Cross-Border Transactions - expanding without borders

Cross-Border Transactions:

Acquiring a company in another country is the fastest way to gain, in one move, the market share, technology or brand that would otherwise take years to build. It is also the most expensive way to discover, a year after closing, that the agreed price was the easy part.

A cross-border transaction is one in which the acquirer and the target are subject to different legal, tax and regulatory jurisdictions. In the mid-market, it has long ceased to be the exclusive preserve of large multinationals and has become a core lever of competitiveness. It opens doors that organic growth keeps shut for decades: immediate access to a commercial network, a client portfolio, installed production capacity or consolidated technical know-how.

The opportunity is usually real; the problem lies in execution. Most of the value is won or lost at two moments almost nobody scrutinises closely enough: how the acquisition is structured before signing, and how the company is integrated after closing.

A single case captures the pattern. AgroExporta is a Valencia-based mid-sized fresh-produce company with €35m in revenue that sells into Central Europe through local intermediaries, which erodes its margins and its pricing power. Faced with growing demand for organic produce in the Dutch and Scandinavian markets, it weighs two routes into the Netherlands. Organic growth — its own subsidiary, licences, cold-storage warehouses, a native sales team — implies a four-to-five-year ramp-up, heavy capital outlay and negative cash flow in the early years. The inorganic alternative is to buy 100% of a Dutch distributor with a logistics platform in Rotterdam, a refrigerated fleet and live contracts with the leading Northern European retail chains.

The contrast is the full map of a cross-border deal: immediate market entry versus five years; positive cash flow from the first consolidated year versus three years in the red; low commercial risk — an active client base and contracts — versus entering as an unknown. AgroExporta absorbed the channel at a stroke and, in year two, used Rotterdam as a hub to expand into Germany and Scandinavia. But that same acquisition brought a balance sheet under different accounting rules, a distinct tax framework, a team with another culture and an authorisation regime capable of delaying closing by six months.

Why cross-border matters more and more in the Spanish mid-market

Market data debunk the notion that buying abroad is a big-corporation affair. In 2025, more than a third of company sale and purchase transactions in the Spanish middle market involved at least one foreign party. Spain has consistently ranked among Europe's top four M&A markets by deal volume, behind only the United Kingdom, Germany and France — which are, not by chance, the main countries of origin of the buyers arriving.

For the owner of a Valencia, Alicante or Murcia family business, the reading is twofold. If you are thinking of selling, the most ambitious buyer is likely to be foreign: understanding how a foreign acquirer reasons becomes part of the preparation. If you are thinking of growing, buying abroad is no longer a multinational's luxury but a lever within reach. The question is not whether an SME can afford an international acquisition, but whether it is structuring the one in front of it well.

Four ways to structure the deal (and why it matters)

Before discussing price, it is worth deciding the legal architecture of the purchase, because it determines the risk assumed and the taxation of everything else. Four structures dominate the international mid-market:

• Share deal. The buyer acquires the share capital of the foreign company and, with it, all of its historical assets and liabilities, including past contingencies. It is the simplest to execute and the one that demands the most from due diligence.
• Asset deal. The buyer selectively acquires assets and assumes only the delimited liabilities of a self-contained business line. It mitigates the risk of hidden contingencies, at the cost of greater execution complexity and, at times, less favourable tax treatment.
• Cross-border merger. Direct legal integration: one company absorbs another domiciled in a different State, or a new entity is created that absorbs the previous ones. It is the deepest route and the most heavily regulated.
• Strategic alliance or joint venture. A shared entity between partners of different nationalities to exploit a channel, a capability or a market, without a full acquisition. Useful when the risk or capital of an outright purchase does not pay off.

The choice is not neutral: a share deal transfers the seller's entire history; an asset deal leaves much of that risk out. And when the logic is to buy several smaller companies across countries to scale the group, this is a buy-and-build strategy, where each add-on (bolt-on) acquisition seeks, beyond growth, to expand the group's valuation multiple ahead of a future sale.

What drives a cross-border deal, and when it makes sense

An international acquisition does not justify itself; it is justified by what it lets you do that organic growth cannot, or not in time. The real drivers tend to be:

• Market access without building it. You buy the client relationship, not just the product, and drastically shorten time-to-market.
• Synergies and economies of scale. Consolidated procurement, optimised installed capacity and unified central functions reduce unit cost.
• Capabilities and intellectual property. Patents, licences, proprietary developments and specialised talent already consolidated — and a competitor removed from the board.
• Geographic risk diversification. Spreading revenue across jurisdictions cushions local cycles and regulation.

