How to structure an international M&A deal

Mainstream

Structuring an international M&A deal is not just about signing a Share Purchase Agreement (SPA). It's a capital protection architecture.

The main goal of the transaction is not closing, but the possibility of a successful exit from the asset in 5-7 years.

Effective structuring begins with three checks:

1. Does the structure provide absolute legal protection for investments?
2. Is it tax-effective at the entrance, during the holding period and at the exit?
3. Is it possible to implement an exit strategy (sale to a strategist, PE fund or IPO) without hindrance?

If these three issues are not resolved at the start, the investor risks not what will buy expensively, but that he will not be able to exit the asset without significant losses.

When complex structuring is required

An international M&A framework is required if:

• The transaction is complicated by multi-jurisdictionality (the seller, the buyer and the asset are located in different countries).
• acquires a stake in a European company with a nominal value of more than €5 million;
• The investor attracts co-investors or syndicated financing;
• The asset is located in the regulated industry (FinTech, DeepTech, AI, Defense);
• Pre-IPO restructuring is planned;
• there is a sanction or compliance risk;
• Exit strategy involves selling to a global strategist or a U.S. fund.
• Multi-level structure of holding companies (HoldCo / Top Co / Bid Co) is used;
• It is necessary to structure the relationship of founders and investors (management options, vesting, leaver provisions).

The mistake most investors make

Many people start with the question:

In which jurisdiction is the income tax lower?

That's the wrong first question.

The right question is:

What transaction architecture guarantees the safety of the asset, management control and the possibility of unimpeded capital withdrawal with an increase in value?

Sometimes the best choice is a German GmbH with SPV in Cyprus. Sometimes it is a Dutch BV with a cooperative structure. Sometimes, direct access to Luxembourg via Soparfi. Sometimes, transfer of tax residency before the transaction.

Structuring M&A requires not tax minimization, but a balance of protection, control, and liquidity.

Step 1. Determine the commercial purpose and “philosophy” of the transaction

Before drawing a structure, it is necessary to fix business agreements:

• Who is the Founder vs. Investor?
• Is it a 100% share purchase or a majority/minority stake?
• What is the investment horizon (3, 5 or 10 years)?
• What assets are key (IP, licenses, team, contracts)?
• Are there additional funding rounds planned (Series B, C)?
• Is there a call option or a forced sale (drag-along)?

Without answers to these questions, any legal form would be a blank shell.

Step 2. Check the asset on Due Diligence

The structure of the transaction directly depends on the state of the asset. Legal, Financial and Tax Due Diligence identifies the triggers that critically impact architecture.

• presence of “sleeping” minority shareholders or toxic options;
• Unclosed tax periods and risks of additional charges;
• lack of proper IP transfer (the rights to development are issued to the founder, not to the company);
• risks of automatic asset locking (sanctions, export controls);
• Intragroup loans (thin capitalization risks)

The structure of the transaction should hedge the risks identified. If the risk is high, a portion of the amount is diverted to escrow, and the holding company is cut off from the problematic operating history through Warranty & Indemnity (W&I) insurance.

Step 3. Select the jurisdiction of the holding

It's the cornerstone. The choice between Luxembourg, the Netherlands, Cyprus, Malta or Ireland should not be based on the nominal tax rate alone.

Selection criteria:

• A double taxation agreement (DTT) with the country of the asset;
• The European Parliamentary Subsidiary Directive, Interest and Royalties Directive
• The ratio of tax authorities to conduit and real presence (substance requirements);
• The possibility of obtaining a preliminary tax ruling;
• ease of opening a bank account and lack of currency control;
• reputation in the eyes of institutional investors (German and Scandinavian funds are reluctant to enter aggressive offshore structures).

In European practice, the de facto standard for structuring Private Equity transactions remains a combination of Luxembourg Soparfi (Soparfi - holding company) or Dutch BV.

Step 4. Create a deal architecture

The standard architecture of an international M&A transaction includes several levels:

1. Investor Level (LP/GP): Funds, private investors, family offices.
2. Top-level Holding (HoldCo/Top Co): A jurisdiction with maximum shareholder protection (often Luxembourg or the Netherlands). Shareholder agreements are recorded here.
3. Intermediate holding (Bid Co/Mid Co): A company that raises debt financing and directly owns the target’s shares.
4. Operating company (Target/OpCo): A profit-generating asset.

