2018 is on pace to be a year with one of the highest total values of blocked or cancelled M&A deals in the past two decades. While this data, which was compiled by Thomson Reuters and reported by the Financial Times, is based on public M&A transactions, the reasons and insights behind it can nonetheless be applied to the private M&A context.
One of the main ways that deals have been blocked is through foreign investment laws. These laws take different forms in different countries but examples include the Investment Canada Act or the Committee on Foreign Investment in the United States. Deals in industries that are politically sensitive or which have antitrust or national security concerns have also come under increased scrutiny under these types of review processes recently as have deals involving utilities, large intellectual property portfolios or heavily regulated companies.
The nationality of the purchaser can also be a factor in weighing whether a deal will come under enhanced government analysis. For instance, the Competition Act and the Investment Canada Act have different review thresholds depending on the jurisdiction of the purchaser and whether the purchaser is a state-owned enterprise. Other foreign investment regimes outside of Canada have similar systems in place.
For both purchasers and targets, having an understanding of how these risks can affect the potential execution of a transaction can be beneficial in terms of setting expectations and timelines. In most cases, the earlier any of these potential issues are flagged in the process, the better the chance that any applicable review process will not derail or delay a transaction. In any case, the key takeaway is to, at the very least, keep these issues and mind and determine if they might play a role in a transaction at an early stage.
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