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January 2017 edition

Legal trends, challenges and opportunities in cross-border transactions

Ralph Baxter, Thomson Reuters

Legal TrendsLast year, Thomson Reuters and FTI Consulting collaborated to produce an in-depth report, entitled Legal Aspects of Cross Border Transactions: Trends, Challenges and Opportunities on the trends, challenges, and opportunities in cross-border transactions, speaking to 249 respondents from law firms and corporate legal departments across the UK, France, Germany, Spain, the U.S., Australia, China, Brazil, and Mexico.

Key findings

Our research found that cross-border work remains increasingly attractive, and is likely to increase in volume. Confidence in cross-border opportunities is high, despite a mixed economic outlook globally. It’s likely that cross-border transactions and advisory will be growing areas of work and will gain in importance for large law firms and in-house counsel in large businesses.

Of the people surveyed:

  • 75% agreed that cross-border transactions are increasingly attractive to businesses globally and will grow
  • 78% agreed that the growth of cross-border transactions is driven by the internationalization of commerce and may continue to rise irrespective of economic cycles
  • 63% agreed that their organization will be involved in an increasing number of cross-border transactions in the future

Legal complexity is limiting transaction volumes

Despite the optimism, cross-border transactions are seen as complex and considered disproportionately challenging and risky by businesses and legal advisors, according to the survey. Lawyers who can advise confidently and demystify these challenges will play a critical leading role in helping their own and their clients’ businesses to grow.

  • 83% of all respondents considered the legal risk associated with cross-border deals to be higher than domestic deals
  • 44% of law firms and 41% of corporates had turned down the opportunity to advise on a cross-border deal due to the level of complexity in the legal and regulatory aspects
  • 40% of law firms outside of the European Union (EU) confirmed that the challenge of not being able to find a suitable local counsel to work with was the most common reason why deals broke down
  • For companies, 38% identified compliance (such as bribery and corruption) as the area of risk most holding them back from cross-border deals, followed by unfamiliarity with local laws and regulation (32%) and complex or unfavorable tax issues (29%)

Deals and drafting are becoming increasingly standardized

There are increasingly widespread and recognized global norms for transaction structuring, drafting language, and governing law. These frequently derive from U.S. and UK legal practices.

For cross-border practitioners, this provides an opportunity to benefit from guidance around market-standard practices, as well as international-standard legal and transactional documentation.

  • 72% of respondents agreed that a common or standard approach to drafting language and terms is increasingly being adopted in cross-border deals. This was particularly notable for the banking and finance sector
  • Around two thirds of respondents said that U.S.- and UK-derived drafting language is often used in cross-border deals, regardless of where the deals are based

Reliable sources of information and insight are hard to find

Lawyers are most likely to get cross-border deals done and provide winning services in this area when they can:

  • Master compliance requirements across multiple jurisdictions
  • Make optimal use of local counsel advice
  • Produce internationally resonant drafting that the parties can engage with easily

Yet reliable sources of insight are difficult to find. Internal and external networks continue to be the most popular sources of information used by practitioners to inform decision making on cross-border transactions, followed by directories of legal providers.

  • 51% of all respondents said that their colleagues and external networks are by far the most popular sources of information used to inform decision making on cross-border transactions, followed by directories of legal providers (39%). Additionally, 37% used online information databases from legal publishers
  • More than half (56%) of respondents had used an online resource tool, and of this group, nearly all (99%) had found it helpful or extremely helpful

Conclusions

With demand for cross-border legal advisory work likely to grow, lawyers that can advise confidently and demystify these challenges will play a critical leading role in helping their own and their clients’ businesses grow.

Deals will be done faster and with less risk, where lawyers can access guidance around market-standard practice and documentation that resonates in the context of international business and is understood, recognizable, and trusted by all parties.

You can download a free copy of Legal Aspects of Cross Border Transactions: Trends, Challenges and Opportunities here.

This article was originally published on the Legal Executive Institute. Subscribe to receive weekly updates.

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