Legal and Regulatory Approvals You Might Not Expect When Selling Your Tech Company
For many founders, the decision to sell a technology company is the culmination of years of innovation, risk-taking, and growth. But even the most seasoned operators can be caught off guard by the legal and regulatory hurdles that surface late in the M&A process. Beyond the standard due diligence and contract negotiations, certain transactions—especially those involving foreign buyers, sensitive technologies, or market concentration—can trigger government reviews that delay or even derail a deal.
In this article, we’ll explore the lesser-known legal and regulatory approvals that may apply when selling a tech company, including antitrust clearance, CFIUS review, and sector-specific compliance. Understanding these risks early can help you structure your deal more effectively and avoid surprises at the eleventh hour.
1. Antitrust Clearance: Not Just for Big Tech
Many founders assume that antitrust scrutiny only applies to multi-billion-dollar mergers. In reality, even mid-market deals can trigger a review if the buyer and seller operate in overlapping markets or if the transaction could reduce competition in a niche vertical.
In the U.S., the Hart-Scott-Rodino (HSR) Act requires parties to file with the Federal Trade Commission (FTC) and Department of Justice (DOJ) if the deal exceeds certain thresholds—currently $119.5 million in transaction value (as of 2024). But even below that threshold, regulators can investigate deals that raise competitive concerns.
For example, if your SaaS platform dominates a specific industry vertical and is being acquired by a competitor or a private equity firm with a roll-up strategy in that space, the deal may attract scrutiny. The review process can take weeks or months, and in some cases, may require divestitures or behavioral remedies to proceed.
Firms like iMerge often help clients assess antitrust risk early in the process, especially when evaluating strategic buyers or PE-backed platforms with overlapping portfolios. This foresight can shape buyer selection and deal timing.
2. CFIUS Review: Foreign Buyers and National Security
If your buyer is a non-U.S. entity—or backed by foreign capital—you may need to consider a review by the Committee on Foreign Investment in the United States (CFIUS). This interagency body has the authority to block or unwind transactions that pose national security risks.
Historically, CFIUS focused on defense contractors and critical infrastructure. But in recent years, its scope has expanded to include data-rich tech companies, AI platforms, cloud services, and even health tech firms. If your company collects sensitive personal data, develops dual-use technologies, or operates in sectors like semiconductors, cybersecurity, or telecommunications, a CFIUS filing may be advisable—or even mandatory under the Foreign Investment Risk Review Modernization Act (FIRRMA).
Consider a hypothetical: A U.S.-based SaaS company serving healthcare providers is approached by a European acquirer with Chinese limited partners. Even if the buyer is headquartered in the EU, the presence of Chinese capital could trigger a CFIUS review due to data sensitivity and indirect foreign influence.
While CFIUS filings are technically voluntary, failing to file can result in post-closing investigations, fines, or forced divestitures. An experienced M&A advisor can help you assess whether a filing is prudent and how to structure the deal to mitigate risk.
3. Export Controls and IP Transfer Restrictions
Another often-overlooked area involves export control laws, particularly if your company develops software with encryption, AI, or machine learning capabilities. Under the Export Administration Regulations (EAR) and International Traffic in Arms Regulations (ITAR), certain technologies cannot be transferred to foreign entities without a license—even through an acquisition.
This is especially relevant in cross-border M&A. If your codebase includes controlled encryption algorithms or your platform is used in defense-adjacent applications, the sale may require export licenses or carve-outs to exclude sensitive assets from the transaction.
In some cases, buyers may request representations and warranties that your company is not subject to export restrictions—something you’ll need to verify during diligence. As we noted in Legal Documents Required to Sell a SaaS Business, these representations can carry significant post-closing liability if inaccurate.
4. Sector-Specific Regulatory Approvals
Depending on your vertical, additional regulatory bodies may have jurisdiction over your transaction. For example:
- Healthcare tech companies may need to comply with HIPAA and notify the Department of Health and Human Services (HHS) if patient data is involved.
- Fintech platforms may require approval from the SEC, FINRA, or state banking regulators.
- Telecom or cloud infrastructure providers may fall under FCC oversight.
These sector-specific reviews can delay closing or require deal modifications. In some cases, buyers may insist on indemnities or escrow holdbacks to cover regulatory risk—topics we’ve explored in Mergers and Acquisitions: Reps and Warranties Negotiations.
5. Data Privacy and Cross-Border Compliance
With the rise of GDPR, CPRA, and other data privacy regimes, cross-border data transfers are under increasing scrutiny. If your company stores or processes data from EU citizens, for example, a foreign acquisition could trigger data localization or consent requirements.
Buyers will want to know whether your data practices are compliant and whether customer contracts allow for assignment or transfer. As we discussed in How Do I Handle Customer Contracts During the Sale of My Software Business?, these clauses can become gating items in the deal timeline.
How to Prepare: Proactive Steps for Founders
To avoid delays or deal fatigue, founders should work with their M&A advisor and legal counsel to:
- Conduct a pre-sale regulatory risk assessment
- Map out data flows, IP ownership, and export control classifications
- Identify any foreign ownership or control in the buyer’s structure
- Review customer contracts for assignment and data transfer clauses
- Build regulatory timelines into the deal calendar
At iMerge, we often help clients navigate these complexities well before a Letter of Intent is signed. By anticipating regulatory friction points, we can guide founders toward buyers and deal structures that minimize risk and maximize certainty of close.
Conclusion
Legal and regulatory approvals are no longer just a concern for Fortune 500 companies. In today’s environment, even mid-sized tech exits can trigger antitrust, CFIUS, or sector-specific reviews—especially when foreign capital, sensitive data, or strategic technologies are involved.
Understanding these risks early and planning accordingly can mean the difference between a smooth exit and a stalled transaction. With the right advisory team, you can navigate these hurdles confidently and keep your deal on track.
Founders navigating valuation or deal structuring decisions can benefit from iMerge’s experience in software and tech exits — reach out for guidance tailored to your situation.
