The Changing M&A Landscape: Strategic Considerations in an Era of Heightened Scrutiny

Mergers and acquisitions have always mirrored the broader economic environment, but in the past decade the pace of change in deal-making has accelerated dramatically. Practitioners now operate in a climate that is not only shaped by traditional considerations of corporate law and tax efficiency, but also by regulatory uncertainty, geopolitical turbulence, and a financing environment that looks very different from the years of easy credit that defined the early 2010s. The modern M&A transaction is as much about navigating scrutiny and external risks as it is about structuring a favorable purchase price.

One of the most significant forces reshaping the market is the volatility of interest rates. For years, buyers were accustomed to abundant and inexpensive debt financing, which fueled leveraged buyouts and made private equity transactions a dominant feature of the M&A landscape. With the Federal Reserve’s recent rate hikes, however, the cost of debt has risen considerably, altering deal dynamics. Buyers are increasingly relying on all-cash transactions or equity-heavy financing structures, which in turn shifts the balance of negotiating power between strategic buyers and financial sponsors. This move away from high leverage not only affects valuation but also the willingness of buyers to take on risk.

At the same time, regulatory oversight has reached levels not seen in decades. Both the Department of Justice and the Federal Trade Commission have publicly committed to a more aggressive enforcement posture under the Clayton Act, 15 U.S.C. §§ 18–19. Whereas mid-market deals historically escaped intense antitrust review, even transactions well below the headline-grabbing “mega-merger” threshold are now being scrutinized for potential competitive harm. Practitioners must assume from the outset that regulatory clearance is no longer a formality, and that closing timelines can be extended by government inquiries, second requests, or even full-scale challenges.

Layered on top of domestic regulation are the consequences of global supply chain realignments. Buyers, particularly in the technology and industrial sectors, are reevaluating targets based not only on profitability and market share but also on geographic exposure, vendor concentration, and vulnerability to geopolitical shocks. Ongoing trade restrictions between the United States and China, coupled with the European Union’s assertive competition policy, have made jurisdictional diversification and supply chain resilience critical elements of strategic planning. What once would have been a straightforward acquisition of a manufacturing target, for example, may now require a complete analysis of import/export restrictions, tariffs, and cross-border compliance obligations.

These market forces have also reshaped deal structuring. In an era where certainty is elusive, buyers and sellers alike are turning to creative mechanisms to allocate risk. Earnouts and contingent purchase price provisions have become common, tying final consideration to post-closing performance metrics. Such structures, while appealing in theory, often become the subject of post-closing disputes, and Delaware Chancery Court precedent, such as Airborne Health v. Squid Soap, 984 A.2d 126 (Del. Ch. 2009), continues to guide how courts interpret ambiguous earnout language. Rollover equity is another hallmark of the current environment, as founders are frequently asked to retain a minority stake, ensuring alignment of incentives and continuity of institutional knowledge. Representation and warranty insurance, once considered an exotic tool, is now a mainstream feature of both private equity and strategic acquisitions, shifting indemnity risk away from sellers. Yet, coverage limitations—particularly around tax and environmental matters—remain, requiring careful negotiation of carve-outs and exclusions.

Tax considerations remain central to deal planning, but here too the environment has grown more complex. Section 338(h)(10) and Section 336(e) elections provide powerful opportunities to treat stock acquisitions as deemed asset acquisitions, thereby securing a step-up in basis and the associated depreciation deductions. Yet these elections often require delicate balancing, as they may trigger gain recognition at both the corporate and shareholder levels, creating tension between buyer and seller. Net operating losses, once viewed as a valuable tax shield, are now tightly restricted under IRC § 382, which limits the ability to carry forward and apply NOLs following ownership changes. Cross-border transactions face even more daunting challenges. The Base Erosion and Anti-Abuse Tax (IRC § 59A), coupled with global minimum tax frameworks emerging from the OECD, place additional strain on deal structuring. Pre-closing rationalization of entities is no longer optional but essential, especially for U.S. acquirers purchasing targets with complex international footprints.

Due diligence has expanded well beyond the traditional focus on financial statements and material contracts. Today’s buyer must evaluate compliance with data privacy and cybersecurity regimes such as the California Consumer Privacy Act (CCPA) and the EU’s General Data Protection Regulation (GDPR), both of which impose steep penalties for noncompliance. Environmental, Social, and Governance (ESG) issues are another area of increased scrutiny, with investors and lenders demanding a clear understanding of how ESG risks may affect valuation, reputation, and long-term growth. Human capital considerations have similarly moved to the forefront. With remote work creating unexpected state tax nexus, wage-and-hour litigation proliferating, and union organizing activity on the rise, labor issues can no longer be relegated to the periphery of diligence checklists.

Looking forward, the M&A market is unlikely to return to the relatively predictable patterns of the past. Interest rates, political transitions, and global economic instability will continue to exert downward pressure on deal activity through at least 2026. Yet, opportunities abound. Distressed asset sales, carve-outs from larger conglomerates, and consolidation in industries such as healthcare, technology, and energy are poised to create significant deal flow for buyers willing to navigate complexity. The lesson for practitioners is clear: M&A is no longer a practice governed by templates and standardized forms. Each transaction demands a bespoke approach, sensitive to the unique interplay of regulatory scrutiny, tax planning, operational realities, and the client’s strategic objectives. As the Delaware Court of Chancery aptly reminded us in In re Trados Inc. Shareholder Litigation, 73 A.3d 17 (Del. Ch. 2013), “context is everything.”