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How an International Business Can Enter the U.S. Market Via M&A

Tapping into the U.S. market can provide a company with many advantages, but the process can be complicated and require professional advice and support.

Q4 2021
Gaining access to the U.S. marketplace can unlock tremendous opportunity and value. A company that successfully enters one of the world’s largest national markets will enjoy a competitive edge, a network of financial support, new technologies and skill sets, increased profits, and reduced tax burdens. Companies are increasingly turning to mergers and acquisitions (M&A) in order to effectively and efficiently tap into this lucrative market. However, establishing a foothold in the United States requires thoughtful consideration and a solid strategy.

Market Entry Via M&A
Acquiring a company that is already operational in the U.S. means the foreign business can begin work almost immediately, as well as benefit from the target company’s established practices, business relationships. and customer base.

The cross-border M&A process can range from very complex to relatively straightforward. Here are some high-level points to keep in mind:
  • M&A transactions in the U.S. typically involve multiple advisors (e.g., investment banker, law firm, accounting firm, etc.);
  • Transactions are usually heavily negotiated and involve a significant amount of diligence and back-and-forth among the various parties;
  • State and federal regulations (including antitrust and industry-specific filings and approvals) may come into play depending on the size/nature of the transaction;
  • The M&A process (from the beginning of diligence to closing) can take several months; and
  • Litigation and post-closing disputes are more common in the U.S. than in most other countries.
Acquiring a company that is already operational in the U.S. means the foreign business can begin work almost immediately. The Acquisition Process
The process begins with the identification of a potential acquisition target, usually through:
  • Direct negotiations between the two entities (often due to an existing relationship);
  • Hiring an investment banker to source and contact potential targets; or
  • Participation in competitive investment banking auctions at which a foreign business can bid on a potential target.
Once the target is confirmed, the foreign business must create a U.S. acquisition vehicle, which is usually a C corporation or limited liability company taxed as a C corporation formed as a subsidiary of the foreign business. This structure limits liability and also limits direct U.S. tax liability and filing requirements for the foreign acquirer and allows flexibility of operation. A foreign business should consult with its tax advisors on how to structure the transaction, as entity choice is primarily driven by tax considerations.

The three most common methods of acquisition are:
  1. Asset Acquisition: the U.S. subsidiary acquires all or some of the assets of the target company;
  2. Stock Acquisition: the U.S. subsidiary acquires all or some of the stock or ownership interests of the target company; or
  3. Statutory merger: the U.S. subsidiary merges (or consolidates) with the target company.
The foreign business must generally draft an acquisition document and go through regulatory approvals, which can involve several hurdles. The foreign business must generally draft an acquisition document (usually a definitive acquisition agreement or merger agreement) and go through regulatory approvals, which can involve several hurdles. With a foreign business, the Committee on Foreign Investment in the U.S. (“CFIUS”) will come into play. CFIUS is an inter-agency committee that conducts national security reviews of “covered transactions.” The review process is triggered by a prospective transaction that could result in a foreign person having control of a U.S. business. Additionally, the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”) provides that the review process can also be triggered by certain passive, or non-controlling, investments by a foreign person in certain U.S. businesses. Examples include new, emerging or foundational technologies, as well as critical infrastructure or access to certain sensitive personal data of U.S. citizens.

The review process can take some time, so an initial assessment is critical to understand whether the transaction may fall with the scope of CFIUS and, if so, the likelihood that CFIUS will delay or flat out prohibit the transaction. Understanding the CFIUS risk will allow the buyer to include provisions in the acquisition documents that will take the CFIUS process into account, such as certain diligence requests or deadline extensions to accommodate voluntary or mandatory CFIUS filings. Throughout the entire M&A process the foreign business must safeguard itself against threats and potential liability by conducting due diligence, maintaining confidentiality, and utilizing appropriate documentation.

Throughout the entire M&A process the foreign business must safeguard itself against threats and potential liability by conducting due diligence, maintaining confidentiality, and utilizing appropriate documentation. The post-closing integration and transition process can be just as critical and time-consuming as the deal itself. The foreign business must have a plan for “Day 1.” Many foreign buyers can be so focused on acquiring the company that they fail to develop a plan for operating the company. A faulty or nonexistent integration plan has been the downfall of many acquisitions.

The acquisition process is complicated and requires support. Foreign businesses may stumble as they attempt to navigate its complexities and potential pitfalls, often due to lack of understanding of the processes, regulations, and/or local customs. It is critical to have the help of a skilled legal team with expertise in company formation, trade compliance and CFIUS, real estate matters, economic development, antitrust and other regulatory matters, tax compliance, and employment/immigration matters.

Foreign companies often additionally seek the help of non-legal professionals who can help with a range of other M&A issues, including identifying targets, making contact, screening, coordinating due diligence, as well as valuation, negotiation, and closing.

Stephanie Few is a partner in Womble Bond Dickinson’s Charleston office and is co-leader of the firm’s Economic Development team. One of the biggest assets she brings to clients is her familiarity with local and state decision-makers throughout the Southeast, and particularly in South Carolina, where Stephanie had previously served as the City of Charleston’s director of Economic Development. Stephanie works closely with domestic and international companies seeking to expand or relocate operations to the Carolinas and the Southeastern United States. Her philosophy is to invest in her clients from the outset in order to build long-term partnerships for the future. Her efforts on behalf of clients have led to the creation of thousands of new jobs and billions of dollars in new investments.
Stephanie has been recognized in Charleston Business magazine’s Legal Elite since 2018, was named to the South Carolina Legal Elite and Women in the Law in 2020 and has been listed in The Best Lawyers in America for Economic Development Law since 2012.
John Scannapieco assists both U.S. and foreign businesses engaged in the global economy. For more than three decades, he has provided strategic guidance and counsel to businesses and individuals regarding their existing global operations or to those contemplating global expansion.
John’s practice is focused on cross-border transactions. He assists domestic and foreign clients in connection with the sale or disposition of assets, as well as the negotiation and drafting of distribution, manufacturing, employment and agency agreements throughout the world, including the United States, Central and South America, Europe. and Asia. He also advises companies that are contemplating pursuing a strategy in China, as well as companies that are currently doing business in China or with Chinese businesses.
In addition, John assists U.S. manufacturing companies with their activities overseas and foreign companies desiring to expand operations to the U.S. He works with U.S.-based healthcare companies in a number of foreign jurisdictions, including China, Europe, Central and South America. and the Caribbean. John has also worked with several companies in connection with the expansion of their global workforce.
Michael Cashin focuses his practice on tax planning and structuring for both publicly and privately held entities. He has advised clients with respect to cross-border tax issues; structuring of mergers, acquisitions and dispositions; securities disclosures, corporate and partnership formation and restructuring; bankruptcy and insolvency; private equity and venture capital transactions; and tax-exempt organization formation and compliance.He also advises clients on issues involving executive compensation planning and IRS/state tax disputes. Caroline Frey is an attorney with deep experience in strategy, client service, and project management and a focus on contract, privacy, and intellectual property matters.
In previous roles, Caroline has helped city governments make evidence-based decisions by applying advanced data analytics to critical community issues such as health care, education, infrastructure, and transportation.
Robert Winborne and his team at U.S. investment bank Brookwood Associates advise international businesses on implementing their U.S. acquisition strategies. He has served on the boards of directors of companies in a variety of industries, including hospitals, engineered composites, water infrastructure services, IoT technology, SaaS software, and outdoor recreation. Robert is graduate of UNC and the Harvard Business School.

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