This shelf allows you to isolate the debt load in Bid Co, distribute dividends upwards with minimal tax and centralize IP management in a special unit (IP Box mode).

Step 5. Identify an acquisition mechanism

There are two ways: Share Deal or Asset Deal (Business)

The seller usually insists on Share Deal. The buyer may prefer Asset Deal if he wants to:

• leave toxic obligations on the seller;
• select specific assets, eliminating unnecessary contracts
• Get a “step-up” on depreciation for tax purposes.

However, Asset Deal in Europe is almost always more difficult due to the need to re-register contracts, licenses and employment agreements. The choice of mechanism determines the structure of taxes and the system of assurances of circumstances (Reps & Warranties).

Step 6. Set up a protection and control system

Investment in Europe is not just about mathematics, it is also about corporate law. The structure of the transaction should include:

• Shareholders’ Agreement with a detailed description of reserved matters (actions requiring investor consent): Change of business plan, budget, asset transactions more than €100k, appointment of CEO;
• The mechanism of blurring (Anti-dilution): How the investor’s share is protected in lower rounds;
• Liquidity: The right of preferential purchase (ROFR), the right to join the sale (Tag-along), the right of compulsory sale of minority shareholders (Drag-along);
• Good/Bad Leaver: What happens to the founder’s shares when leaving (vesting and discounted return sale);
• Liquidation Preference: priority of distribution of funds at the exit (first the investor returns the body of investments with a premium, then the balance).

A good structure makes daily micromanagement unnecessary. It's programming the behavior of the parties.

Step 7. Assessing the fiscal burden

A common myth: “Income tax in the EU is 15%.” In reality, without proper structuring, you can get 30-40% tax at the exit.

Tax KPIs of the correct structure:

• Incoming cash flow: No withholding tax on interest on loans and royalties (WHT 0%);
• Outgoing dividends: Application of the rules of exemption from tax at source;
• Exit: Application of capital gains benefit (Participation Exemption) - capital gains are taxed at zero rate if conditions are met (the amount of investment, the share, the term of ownership). For example, in the Netherlands – deelnemingsvrijstelling, in Luxembourg – participation exemption regime.
• Transfer of losses: Possibility to consolidate the tax base.

Tax authorities, especially in Germany and Austria, are looking at artificial structures without substance. The office, resident director and actual decision-making in the country of incorporation of the holding are strictly mandatory.

Step 8. Structure funding

Equity or debt? In international M&A, the classic is the ratio of 30/70.

In terms of structure:

• Equity: The shares are converted into capital. It is important to observe the rules of thin capitalization, so that interest does not reclassify into hidden dividends.
• Debt: Credit from shareholders or external banks. Interest reduces OpCo’s tax base, but must be in line with the market’s standard (Transfer Pricing, arm’s length principle).
• Mezzanine: Convertible loans or preferred shares. It balances the debt yield and upside equity.

Banks require the provision of: pledge of shares, guarantees of holdings. This limits subsequent changes in the group structure.

Step 9. Develop an exit mechanism (Exit)

The structure must be built from the end. Model scenarios:

1. Selling to a strategic investor. High price, but long process of approval (antimonopoly authorities, FDI screening). The structure must be “clean” to be tested.
2. Selling to a Financial Investor (Secondary Buyout) The foundation sells to the foundation. The usual jurisdiction of the holding (Luxembourg/Netherlands) is important so that the new investor does not waste time on restructuring.
3. IPO. The hardest way. The structure must be ready for conversion to a public company (N.V., S.A.), audited IFRS reporting and disclosure of ultimate beneficiaries.

Step 10. Implement a dispute resolution mechanism

Deadlock resolution. If the partners stop agreeing, the company should not die.

The corporate contract shall include:

• Russian Roulette (Texas Shoot-Out): One partner offers a price for a share, the second is obliged either to sell his share at this price or to buy the share of the initiator.
• Dutch auction: price-setting mechanism.
• Arbitration clause: Disputes from a corporate contract should be submitted to arbitration (ICC, LCIA, DIS, VIAC). Public courts are not well suited to confidential disputes over the value of a business.

Selection of instrument: W&I Insurance as a Structure Element

In the current M&A market in Germany and the DACH region, W&I insurance has become the standard of hygiene even for medium-sized transactions (EV > €10 million). This allows the seller to go "to zero" without looking back, and the buyer does not depend on the financial condition of the seller.

