Common law's influence on the Italian M&A market

Before analysing the influence of Common Law on Italian M&A regulation, it’s essential to provide a general overview of how this legal and economic phenomenon is applied and widespread in Italy’s economy. In 2023, Italian M&A activity remained resilient in terms of deal volume, with 1,270 transactions, almost identical to 2022 (1,271), and even exceeding the “frenzied” levels of 2021. However, consistent with global trends, the total deal value dropped significantly to €35 billion (–59% compared to 2022), mainly due to the absence of megadeals. In contrast to broader European trends, Q1 2024 saw a strong rebound in deal value in Italy (€15 billion, +55% vs Q1 2023), even though deal volume dropped by 24%. For the full year 2024, Italy recorded 1,365 M&A transactions (+13% vs 2023), with a total deal value of approximately €63.9 billion (+9%), as reported in the “EY M&A Barometer – Review 2024 and Preview 2025.” The most active sectors remained Industrials & Chemicals, Retail & Consumer, Technology, and Energy & Utilities, and it has to be pointed out that M&A activity was particularly concentrated in Lombardy.  In 2024, Italian companies carried out 280 foreign acquisitions (vs 261 in 2023), confirming their strategic flexibility. Although, like in most European M&A markets, activity in Italy has been recently influenced by the ongoing evolution of the current complex and uncertain geopolitical and geoeconomical scenario due to the ongoing war in Ukraine and the war between Israel and Hamas, deal activity continues to reflect the steady confidence of international and domestic investors, the growing global interest in the Italian market, and the increasing reliance of Italian corporates on M&A as a tool for rapid growth and consolidation of their core businesses. Thus, for 2025, forecasts indicate continued development, high liquidity, and a further increase in private equity activity.

According to the foregoing, it is possible through that overview to highlight the importance of the legal paradigm governing M&A transactions. Therefore, if the Italian M&A context is analysed from a legal point of view, it is possible to grasp how a relevant influence of Common law principles in this field driven by the increasing internationalization of deals and the use of English law-style contracts and practices.

Therefore, it is useful to draft a breakdown of the ways this Common Law principles impacted the Italian M&A environment. Starting with Contractual drafting and structure, it is possible to affirm that M&A contracts governed by Italian law are often structured and drafted in a Common Law style, especially in cross-border deals, namely those operations that involves companies of different countries. This includes the use of legal concepts as ‘Warranties & Representations’ which are often based on reference accounts—snapshots of the target company’s financial position (usually dated 31/12 of the previous year) showing what it owns and owes. These accounts cover the period from their date until closing (the Closing Date Accounts, often set at month-end to avoid cut-off issues, provided that closing conditions are met)

During the interim period Obligations/Covenants takes place, these can be positive or negative covenants, in relation to the fact that them are obligations of do something (eg. To present periodical reports) or to limit or refrain in doing something (eg. To not sell assets without consent). Indemnity clauses are stipulated in the realm of this stage as well; the buyer can seek recovery for indemnities and for any breach of representations, warranties, or covenants after the closing, but only within the time limits set for each of them. Moreover, MAC clauses (Material Adverse Change clauses) are often included by the parties, which are contractual clauses that usually ascribes to one of the parties the right to withdraw from the contract or to suspend its execution if, in the interim period, an event that has or could have a negative effect economic, patrimonial, financial or operative situation of the target company occurred.

Italian M&A is characterised also by the use of Earn-out mechanism which is contractual tool that has the function to bridge valuation gaps between buyers and sellers; Particularly it is a provision in an acquisition agreement that allows the seller to receive additional compensation after the closing of the deal, based on the future performance of the target company; Italian courts used to apply narrow interpretation in relation to this clauses, therefore it’s essential to draft them in contracts with great precision.

