Regulatory Pressures and Strategic Adaptation in Cross-Border M&A (Part 2)

In Part I, we looked at how rising geopolitical tensions have reshaped the global cross-border M&A landscape, affecting deal volumes, valuations, and capital flows. Part 2 turns to another key force shaping these transactions — the growing weight of regulatory and national security oversight. It also explores how companies are adapting, using new deal structures and risk-management strategies to navigate a more complex and closely monitored environment.

Regulatory and National Security Oversight Intensifies

Many governments are adopting protectionist policies toward M&A in response to perceived national security risks, particularly in sensitive sectors such as technology, energy, and defense. These measures reflect not only efforts to safeguard domestic industries and jobs from foreign takeovers, but also a broader desire by governments to exert greater control over capital flows and the ownership of strategic assets.

As global tensions continue to rise, regulatory oversight of cross-border transactions has intensified. In recent years, the Committee on Foreign Investment in the United States (CFIUS) has introduced increasingly restrictive measures. CFIUS’s primary duties include the authority to block transactions before they occur, unwind completed deals, or impose mitigation agreements to address national security concerns, and they also have the power to implement fines. Prior to 2023, CFIUS issued only two monetary penalties in its history; since then, it has levied six, including its largest enforcement action to date against T-Mobile, highlighting its growing influence over the M&A landscape.

This heightened scrutiny was evident in January, when CFIUS played a major role, alongside former President Biden and the United Steelworkers union, in blocking Nippon Steel’s proposed acquisition of U.S. Steel. Regulators cited concerns over national security, domestic jobs, and infrastructure resilience. Although the deal ultimately proceeded under President Trump, it did so only after significant modifications: U.S. Steel is to remain a standalone U.S. entity headquartered in Pittsburgh, its board must consist of a majority of U.S. citizens, and Nippon Steel committed to substantial new investment in domestic operations while maintaining capacity to meet U.S. market demand. The Nippon Steel transaction illustrates a broader trend – while cross-border deals remain possible, the growing weight of regulatory intervention is making them increasingly complex and difficult to complete for certain industries.

While inbound M&A into the U.S. remains subject to scrutiny but not fully constrained, outbound investment has increasingly encountered significant regulatory barriers and headwinds. Acquirers looking to invest into China in areas such as semiconductors, microelectronics, quantum technologies, and artificial intelligence are now subject to strict regulation by governmental agencies in both the U.S. and China, raising compliance and due diligence costs while dampening transaction volumes between the two countries. The European Union is also weighing similar measures, which would likely further suppress outbound investment from the EU.

Emerging Strategies in Response to Geopolitical Risks

Companies and executives are increasingly adopting strategies to mitigate the impact of geopolitical risks related to cross-border M&A. One prominent approach is nearshoring, which allows firms to reduce exposure to geopolitical and supply chain vulnerabilities. U.S. firms are pursuing nearshore relocations through M&A activity, most notably in Latin America, where investments are considered both safer and more cost-effective.

Companies are also employing additional tools to manage geopolitical risk. Subsidiaries in neutral jurisdictions are increasingly being used as deal vehicles. For example, Chinese firms often leverage entities in Singapore, Ireland, or Mexico to facilitate cross-border acquisitions. By structuring transactions through subsidiaries in neutral jurisdictions, companies operating in conflict-prone regions can mitigate geopolitical scrutiny and regulatory barriers, thereby facilitating cross-border deals. Also, during negotiations, companies are adding Material Adverse Change (MAC) clauses, allowing buyers to exit if major negative events arise. They’re also using contingency payments, like earn-outs linked to future performance, to hedge against operational uncertainties. Some firms are also institutionalizing geopolitical risk management at the leadership level by appointing Chief Geopolitical Officers. These executives are tasked with building intelligence teams and developing long-term strategies to navigate complex political environments. Large publicly traded companies such as Netflix, Nokia, Mitsubishi, and Lazard have established senior geopolitical risk roles, often appointing individuals with deep expertise in international relations, including former ambassadors, trade negotiators, national security advisers, diplomats, and intelligence or foreign affairs specialists.

What does this mean?

Cross-border M&A remains a critical pathway for companies seeking growth, market expansion, and long-term competitiveness. Yet, the evolving global environment requires a modernized approach. Success in the future will not hinge solely on identifying financial and operational synergies; it will more than ever, depend on a company’s ability to navigate regulatory pressures and shifting economic dynamics. To thrive, firms must prioritize strategic clarity, ensuring that each deal aligns with broader corporate objectives and long-term value creation. Equally important is developing regulatory foresight, anticipating potential policy shifts and preparing structures and deal terms that can withstand unexpected challenges. Ultimately, the companies that succeed in the next era of cross-border M&A will be those that remain adaptable, build resilience into their strategies, and view regulatory awareness as a core competency rather than an afterthought. In this changing environment, agility, foresight, and discipline will define the winners and losers.