Common Mistakes in M&A Structure

1. The structure is drawn, but not agreed with the bank. The bank will not open an account with a holding company without substance. Risk: The structure is there, but the account is not.
2. Ignoring the CFC (Controlled Foreign Company) Rules The profit of a passive holding company can be automatically attributed to the beneficiary-natural person in his country of residence, bypassing the structure.
3. Use of nominal service. The mass director will not confirm substance. Risk: tax-adjustment.
4. Direct ownership of a Russian/Belarusian company. Under sanctions, the structure can be blocked. Distance is required.
5. The lack of plan B. If the strategist doesn't come, is the structure able to service the debt? If so, it's sustainable.

Checklist of the architect of the deal

Before signing Term Sheet, you must answer 15 questions:

1. Who is the ultimate beneficiary and is it not subject to restrictions?
2. Where will the decision-making center be?
3. Which jurisdiction would give the maximum legal protection in the event of a conflict?
4. Is the structure participation-exemption tested?
5. Is the problem of thin cap solved?
6. Are IP assets (license agreements, IP Box) protected?
7. Are there any antitrust risks (FDI clearance)?
8. How are management options structured to prevent immediate tax from working?
9. Does the structure allow to attract borrowed financing?
10. Does the Deadlock mechanism work?
11. Is there a drag-along for 100% package sales?
12. Are there any risks of reclassification of loans into capital?
13. Are assets protected from non-recourse creditors?
14. Is it possible to re-domicile (transfer) a holding company without a tax blow?
15. What is the maximum net profit (net proceeds)?

What a Strong Structuring Strategy Looks Like

A strong strategy is based not on a scheme, but on five levels of stability.

1. Asset Protection: Isolation of operational risk from the investor’s capital.
2. Tax Certainty: Achieving advance ruling, a clear fiscal position without aggressive gray areas.
3. Management Incentive: Motivation of founders through “sweet equity” without immediate tax consequences.
4. Enforceability: Guarantee that in the event of a conflict, the arbitral award or option will be exercised.
5. Exit Readiness: The structure is initially designed so that the asset can be “clicked” and sold without surgical restructuring three months before the transaction.

FAQ

Where is the best place to register an M&A in Europe?

The most common are Luxembourg (flexible company rules, Soparfi regime, lack of WHT directive) and the Netherlands (developed network of agreements, participation exemption, comfortable conditions for an IPO). The choice depends on the country of the target and the investor’s residence.

How to protect a minority investor in the structure?

Through a detailed list of reserved matters in the Shareholders’ Agreement, veto power over business plan changes, key asset sales and additional issuance, as well as through the tag-along rights mechanism and tough anti-dilution provisions.

What is a “pre-pack restructuring” before a transaction?

This is the allocation of non-core or toxic assets into a separate structure before the investor enters. For example, real estate is separated from the operating business, the old “history” remains with the seller.

Do I need to use W&I insurance?

In private equity transactions with the seller’s complete exit, W&I Insurance has become a necessary element, replacing the need to freeze the seller’s money in escrow accounts.

Can I use one company for multiple transactions?

Nope. The Golden Rule of Structuring in Europe: One target, one holding. Cross-collateralization and asset mixing reduce liquidity and create cross-default risks.

Related services

• Cross-Border M&A, Private Equity & Venture Capital
• International Corporate Structuring & Holding Governance
• Tax-Efficient Investment Platforms & Exit Planning
• Shareholders' Agreements & Joint Ventures
• FDI Screening, Sanctions & International Regulatory Compliance
• W&I Insurance & Transaction Risk Advisory

Related material

• Term Sheet vs SPA: What to fix at the start
• Features of M&A transactions in Germany
• How to Protect Investors’ Rights at the Leaving Business Stage
• Tax aspects of international holding structures
• Private Equity in Europe: Legal Risk Market Review
• Due Diligence of Intellectual Property in the IT Sector

Conclusion

Structuring an international M&A deal is not about drawing squares with jurisdictions, but about building a robust architecture for growth and going out of business.

A sustainable structure is built on a balance of corporate control, fiscal efficiency and liquidity strategy.

In international transactions, the winner is not the one who bought cheaper, but the one who at the entrance stage created a legal shell that allows you to come out quickly, expensively and without the risk of post-tax claims.