Tightening regulations create more deal uncertainty

Mergers and acquisitions (M&A) in Western Europe are seeing a resurgence, but a challenging regulatory landscape is making deal completion more difficult.

According to Mergermarket data, the year-to-date deal volumes reached 232.9 billion euros across 3,625 deals, significantly up from 145.9 billion euros over 4,210 transactions in the same period last year.

Despite a positive market sentiment and anticipation of an interest rate cut by the European Central Bank on June 6, legal complexities are causing delays. Wars in Ukraine and the Middle East, along with the US-China trade tensions, add to the uncertainties.

“Legal uncertainty can deter investors, especially when multiple jurisdictions are involved”, noted Karl Hepp de Sevelinges, Managing Partner at Jeantet in Paris. High-profile deals like Daniel Křetínský’s GBP 3.5 billion bid for Royal Mail parent International Distributions Services (IDS) face scrutiny under the UK’s National Security and Investment Act (NSIA) and potential political interference.

Within the EU, Foreign Direct Investment (FDI) reviews are common but vary across member states. For instance, Italy’s unexpected use of ‘Golden Power’ legislation has surprised M&A experts. Vincent Mussche of Liederkerke in Brussels highlighted that non-EU investor deals in strategic sectors like healthcare and energy require additional diligence.

The introduction of the EU Foreign Subsidies Regulation (FSR) adds another layer of complexity. Transactions involving significant foreign financial contributions now need clearance from the European Commission.

Law firms are essential in guiding clients through these regulatory mazes. Expertise in financing, restructuring, and litigation remains critical. The new EU rules on environmental, social, and governance (ESG) due diligence are also expected to increase legal workload as investors need to understand supply chains more deeply.

As the market recovers, lawyers must continue to adapt to the evolving regulatory environment to ensure successful deal execution.