USA – WASHINGTON, DC Trends and Developments Contributed by: Nicholas S. Johnson, Jonathan S. Deem, Jennifer S. Fahey and Japera A. Parker, Bailey & Glasser, LLP
cal infrastructure or defence supply chains. Timelines are unpredictable, mitigation negotiations can be pro - tracted, and Presidential divestiture orders remain a live risk for the most sensitive transactions. Similar regimes have proliferated globally, with the United Kingdom’s National Security and Investment Act, Ger - many’s Foreign Trade and Payments Act, and Cana - da’s Investment Canada Act all representing increas - ingly active gatekeeping mechanisms. Sector-specific regulation In industries including telecommunications, banking, insurance, healthcare, energy and aviation, transac - tions require approvals from sector-specific regulators that operate on their own timelines and apply substan - tive standards that go well beyond competition analy - sis. State-level regulatory approvals – including state public utility commissions and state banking regula - tors – add further complexity and unpredictability. A single transaction may require a dozen or more regula - tory approvals before it can close. Geopolitical and political risk Beyond purely legal regulatory frameworks, deals increasingly face political headwinds that do not fit neatly into standard regulatory categories. Legisla - tive or executive interventions, national security con - cerns articulated outside formal CFIUS processes, and foreign government actions all represent sources of delay and uncertainty that can fundamentally alter deal economics and timetables. Cumulative effect The cumulative effect of these forces is a regulatory landscape where deal timelines are longer, outcomes are less predictable, and the cost of regulatory failure – in terms of both legal exposure and strategic oppor - tunity cost – is higher than ever. Designing regulatory closing conditions The foundation of any approach to regulatory risk allocation begins with the drafting of regulatory clos - ing conditions. The gap between a loosely drafted “all approvals” condition and a carefully negotiated set of conditions can mean the difference between a party being able to walk from a deal in the face of regulatory adversity and being trapped in a transaction that has become commercially untenable.
Scope of required approvals Deal lawyers must carefully define which regulatory approvals are required as conditions to closing, bal - ancing certainty of identification against the risk of omitting approvals that subsequently emerge as nec - essary. A common approach is to identify required approvals on a schedule negotiated at signing, with appropriate representations and covenants governing the comprehensiveness of that schedule. In complex multi-jurisdictional transactions, this exercise requires early engagement with regulatory counsel across rel - evant jurisdictions to develop a comprehensive filing map. Standard of condition satisfaction For competition approvals, closing conditions must specify not merely that an approval has been obtained, but the terms on which it may be obtained. The critical negotiating point is whether the condition is satisfied by an approval obtained subject to any conditions or remedies, or whether the condition requires that reme - dies not exceed a defined threshold – often referred to as a “material adverse regulatory condition” or a “bur - densome condition” standard. The buyer will typically seek the broadest possible standard – an approval subject to whatever conditions the agencies require. The seller will seek a narrower standard, either requir - ing clean clearance or permitting the buyer to termi - nate only if the required remedies exceed a defined threshold (such as divestiture of a specific business unit or assets representing a specified percentage of revenues). Burdensome condition definitions Defining what constitutes a “burdensome condition” sufficient to trigger a buyer termination right requires both legal sophistication and commercial judgement. Broadly written carve-outs that permit buyer termina - tion for any behavioural remedy may give buyers easy exits from transactions they no longer find attractive for unrelated commercial reasons. Narrowly written carve-outs limited to structural divestitures of specific businesses may leave sellers exposed to buyers who negotiate away most of the transaction’s commercial rationale in regulatory settlements. The appropriate balance depends on the transaction’s specific regula - tory risk profile, the commercial leverage of the parties
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