By: Nic Arters, Director

Mitigate M&A Trade Compliance Challenges Up Front 

When companies merge, the opportunities are endless. The other side of this coin is the potential for significant trade compliance challenges. As someone who has worked closely with businesses navigating mergers and acquisitions (M&A), I’ve seen how easy it is for trade compliance to become an afterthought. Yet, this oversight can lead to costly consequences, from operational disruptions to multi-million-dollar fines. If there’s one thing I’ve learned, it’s this: ensuring compliance early and thoroughly is essential for success in the global marketplace. 

Let’s explore the common pitfalls of trade compliance during M&As and how proactive planning can safeguard your business.  

The High Stakes of Trade Compliance 

M&A activity has been booming recently. This presents companies with significant growth opportunities. However, the complexity of these transactions extends far beyond financial considerations. When compliance isn’t prioritized, companies risk inheriting liabilities from the acquired entity.  

This can include violations of import/export regulations, improper licensing, and even entanglement in sanctions. The principle of “successor liability” means that acquiring companies can be held accountable for the past missteps of the businesses they absorb, even if those issues were unknown at the time of purchase. 

These risks aren’t hypothetical. Noncompliance can lead to multimillion-dollar penalties, operational restrictions, and severe reputational damage. Yet, these pitfalls can be avoided with thorough due diligence and strategic planning. 

Key Compliance Challenges During M&As 

Although the following common compliance challenges seem daunting, I’ve spent decades helping businesses overcome them. Read on for mitigation ideas that businesses going through M&As can consider. 

1. Permitting and Licensing Transfers

One of the most immediate challenges is ensuring the seamless transfer of permits, licenses, and certifications. For example, export licenses often cannot be directly transferred between merging entities, which can lead to delays or outright operational halts.

To mitigate this, companies should: 

• Conduct a comprehensive review of all permits and licenses held by both entities. 
• Secure regulatory approvals before finalizing the merger. 
• Engage licensing experts to navigate transfer complexities. 

These steps ensure the new entity remains compliant and avoids disruptions during the critical post-merger period. 

2. Regulatory Overlaps Across Jurisdictions

M&A transactions often involve entities operating in different countries, each with its own set of trade regulations. Reconciling these differences can be particularly challenging when dealing with export controls, sanctions compliance, and tariff classifications.

For example, meticulous alignment is required to ensure that both entities adhere to U.S. export controls while simultaneously meeting EU regulations. Failure to address these inconsistencies can result in blocked shipments or costly fines.

3. Documentation Gaps

A lack of complete and accurate documentation is a common issue during M&A transitions. This can delay compliance audits, expose the company to legal scrutiny, and hinder integration. To avoid this, businesses should:

• Conduct thorough due diligence across all compliance areas. 
• Leverage automated tools to track and monitor compliance obligations. 
• Prepare all key documents for audits, including import/export histories and trade classifications.