Strategic M&A Counsel for U.S. and Canadian Transactions

A cross-border acquisition is an M&A transaction in which the buyer and target are based in different countries, or where the transaction otherwise requires legal and regulatory coordination across more than one jurisdiction. These deals often involve added complexity around compliance, tax, diligence, and integration.

Because the parties must navigate different legal systems, regulatory requirements, tax regimes, currencies, and operational norms. Cross-border mergers and acquisitions also tend to require more intensive diligence and more deliberate integration planning after closing.

FDI compliance refers to foreign direct investment rules that can apply when a foreign buyer acquires or invests in a business. In the United States, that often includes CFIUS review for transactions involving foreign ownership, sensitive industries, critical technology, key infrastructure, or access to certain data. Depending on the structure of the deal and the nature of the target’s business, the transaction may require filings, advance review, or mitigation measures before closing.

In 2026, the threshold for a “National Security” review in Canada has expanded to include any U.S. acquisition of a Canadian entity that manages sensitive personal data or “Sovereign AI” infrastructure. Under the latest Investment Canada Act (ICA) guidelines, transactions involving artificial intelligence, quantum computing, or large-scale datasets are now classified as “Sensitive Technology” investments.

This shift means that even middle-market deals that were once considered “low-risk” may now face mandatory pre-closing notifications and potential “interim conditions” that can delay a closing by 200 days or more.

We don’t wait for a regulatory “knock on the door.” For our U.S. and Canadian clients, we integrate a National Security Risk Audit into the initial due diligence phase. When applicable, we evaluate the target’s “Chain of Title” for AI training data and its alignment with Canada’s 2026 Defence Industrial Strategy. By identifying these dependencies before the LOI is signed, we can structure “mitigation undertakings”—such as data residency requirements or governance controls—that satisfy regulators without eroding the deal’s enterprise value.

One of the most common sources of post-closing litigation in U.S.-Canada deals is the failure to harmonize accounting standards. While U.S. GAAP and Canadian ASPE (Accounting Standards for Private Enterprises) or IFRS are similar, subtle differences in revenue recognition and expense capitalization can create a mathematical cliff in an earn-out.

A Canadian seller expecting a payout based on EBITDA may find the U.S. buyer calculating that number under a more restrictive U.S. GAAP standard, effectively shrinking the payout by 10–15% without any change in business performance. That creates a risk of what we call “Accounting Arbitrage”—where differences between U.S. and Canadian accounting standards are used to artificially deflate an earn-out.

When possible, address this risk. That includes defining the governing accounting standard, specifying how key metrics will be calculated, and addressing cross-border items such as currency treatment, intercompany charges, and other adjustments that can distort the earn-out after closing.

In a cross-border deal, the purchase price can shift even when the business does not. If the Canadian dollar moves meaningfully between signing and closing, the economics of the transaction can change for either side.

We address that risk in the deal documents. Depending on the transaction, that may include exchange-rate adjustment mechanics, currency collars, or FX hedging covenants designed to preserve the economics the parties agreed to at signing.

Sometimes we implement a “Band of Neutrality” (e.g., +/- 2%). If the CAD/USD exchange rate stays within that band, the price is fixed. If it breaks the band, the purchase price adjusts proportionally. This prevents one party from getting a “windfall”—and the other a “penalty”—simply because of a central bank announcement.
Ultimately, the goal is straightforward: reduce the chance that currency movement changes the real value of the deal before closing.

Qualified Small Business Stock, or QSBS under Section 1202, is a valuable U.S. tax incentive that can allow founders and investors to exclude up to 100% of federal capital gains tax, subject to the applicable statutory cap. But QSBS has strict requirements: the stock must be issued by a U.S. C corporation, and the company must satisfy the “active business” test.

In a cross-border deal, those requirements can be disrupted if assets are moved into a passive Canadian holding company or another non-U.S. entity, potentially disqualifying the stock. The U.S.-Canada tax treaty can add another layer of complexity, particularly where withholding, entity structure, or cross-border cash movement affects the economics of the transaction.

We do not provide formal tax opinions, but we do flag these issues early and build QSBS and treaty-related considerations into deal structuring before the LOI is signed. We then coordinate with specialized cross-border tax advisors so the legal documents and tax strategy stay aligned.

Ideally before the letter of intent is signed. Early involvement helps identify structural issues, regulatory friction, and jurisdiction-specific risks before they affect pricing, timing, or exclusivity leverage.