The filter that separates a good acquisition from an inherited problem is always the same: the deal must answer a pre-existing strategy, not create one. When that fit is missing and the purchase is made "because the opportunity came up", the price almost always ends up excessive. Defining that fit is the work of a serious strategic plan; the international acquisition should be a chapter of that plan, delivered through our financial and strategic advisory, not a last-minute detour.

The first filter almost nobody anticipates: regulation and foreign investment

Here lies the most expensive mistake of the mid-market debuting in cross-border: discovering an authorisation regime once the deal is already signed. Two frameworks operate in parallel.

Foreign direct investment (FDI) screening

In Spain, Law 19/2003 applies, developed by Royal Decree 571/2023 (in force since September 2023) and framed within Regulation (EU) 2019/452. Its central mechanism — article 7 bis — subjects to prior authorisation by the Council of Ministers investments in which an investor from outside the EU and EFTA acquires 10% or more of the share capital, or control, of a Spanish company operating in a strategic sector: critical infrastructure (energy, transport, water, health, communications, data), critical and dual-use technologies (AI, robotics, semiconductors, cybersecurity, aerospace), essential supplies including the food chain, access to sensitive data or national media, and defence. For investors from tax havens or controlled by foreign States, the threshold is stricter.

The practical consequences for deal design are direct and severe:

• Authorisation is a condition to close. It must be built into the letter of intent (LOI) and the sale and purchase agreement (SPA) as a condition precedent. Without it, the deal cannot complete.
• It lengthens the timetable. The statutory resolution period runs to six months, with negative silence; it must be built into the negotiation and the financing.
• It may come with conditions. Keeping the registered office in Spain, preserving employment or not transferring certain technology are obligations that bear directly on the post-deal business plan.
• Investing without authorisation is null and void. It is a very serious infringement carrying a severe sanctions regime. Where the purchase runs the other way — a Spanish company buying abroad — the exercise is identical but mirrored: every country has its own FDI regime, and some, such as the US CFIUS, are especially demanding.

Structural modifications and investment filings

If the deal is structured as a cross-border merger, Royal Decree-law 5/2023 comes into play — it repealed Law 3/2009 and transposed Directive (EU) 2019/2121. Two changes matter to the timetable: the former creditors' right of opposition, which could paralyse the deal for a month, is replaced by a system of adequate guarantees that does not suspend registration at the Commercial Registry; and companies must certify they are current on tax and social-security obligations as a prerequisite.

To this is added an easily overlooked duty: cross-border intragroup financing — loans between parent and subsidiary across jurisdictions — ceases to be a mere treasury movement and must be filed as foreign investment when it exceeds one million euros and the repayment term runs beyond one year.

The operational lesson is a single one: mapping the regulatory landscape — FDI, structural modifications, filings — is part of due diligence and must be done before signing the LOI, not afterwards.

International due diligence: beyond the numbers

In a domestic deal, the review concentrates on the financial, tax and legal. In cross-border, that perimeter falls short. On top of the usual layers, others are added that, poorly resolved, destroy value:

• On the financial side, the aim is to establish the Quality of Earnings and fix the normalised EBITDA on which the multiple will be applied, isolating one-off income and non-recurring items and harmonising the reference working capital across subsidiaries with different seasonality.
• On the tax side, three vectors concentrate the international risk: transfer pricing (that transactions between the company and its subsidiaries were at arm's length, with the documentation the OECD requires); permanent establishment risk (that activity in third countries has not inadvertently triggered obligations to be taxed there); and withholding taxes and double-taxation treaties, which govern the efficiency of repatriating dividends, interest and royalties to the parent.
• On the legal and labour side, what matters is the review of change-of-control clauses in commercial and financing contracts — which may let a third party terminate on a change of ownership — and pension, deferred-compensation and severance liabilities in countries with rigid labour protection.
• On the operational and compliance side, systems compatibility (ERP, CRM, cybersecurity) conceals unforeseen integration costs, and GDPR compliance in international data transfers, together with ESG and supply-chain matters, prevents fines and reputational risk.

All of it must feed the valuation: paying a price built on inflated synergies is the recurring risk of these deals. Benchmarking the price with EV/EBITDA multiples against a discounted cash flow, and stress-testing it through scenario analysis that captures regulatory and currency uncertainty, is the only way not to negotiate blind.

Valuation: the price changes when it crosses the border

Valuing a foreign company requires adapting the standard models to capture country risk, currency risk and tax asymmetries. In a discounted cash flow, the cost of equity must explicitly incorporate a country risk premium (CRP) on top of the reference risk-free rate and the sector beta. This is no small matter: applying a purely Spanish discount rate to flows generated in a country of different risk overstates or understates value depending on the case.

