Structuring international M&A transactions

Structuring International M&A Transactions Practical Guide for Investors and Business Owners

Mainstream

Structuring an international M&A deal is not just about signing a share purchase agreement. It is an architecture of ownership, protection and exit from investment.

The main question is not how to buy a business. The main question is how to make sure that the acquired asset remains under control, brings the planned return and can be sold or transferred exactly then and on the terms that are beneficial to the investor.

Effective structuring begins with three checks:

What ownership structure will protect investments and limit liability.In which jurisdiction is it more profitable to place holding and operating companies.How will future disputes be resolved and how to ensure a smooth exit.

If these three issues are not resolved before the signing of Term Sheet, the investor risks not only money, but also the business itself in another jurisdiction.

When there is a need to structure an international M&A transaction

Structuring is necessary if:

• company acquired abroad
• Selling the business to a foreign buyer
• Joint Venture with a foreign partner
• Reorganization of the international group of companies
• a merger or acquisition with a cross-border element
• Foreign investors are attracted to local business
• The holding structure includes assets in several countries
• Non-core assets should be allocated to a separate jurisdiction.
• It is supposed to be protected from sanctions, currency or political risks.
• Preparation of the business for a future sale to a strategic investor or IPO

Key challenge: The international M&A deal is almost never about simply buying 100% of a company’s shares. It is almost always a complex corporate, tax, currency and jurisdictional construct.

The mistake that many participants in the transaction make

Many investors and owners start with the following question:

What price can we get or pay?

That's the wrong first question.

The right question is:

What deal structure will protect my interests as much as possible, ensure the management of the asset and give an opportunity to withdraw from the investment without pain?

Sometimes the best result is buying shares, sometimes buying assets. Sometimes – the creation of a special project company for one deal. Sometimes, the introduction of assets into a joint venture with clearly defined mechanisms of deadlock resolution. Sometimes, it is a parallel structuring in several jurisdictions for the purpose of future restructuring or sale.

International M&A does not require a corporate response to an offer, but an investment strategy that is enshrined in a legal framework.

Step 1. Determine the commercial purpose and strategy of the transaction

Structure is always secondary to the goal. Before choosing jurisdiction and instruments, you need to fix:

• acquisition of 100% control or minority participation
• strategic or financial investor
• planned investment horizon (3-5 years, 7-10 years)
• rate of return
• risk-taking
• need for operational control
• Integration or autonomous work plans
• Exit strategy (selling to strategist, private investor, IPO)
• restrictions on the sector (regulatory, sanction, licensing)

Without these answers, the structure will be blindly selected, and any tax or corporate decision may conflict with the long-term goal.

Step 2. Select jurisdiction and corporate structure

The choice of jurisdiction is not a search for a tax haven, but a comprehensive solution that affects:

• tax burden (withholding tax, capital gains tax, SIDN)
• the possibility of applying incentives and directives (e.g. in the EU)
• Corporate governance and flexibility
• Protection of minority investors
• Possibility of repatriation of profits
• BITs (Bilateral Investment Treaties) between jurisdictions
• Stability of the legal system and judicial practice
• confidentiality of beneficial ownership
• sanctions risks

Frequently used:

• Holding company in neutral, stable jurisdiction (Netherlands, Luxembourg, Cyprus, Switzerland, UAE, DIFC)
• Intermediate holdings to optimize incoming and outgoing flows
• Operating companies in the country of business
• Project SPVs that isolate the risks of a particular asset
• Joint Ventures – companies registered in jurisdictions with well-developed corporate law and predictable dispute resolution

Mistakes at this stage lead to tax inefficiency, double taxation, or the inability to effectively go out of business.

Step 3. Conducting a comprehensive inspection (Due Diligence)

Structuring without Due Diligence is building on an unknown foundation. The verification shall cover:

• Corporate structure and ownership history
• financial and tax reporting
• Substantial commercial contracts
• intellectual property
• employment
• Regulatory Permits and Licenses
• litigation and claims
• environmental
• sanctions and compliance risks
• presence of encumbrances, pledges, security obligations

Due Diligence’s findings often force a complete re-examination of the structure of the transaction: Instead of buying shares - the acquisition of assets, instead of one target company - several legal entities, instead of a one-time settlement - earn-out or deferred payments.

Step 4. Determine the mechanism of the transaction: stock-purchase

This is one of the cornerstones of structuring choices.

