Earlier this year Thomson Reuters and FTI Consulting collaborated to produce an in-depth report on the trends, challenges and opportunities in cross-border transactions. We spoke to 249 respondents from law firms and corporates, across the UK, France, Germany, Spain, the US, Australia, China, Brazil and Mexico. Download the report here.
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 importance for large law firms and in-house counsel in large businesses.
Of the people surveyed:
- 75 per cent agreed that cross-border transactions are increasingly attractive to businesses globally and will grow.
- 78 per cent agreed that the growth of cross-border transactions is driven by the internationalisation of commerce and may continue to rise irrespective of economic cycles.
- 63 per cent agreed that their organisation will be involved in an increasing number of cross-border transactions in the future
Legal complexity is limiting transaction volumes
Cross-border transactions are however complex and considered disproportionately challenging and risky by businesses and legal advisors. Lawyers that can advise confidently and demystify these challenges will play a critical leading role in helping their own and/or their clients businesses to grow.
- 83 per cent of all respondents considered the legal risk associated with cross border deals to be higher than domestic deals.
- 44 per cent of law firms and 41 per cent 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 per cent of law firms outside of the 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 per cent 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 per cent) and complex or unfavourable tax issues (29 per cent).
Deals and drafting are becoming increasingly standardised
There are increasingly widespread and recognised global norms for transaction structuring, drafting language and governing law. These frequently derive from US and UK legal practice.
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 per cent 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 US/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. Online resources such as Practical Law are increasingly valued by practitioners.
51 per cent 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 per cent). Additionally, 37 per cent used online information databases from legal publishers.
- More than half (56 per cent) of respondents had used an online resource tool such as Practical Law, and of this group, nearly all (99 per cent) had found it helpful or extremely helpful.
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/or their clients’ businesses to grow.