When revenue is geographically diversified, the correct approach is to weight the premium by the origin of each flow, as we develop when discussing the weighted average cost of capital (WACC). In comparable multiples, historical ratios must further be adjusted for illiquidity, local inflation and differences in accounting standards.

And because deterministic projections do not capture the volatility of an international purchase, best practice is to overlay a Monte Carlo simulation: by assigning probability distributions to the key variables — exchange rate, raw-material costs, pace of synergy capture, client retention — and running thousands of iterations, you obtain a distribution of NPV and IRR that lets you set a rational ceiling for the bid instead of a single, misleadingly precise number.

Tax structure and financing: where a good deal turns bad

How the purchase is structured and financed has a direct impact on net returns. It is, alongside integration, the least visible and most decisive value lever.

The acquisition vehicle and double taxation

Buying directly or through a holding company is not a matter of indifference. A well-designed holding structure allows the participation exemption under article 21 of the Corporate Income Tax Act on foreign-source dividends and capital gains to be used, and flows to be channelled efficiently.

The logic is the same that makes the holding company a central tool in structuring groups: it ring-fences risk, centralises services and optimises the taxation of a future divestment. Double-taxation treaties are decisive: they define where each flow is taxed and how double taxation is relieved, whether by exemption or tax credit.

How the purchase is financed

The mix of equity, bank debt, intragroup debt and hybrid instruments must be designed with the limit on the deductibility of financial expenses in mind — the greater of one million euros or 30% of operating EBITDA — and with the anti-BEPS rules. A technique specific to cross-border is to raise senior debt in the target's functional currency: it creates a natural hedge, matching the subsidiary's operating cash flows with its debt service.

How much to leverage the purchase — and whether to — points back to the financial leverage effect on equity value and to the acquired company's real capacity to service that debt; the right financing structure materially improves the return, and the wrong one compromises it from day one.

Deferred payments: earn-outs and vendor notes

When buyer and seller disagree on value — common where uncertainty is high — two tools unlock the negotiation. The earn-out ties between 20% and 40% of the price to the achievement of EBITDA or revenue targets in the twelve to thirty-six months after closing; it is especially useful in cross-border, but it has tax edges worth anticipating — the moment the seller recognises the contingent income for accounting purposes conditions its taxation, and recent doctrine allows the article 21 exemption to reach that contingent portion provided the requirements were met at the transfer date.

The vendor note (a seller loan, subordinated and at a fixed rate) signals the seller's commitment to the project's viability after the sale. Both align the two parties during the transition.

Allocating tax risk and W&I insurance

The allocation of tax risk is one of the most sensitive points in the SPA: representations and warranties, specific indemnities and liability caps determine who bears what if an unexpected assessment appears. The tool that has resolved this friction is warranty & indemnity (W&I) insurance: the buyer takes out a policy and, in the contract, the seller's liability is limited to a nominal amount (typically one euro, save for fraud).

Faced with an undetected supervening contingency, the buyer claims directly against the insurer. The result is a clean exit for the seller (no funds retained in escrow), longer cover — three years for general warranties, five to seven for tax, labour and environmental — and preservation of the relationship with the directors who stay on.

Post-acquisition integration: where the deal is won or lost

The uncomfortable figure that sums up this section: up to 70% of failed cross-border deals fail because of post-closing integration problems, and the dominant cause is cultural difference. Not the price, not the negotiation, not the strategy. Integration.

Integrating two organisations from different countries means reconciling leadership styles, decision-making processes, expectations around autonomy and communication, and levels of digitalisation that rarely fit out of the box. When they clash, decision-making slows, teams disengage and momentum dissipates before any synergy materialises.

To this is added a quantifiable human risk: a very significant share of key personnel leaves after a poorly managed transaction, taking with them the knowledge that justified the purchase. And there is an unforgiving window: the first year is the golden period to capture value; integrations that drag beyond two years show systematically worse returns.

The acquirers who do capture the value share a set of disciplines, articulated in a First 100 Days Plan coordinated by an integration office with owners and KPIs from day one:

• Plan the integration before closing, not after. The team and the roadmap must exist when the deal is signed, not be improvised after closing.
• Integrate only where it creates value. Not everything must be unified; choosing what to integrate and what to leave standalone avoids destroying what made the acquired company valuable.
• Communicate obsessively. Uncertainty is what drives talent away; explaining the rationale of the deal retains more than any bonus.
• Harmonise governance, reporting and systems. Treasury policy, budget control and unified KPIs from the first month; gradual migration of ERP and CRM without breaking the supply chain.