Share deal: The buyer acquires the shares/shares of the target company. All assets, liabilities, contracts and potential risks remain within the company. It is usually easier in terms of business transition, but requires deeper guarantees and reimbursements.

Asset deal: The buyer acquires individual assets and contracts. It allows you to “leave behind” unwanted obligations, but it is more difficult to implement: You need to transfer every asset, contract, license.

Comparative table

The choice depends on the objectives, the results of Due Diligence and the tax implications in the specific jurisdictions.

Step 5. Agree on price and payment mechanism

The price is not just a fixed amount. In international M&A transactions, the payment structure often includes:

• fixture
• postponement
• A pay-out mechanism linked to future financial performance
• condition for price adjustment after closing (completion accounts or locked box)
• depositing part of funds in an escrow account
• ensuring the fulfillment of obligations (bank guarantee, surety)

This structure solves several tasks simultaneously: manages risks, motivates the seller to remain in business during the transition period and creates a financial reserve to cover possible claims.

Step 6. Develop a system of guarantees, assurances and compensation of losses (W&I)

In international M&A warranties and indemnities, it is a key mechanism for protecting the buyer. It is necessary to structure carefully:

• list of business assurances (finance, contracts, personnel, taxes, disputes, compliance)
• warranty
• Limits and Limits of Liability (Basset, Cap)
• claim-making
• Tax Indemnities with Extended Term
• Covering specific risks identified in due diligence
• Insurance (Warranty & Indemnity Insurance)

The W&I structure has a direct impact on the negotiating position: The seller seeks to limit liability, the buyer - to retain the possibility of recovery. Balance is achieved through precise calibration of limits and mechanisms.

Step 7. Tax structuring of the transaction

The tax aspect permeates the whole transaction. Work needs to be done:

• withholding tax on dividends, interest, royalties
• Application of Double Taxation Agreements
• qualification of income from the sale of shares (capital gain) and its taxation
• Possibility of using intermediate holdings for reinvestment
• tax-loss-bearance
• tax consequences of post-closure (integration, transfer of assets, mergers)
• Risk of requalification of the structure by tax authorities
• The rules of thin capitalization and controlled foreign companies (CFC)

A well-structured transaction does not evade taxes, but uses available legal tools to avoid double taxation and reduce inefficient fiscal burdens.

Step 8. Harmonize dispute resolution mechanisms and applicable law

International M&A is inevitably attended by parties from different jurisdictions. Therefore, shareholder agreements, SPAs and Joint Venture Agreements include:

• applicable law (often English, Swiss or DIFC)
• International arbitration with express reservation (ICC, LCIA, SIAC, DIAC, etc.)
• arbitration
• language
• Deadlock resolution mechanisms for joint ventures
• put and call options, tag-along and drag-along terms
• Buy-out procedure in case of deadlock
• Mechanisms for Accelerated Resolution of Corporate Conflicts

A competent reservation allows not only to win a hypothetical dispute, but to quickly restore business management or forcibly implement the exit of one of the partners.

Step 9. Settlement of post-closure and integration issues

The transaction structure is not completed on the closing day. It is necessary to determine in advance:

• transitional period with the seller
• Conditions for the retention of key personnel
• Transfer of contracts and relationships with suppliers
• IP and domain re-registration
• Opening of bank accounts to the new structure
• conditions for further funding
• preparation of consolidated reporting
• mechanisms of control of the buyer of the operating activities

A pre-designed integration plan reduces the risk of losing business value in the first months after the acquisition.

Step 10. Exit planning

The exit is part of the deal structure from day one. When entering the investment, you must lay:

• Terms of sale of shares (drag-along, tag-along, right of first refusal)
• fair value determination mechanisms
• IPO-friendly corporate structure
• the possibility of selling not the entire business, but a holding company
• Exit tax consequences for the ultimate beneficiary
• Preparing the business due diligence by the future buyer
• exit through redomiciliation or fusion, if it is beneficial

Without an exit strategy, even a profitable business can turn out to be a “golden cage” from which it is impossible to leave without significant losses.

How to strengthen your position before the start of the transaction

The best M&A deal doesn’t start with getting an offer, but with proactive business preparation.