A further significant Common Law influence is visible in pricing structures, which determine how the purchase price is calculated and how economic risk is allocated between signing and closing. The two most common approaches are:

Locked-Box Mechanism, according to which the purchase price is fixed in advance based on a set of financial statements (‘’locked-box accounts’’, typically dated before signing, therefore the price is set based on the target’s balance sheet at a historical date, so price certainty constitutes the aim of the parties at stake; It is not possible to do post-closing adjustments, then no changes are made at closing, as the economic risk shifts to the buyer from the locked-box date; moreover, the seller commits that no value leaks out of the company between the locked-box date and closing, except for what has been expressly agreed upon in the contract (e.g. salaries).

Instead, according to the Closing Accounts Mechanism the purchase price is adjusted after closing based on the actual financial position of the target at the closing date, thus after closing, audited or reviewed accounts are prepared and consequently the purchase price is adjusted up or down based on these accounts; The aim of this mechanism is to provide protection against changes in value between signing and closing.

In defining the scope of the buyer’s protection and the seller’s liability two key phases shall be considered. Indeed, Due diligence is the investigative process that the buyer undertakes before completing an acquisition to assess the target company’s legal, financial, tax, operational and commercial condition. This stage could have many purposes as to identify risks and liabilities, to understand the true value of the business and to inform the negotiation of purchase price, warranties and other terms; In Common Law, due diligence is essential because there is no general duty of disclosure, so it’s buyer beware. In Italy, there is more protective legislation for good faith and information asymmetry, but due diligence remains crucial.

Instead, Disclosure refers to the process by which the seller provides detailed information about the business to the buyer generally through a data room and a disclosure letter that qualifies seller’s warranties; in this case the aims of this phase are to protect the seller by limiting, because all has been properly disclosed may not give rise to a claim and to ensure the buyer is informed in order to assume certain known risks

Even if Italian civil law approach is historically more paternalistic than the common law approach in the field of Due Diligence and Disclosure related to the existence of a clear and well-developed principle of Good faith (ex artt. 1175, 1375), the fact that parties adopt Common Law standards also in this realm have become widespread

Another key issue is about dispute resolution and governing law. Indeed, many cross-border M&A transactions in Italy choose English law or American (New York) law as governing law, with arbitration clauses or foreign courts (as LCIA, ICC). In this field, an important influence exercised by Soft Law (ABA Model Merger Agreement, UK Takeover Code)  principles could be grasped, through which Italian M&A lawyers find notable discipline useful especially in private equity and venture capital; Then it is important to point out that soft law principles as them are the result of the content of a range of quasi-legal instruments that do not bear an actual legally binding force, that constitutes a difference from hard law which is traditional law.

Now the question regards the fact how these legal institutes are enforceable under the Italian civil law system. Even if the Italian legal system is one of the most detailed and codified law of the world, with more of ten thousands written laws if all sectors are considered, it was deemed that in order to deal with M&A under a legal point of view, Common law principles are considered fit for the purpose to follow international standards often used in this realm, as several contracts such as SPAs (Share Purchase Agreements) are usually written in Anglo-Saxon style. Thus, it is possible to implement that discipline into our contract law discipline in light of the existence of the fundamental principle of ‘’Freedom of Contract’’ ex art. 1322 c.c. which states that:

1. Parties may freely determine the content of the contract within the limits imposed by law.

2. They may also enter into contracts that do not belong to the categories expressly provided for by law, provided they are intended to achieve interests deserving legal protection, in accordance with the legal system.

Thus, it is possible to infer that the contractual autonomy provided for under Article 1322 of the Italian Civil Code allows the parties to freely shape their agreements, including by drawing inspiration from Common Law models, as long as they do not conflict with mandatory rules or public policy.

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In conclusion, while Italy remains a Civil Law jurisdiction, Common Law’s influence on M&A is profound and growing, driven by globalization, market standardization, and cross-border players. Italian M&A practice today is a hybrid, combining Civil Law legal foundations with Common Law transactional efficiency and flexibility.

CC: Leo Colabella