This work of redesigning operations, organisation and governance after closing is, in essence, a strategic restructuring in its own right, and deserves the same technical rigour as the negotiation of the purchase itself.

A checklist for the owner before taking the plunge

Before starting an international deal, it is worth being able to answer yes to all of these:

• Investment thesis. Does the purchase answer a 3-5 year plan, or an opportunity that just came up?
• Legal structure. Share deal or asset deal? Have I weighed the historical risk each one carries?
• Regulatory filter. Do I know whether the target operates in a sector subject to FDI authorisation, and have I built the timeline into the calendar and the SPA?
• Risk-adjusted valuation. Have I incorporated the country risk premium into the WACC and stress-tested synergies through scenarios and Monte Carlo?
• Tax and financial structure. Have I designed the vehicle, the local-currency financing, the earn-out and the warranties with international tax judgement?
• Contingency cover. Does a W&I policy make sense to close clean and protect me from the undetected?
• Integration plan. Do I have the team, the 100-day roadmap and the indicators ready before signing?
• Key people. Do I know who holds the acquired business together and how I will retain them?

A conclusion for ambitious companies

Cross-border will keep gaining weight in the Spanish mid-market, driven by international liquidity, sector consolidation and a generation of owners weighing succession and seeing in a sale to a foreign group an exit that combines continuity and price. For the buyer, the international deal is one of the most powerful growth levers there is. But success lies not in closing the deal, but in turning it into durable results.

The transaction is the visible part; the prior structuring and the subsequent integration are where it is truly decided whether the purchase creates or destroys value. A deal well structured on the regulatory and tax fronts, rigorously valued and integrated with discipline, is one of the best investments an ambitious company can undertake. That same deal, improvised, is the fastest way to turn a good business into a problem in another currency.

At Maraz Corporate Finance we support owners and management teams in the middle market on company sale and purchase transactions, cross-border ones included: we define the strategic fit, structure the deal from a tax and financing standpoint, coordinate the due diligence and the valuation, and help design the integration that makes the deal deliver what it promised.

If you are considering an international acquisition to accelerate your company's growth, or a foreign buyer has come knocking, let's talk.

FAQs about cross-border transactions

What is a cross-border transaction?

It is an M&A transaction — purchase, merger or combination — in which the companies involved are subject to different jurisdictions. It can be structured as a share deal, an asset deal, a cross-border merger or a joint venture. It provides access to markets, technologies or capabilities without building them, in exchange for adding legal, tax, regulatory and cultural complexity relative to a purely domestic deal.

Do I need government authorisation to buy from, or sell to, a foreign party?

It depends on the sector and the investor's origin. Law 19/2003 and Royal Decree 571/2023 subject to prior authorisation by the Council of Ministers investments by non-EU/EFTA residents acquiring 10% or control of a Spanish company in strategic sectors (critical infrastructure, dual-use technologies, essential supplies, sensitive data, defence). Investing without the required authorisation is null and void, so the analysis must be done before signing the LOI. If the deal is a cross-border merger, Royal Decree-law 5/2023 also applies.

Why do so many cross-border deals fail?

The dominant cause is not the negotiation or the price, but post-closing integration. Up to 70% of failures are explained by poorly managed cultural and organisational differences, which trigger the loss of key personnel and of the value that justified the purchase. The first year after closing is the critical window to capture synergies.

How does valuation change when the company is in another country?

The discounted cash flow model must incorporate a country risk premium (CRP) in the cost of equity and, where revenue is geographically diversified, weight it by the origin of each flow. Comparable multiples are adjusted for illiquidity, local inflation and accounting standards. And it is worth overlaying a Monte Carlo simulation on variables such as the exchange rate or the pace of synergies to set a rational ceiling for the bid.

What is W&I insurance and why is it so common in these deals?

Warranty & indemnity insurance transfers to an insurer the risk of inaccuracy in the seller's warranties. In the contract, the seller's liability is limited to a nominal amount and the buyer claims directly against the insurer if an undetected contingency arises. It enables a clean exit with no retained funds, longer cover and preservation of the relationship with the management team that stays on.

Can an SME afford an acquisition abroad?

Yes, and it is increasingly common: more than a third of Spanish middle-market deals already have an international component. The key is not size but structuring: strategic fit, regulatory verification, country-risk-adjusted valuation, a well-designed tax and financing structure, contingency cover and an integration plan ready before signing.