is a successful way for a business to expand its offering to its clients, break into an associate market or simply weaken the competition by the instant expansion.

Any business aiming to expand into the global arena would do well to look at a cross-border merger as its main strategy.  A cross-border merger may be a little more complicated but can bring strategic benefits to a business in one transaction that would take would take some considerable time to develop organically.

For limited liability companies based within the EU, Directive 56/2005 signposts the steps to a successful  M&A, providing a regulatory framework outlining the phases to be taken to merger.  The first crucial steps that the Directive defines are as follows:

  • Draft a complete merger plan including the terms of the merger
    • A report on the management of the companies involved
    • A third party report on the consequences of the merger and the impact on the organisations involved
    • Approval of the terms of the merger by way of a general meeting with both parties to the merger

With regard to the employee participation rights, it is generally held that the national law of the country in which the new entity is based applies.

There is a strict supervisory system to protect all parties involved in a cross-border merger once the initial documents have been drafted and each party must ensure that they conduct a thorough due diligences exercise before embarking on the project.  Clearly there are far more considerations in a cross-border merger than in a home merger, particularly if there are some employees that are to be re-located to a different country.   It goes without saying that a considerable amount of research into the market, the rivals and costs involved should be undertaken, which must be considered as money well spent to ensure the success of your cross-border venture.

There is no reason that a cross-border M&A should not go smoothly provided the parties are assisted by meticulous professional advisors with an astute understanding of the commercial impact.