A European industrial group signs a non-binding letter of intent to acquire a mid-market US technology company. Four weeks later, its deal team opens the virtual data room and encounters employment agreements governed by seven different state laws. A pending US District Court claim. Additionally, a data protection compliance programme built on assumptions that diverge sharply from EU standards. None of this appeared in the information memorandum. The group's home-market counsel had no visibility on any of it. The deal ultimately closes six weeks late and at a materially lower price.
M&A due diligence in the United States is a structured legal investigation that a foreign acquirer conducts before signing a share purchase agreement or asset purchase agreement. It covers corporate standing, material contracts, intellectual property, employment obligations, litigation exposure, regulatory licences, and tax position. A focused review of a mid-market US target typically runs four to eight weeks and generates a written report that informs both deal pricing and the representations and warranties negotiated in the final agreement.
This guide walks through each stage of the process in sequence. It covers the documentary checklist, the most common errors made by non-US buyers, cost expectations, and a decision framework for choosing the right scope of review for different transaction types.
Why US due diligence presents distinct challenges for foreign buyers
The United States does not operate a single national corporate law system. Corporate legislation varies by state. A Delaware LLC (limited liability company organised under Delaware law) carries default rules on member rights and manager authority that differ significantly from those governing an entity incorporated in California, Texas, or New York. Foreign buyers accustomed to a uniform national company code are routinely surprised by this fragmentation.
Federal law adds a second layer. Securities law administered by the SEC (US Securities and Exchange Commission), antitrust rules enforced by federal agencies, and sector-specific regulation each impose independent obligations on both target and acquirer. A transaction that clears state corporate law requirements may still require federal filings before closing conditions can be satisfied.
Employment law presents a further complication. Unlike many civil law systems, US employment legislation does not impose a single national framework for termination, benefits, or collective agreements. State-level rules – and in some cases city-level rules – govern key employment terms. A target with employees in multiple states may be subject to a dozen overlapping regimes simultaneously.
Litigation risk also reads differently to foreign eyes. The US civil procedure rules permit broad pre-trial discovery, meaning that pending claims against the target carry a higher cost and disruption potential than equivalent proceedings in most civil law jurisdictions. A claim filed in a US District Court or before a state court can absorb management time and generate legal costs well before any judgment is reached.
For buyers with experience in Brazil or other Latin American markets, the contrasts are sharpest in dispute resolution. Our guide to M&A due diligence in Brazil sets out the corresponding checklist under Brazilian law, which may be useful for cross-border buyers active in both markets.
Step-by-step due diligence process and timeline
Due diligence in a US M&A transaction follows a broadly standard sequence. The phases below reflect current practice for a mid-market private acquisition.
Phase 1 – Preparation and scope definition (days 1–5). The buyer's counsel agrees a due diligence request list with the target's counsel. The list is tailored to the industry, the transaction structure, and the buyer's known risk appetite. A share acquisition covering all liabilities of the target demands a broader scope than an asset deal limited to specific revenue streams.
Phase 2 – Virtual data room review (weeks 2–5). The target populates a secure virtual data room with responsive documents. Counsel reviews corporate records – including the certificate of incorporation or formation, operating agreement, and capitalization table – followed by material contracts, intellectual property registrations, employment documents, litigation files, and regulatory licences. Each workstream is typically assigned to a specialist reviewer.
Phase 3 – Management Q&A and follow-up requests (weeks 4–6). Written follow-up questions are submitted through the data room. For issues that cannot be resolved in writing, a management presentation or call is arranged. This phase often reveals items that were absent from the initial data room population.
Phase 4 – Report drafting and risk assessment (weeks 6–8). Counsel produces a due diligence report summarising findings, flagging material issues, and recommending deal protections. The report feeds directly into the representations and warranties schedule of the share purchase agreement and informs any price adjustment or escrow mechanism.
Phase 5 – SPA negotiation and closing conditions (weeks 8–12 and beyond). The due diligence findings drive negotiation of the SPA (share purchase agreement). Closing conditions are agreed. If the transaction triggers antitrust thresholds or falls within the jurisdiction of the Committee on Foreign Investment in the United States, regulatory clearance extends the timeline further – sometimes by several months.
To build a tailored strategy for your US acquisition, contact us at info@ferrazwhitmore.com.
Documentary checklist: what to request and why it matters
The following categories represent the core of a standard legal due diligence request for a US private company. Each category links to a specific deal risk.