Before selling or attracting an investor, it is advisable to:

• clean up the corporate structure
• Clearing the balance sheet of non-core assets
• settle intragroup loans
• Check the legal purity of IP
• Pre-sales Due Diligence (Vendor Due Diligence)
• Eliminate identified tax risks
• standardize
• Check for all licenses and permits
• Preparation of a financial model and justification of cost

Prepared business sells faster, with less discount and fewer precipitating conditions.

Common Mistakes in Structured M&A Transactions

1. The choice of jurisdiction solely at the tax rate is not considered legal protection, enforcement of shareholder agreements and judicial practice can be expensive.
2. Purchasing without checking or with formal verification almost guarantees unpleasant surprises.
3. General warranties without reference to the results of Due Diligence do not protect the buyer to the required extent.
4. The lack of a partnership exit structure without deadlock resolution and exit mechanisms often ends in costly corporate wars.
5. Ignoring sanctions and compliance risks Even indirect entry into the sanctions chain can paralyze the settlements and ownership of the asset.
6. An international entity can create tax liabilities where the investor did not expect them.
7. Losing key customers and employees in the first months after the deal destroys value faster than any legal miscalculation.
8. A structure that works for a competitor may be completely ineffective in another group, with other assets and goals.

Investor/buyer checklist

Before signing the Term Sheet or Share Purchase Agreement, you must answer 15 questions:

What is the commercial purpose and horizon of the investment?What is the optimal jurisdiction for the holding and why?Has a full-fledged financial, tax and legal Due Diligence been carried out?What is the recommended structure of the transaction: What are the key risks identified and how are they covered?Tax consequences of the transaction for the buyer and seller are modeled?The payment mechanism (fix, earn-out, escrow) corresponds to the risk profile?Guarantees and indemnities are formulated specifically for this transaction?What is the arbitration clause and applicable law?Are there sanctions, currency or sectoral restrictions?Are the integration phase and transition period worked out?Are key employees fixed?Are there a clear mechanism for exiting the investment and determining the price?What is the arbitration clause and the applicable law?Are the applicable law?Are we can provide for future sale? What happens in the event of a conflict of partners or a sharp deterioration of the market?

FAQ

What is more important when structuring: Taxation or legal protection: Both are critical. A tax-ideal structure that does not protect investments and enforce shareholder rights creates unnecessary risk. The optimal solution always balances taxes, corporate governance, dispute resolution, and exit strategy.

Can you use the same structure for different transactions? Each structure should be tailored to specific assets, investor objectives, jurisdictions and risk appetite. Even within the same group, different solutions can be applied for different projects.

This is a reason to either revise the structure (for example, to move from buying shares to buying assets), adjust the price and strengthen indemnities, or abandon the transaction. It is important that the structure reflects the real level of risk.

In cross-border transactions, international arbitration is usually preferred over national courts, as arbitral awards are easier to recognize and enforce in different jurisdictions. In addition, you can choose a neutral place of arbitration, applicable law and specialized arbitrators.

When should you think about structuring an exit?The same moment when the decision to enter an investment is made. Exit mechanisms (drag-along, tag-along, options, calculation of value) must be part of the initial shareholder agreement.

Related services

• International M&A, Joint Ventures and Strategic Investments
• Cross-border corporate structuring and restructuring
• International tax planning and structuring
• International Arbitration, Commercial Disputes and Cross-Border Litigation
• Commercial contracts and transaction support
• Sanctions, export controls and international compliance
• Corporate and Regulatory Investigations, Business Integrity

Related material

• How to choose a jurisdiction for an international holding company
• Share deal vs
• Asset deal: What to choose in cross-border M&A Check of a foreign counterparty before the transaction Shareholder agreement in the international Joint Venture: keynote
• Exit strategies for international investors
• Warranties and Indemnities in M&A deals: practical guide
• Tax Aspects of Cross-Border M&A Transactions International Arbitration in Corporate Disputes
• Due Diligence when Buying a Business Abroad

Conclusion

Structuring international M&A deals is not a legal formality, but the foundation on which investment protection, business management and future profitability rest.

A successful structure is not born out of a template, but from a detailed analysis of goals, risks, jurisdictions, and exit strategies. It starts with the right questions at the start, is based on a full-fledged check and is built so that even in the worst-case scenario, the investor retains control, cost and the possibility of a civilized exit.

In international M&A, the winner is not the one who signs the deal on attractive terms. The winner is the one who has built the ability to survive conflict, market shock and change of priorities into the structure from day one – and yet remain the owner of a valuable asset.