Corporate records. Certificates of incorporation or formation, operating agreements or bylaws, board and shareholder resolutions, and the capitalization table. These establish who owns what, what authority management holds, and whether any third party has consent rights over a change of control. A Delaware LLC with a complex operating agreement may grant minority members blocking rights that effectively prevent the transaction without their approval.
Material contracts. Customer agreements, supplier contracts, licences, and joint venture arrangements. Change-of-control clauses are the primary concern. A significant share of mid-market US companies have material customer contracts that terminate automatically or require counterparty consent upon a change of ownership. Identifying these before signing is essential – not after.
Intellectual property. Patent registrations, trademark filings, copyright ownership chains, and software licence agreements. Foreign buyers frequently underestimate the complexity of US IP ownership when target employees have contributed to product development outside formal assignment agreements. Gaps in the assignment chain can leave the acquirer without clear title to the technology it is paying for.
Employment and benefits. Key employee agreements, non-compete and non-solicitation arrangements, equity incentive plans, and benefit plan documentation. Under US employment legislation, certain benefit obligations – particularly pension and healthcare commitments – can transfer to the acquirer even in an asset deal if not properly structured. Practitioners with US employment experience note that this is among the most frequently mispriced categories of liability in cross-border acquisitions.
Litigation and regulatory matters. Pending and threatened claims, government investigations, consent orders, and regulatory correspondence. A claim before a US District Court that appears modest in value may carry discovery and management costs that dwarf its face amount. Environmental liabilities deserve separate attention in asset-intensive industries, given the broad scope of federal environmental legislation.
Tax position. Federal and state tax returns, notices of assessment, transfer pricing arrangements, and tax sharing agreements. US tax legislation operates at both federal and state levels. A target with multi-state operations may have unresolved nexus questions – meaning that tax obligations in states where it does business may not be fully reflected in its filings.
Real estate. Owned and leased property, title reports, and zoning compliance records. Commercial leases in the United States frequently contain assignment restrictions that require landlord consent on a change of control.
Our M&A legal services in the United States cover all of these workstreams, supported by local counsel networks across key US jurisdictions.
Common errors by foreign acquirers – and how to avoid them
Foreign buyers in US M&A transactions make a recognisable set of errors. Understanding them in advance reduces both the probability of occurrence and the cost of correction.
Underestimating state-law variation. A buyer familiar with a single-code corporate law system tends to assume that US corporate law is similarly uniform. It is not. The governing law of the target entity determines the default rules on fiduciary duties, minority rights, and dissolution. A buyer that negotiates protective provisions on the assumption that Delaware law governs – when the target is in fact incorporated in another state – may find those provisions unenforceable.
Treating representations and warranties as a formality. In civil law systems, statutory warranties often operate independently of contractual agreement. In US M&A practice, the representations and warranties in the share purchase agreement are the primary – and often exclusive – mechanism for allocating post-closing risk. A buyer that accepts thin or heavily qualified representations has effectively agreed to absorb undiscovered liabilities. This is not a drafting nuance; it is a fundamental commercial choice.
Missing CFIUS exposure. The Committee on Foreign Investment in the United States reviews acquisitions by foreign buyers for national security implications. The scope of CFIUS jurisdiction has expanded substantially in recent years and now covers technology, data, and critical infrastructure sectors that would not intuitively appear sensitive. Missing a mandatory CFIUS filing can result in deal unwinding – months after closing. A preliminary CFIUS assessment should be conducted before signing, not after.
Neglecting data protection alignment. Many foreign buyers assume that a target's compliance with US data protection rules satisfies their own home-jurisdiction obligations. In practice, a European acquirer consolidating a US target into its group structure must assess whether the target's data practices are compatible with EU data protection requirements. This is a post-closing integration risk that originates in the due diligence phase.
Selecting the wrong dispute resolution clause. US M&A agreements frequently provide for disputes to be resolved before a federal court or through institutional arbitration. commonly JAMS (Judicial Arbitration and Mediation Services) or AAA arbitration (American Arbitration Association). Foreign buyers sometimes accept the seller's preferred clause without considering enforceability in their home jurisdiction. An award rendered under AAA arbitration rules is generally enforceable internationally under the New York Convention, but a judgment from a US District Court requires a separate recognition process in most civil law countries. The choice of clause has material consequences for recovery strategy.
Overlooking state tax nexus and employment classification. Foreign buyers frequently close a transaction and discover – during integration – that the target has accumulated unpaid state tax obligations or has misclassified workers as independent contractors. Both categories of liability can be substantial. Specialist tax and employment workstreams should be scoped from the outset, not added as an afterthought when the main legal review is complete.
For a preliminary review of your acquisition target in the United States, email info@ferrazwhitmore.com.
Self-assessment checklist before initiating US due diligence
This checklist helps a foreign acquirer assess readiness and scope before engaging a US legal team.
Transaction structure confirmed. Is this a share acquisition, an asset acquisition, or a merger? The answer determines which liabilities transfer by operation of law and which due diligence workstreams take priority.
Target entity type and state of incorporation identified. A Delaware LLC, a Delaware corporation, and a California corporation each carry different default rules. Confirm the entity type before preparing the due diligence request list.
Sector and regulatory exposure assessed. Does the target operate in a regulated industry – financial services, healthcare, defence, telecommunications, or critical infrastructure? Sector-specific regulatory licences must be reviewed as a distinct workstream, not folded into the general corporate review.
CFIUS exposure evaluated. Does the acquirer's home country, ownership structure, or the target's business activities raise potential CFIUS concerns? If there is any doubt, obtain a preliminary assessment before signing the letter of intent.
US counsel retained. Has qualified US counsel – experienced in M&A transactions and familiar with the target's industry sector – been engaged? Home-country counsel alone cannot adequately cover the US workstreams.
Timeline and data room access agreed. Has the seller confirmed a timetable for data room population? A compressed timeline with incomplete document production is among the leading causes of post-closing disputes. Buyers should resist pressure to waive standard due diligence periods.
Integration planning begun. Has the buyer identified the key integration risks – employment, data protection, IP ownership, and operational licences – that will require action on or before closing? Due diligence findings should feed directly into the integration workplan, not sit in a report that is filed and forgotten.
Engaging a lawyer in the United States with cross-border M&A experience is the single most effective step a foreign acquirer can take before opening a data room. Specialist knowledge of both the buyer's home system and US practice reduces the risk of asymmetric negotiations.
For international buyers who also maintain operations in Europe, our corporate law services for US-based entities provide integrated support across the full transaction lifecycle.
Frequently asked questions
Q: How long does M&A due diligence typically take in the United States?
A: For a mid-market acquisition, legal due diligence in the United States typically runs four to eight weeks from virtual data room access. Complex targets with regulatory licences, multi-state operations, or significant litigation exposure can extend the process to twelve weeks or more. Engaging a US lawyer with M&A experience at the outset is the most reliable way to keep the timeline on track.
Q: Does a foreign acquirer need to register with the SEC before completing a US acquisition?
A: A common misconception is that all foreign acquirers must register with the US Securities and Exchange Commission before closing. Registration requirements depend on whether the target is publicly listed and whether the acquirer issues securities as deal consideration. Private-to-private acquisitions generally do not trigger SEC registration, but specific exemptions must be confirmed with US counsel before signing any share purchase agreement.
Q: What costs should a foreign buyer budget for US M&A due diligence?
A: Legal fees for due diligence on a US mid-market target typically run into the tens of thousands of dollars for a focused review, rising to six figures for complex or regulated businesses. Additional costs include specialist advisers for tax, environmental, and employment matters. Foreign buyers should also budget for CFIUS filing fees if the transaction involves a covered industry.
About Ferraz & Whitmore
Ferraz & Whitmore is an international law firm based in Lisbon, advising business clients across 46 jurisdictions. Our M&A practice supports foreign acquirers throughout the full due diligence and transaction process in the United States. from initial target assessment and CFIUS screening through to share purchase agreement negotiation. Closing conditions, and post-closing integration. We combine Portuguese civil law expertise with English common law tradition, giving our clients a dual perspective that is particularly valuable when bridging US common law M&A practice with civil law home systems. As an international law firm advising on United States transactions, Ferraz & Whitmore works with institutional investors, international entrepreneurs, and in-house legal teams who need results-oriented counsel across multiple legal systems. To discuss your US acquisition strategy, contact us at info@ferrazwhitmore.com.
Disclaimer: This publication is provided for informational purposes only and does not constitute legal advice. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Ferraz & Whitmore assumes no liability for actions taken or not taken based on the contents of this material. For advice regarding your particular situation, please contact info@ferrazwhitmore.com.