85–90% of M&A deals in the financial sector in the EU face legal disputes, regulatory claims, or price renegotiations within the first two years after closing: this is consistently reported by studies of major law firms and consulting groups in Europe and Asia. For an owner from Europe, Asia or the CIS this means one simple thing: purchasing an EU investment company instead of quick access to a license and a client base turns into a protracted fight to preserve ROI and reputation.
I regularly see deals with an “ideal” target break down over fines for breaches of anti‑money laundering rules (AML/CFT), non‑compliance with MiFID II/AIFMD, undisclosed liabilities and errors in SPA structuring. The buyer expects a quick market entry, EU passporting of services and tax optimization, but instead gets frozen accounts, regulatory claims and investor outflows.
Why does this happen if you have lawyers, auditors and consultants? What legal mistakes are most common when buying an investment company in the EU, and how can they be systematically eliminated? And how does AML screening actually affect the timing and cost of closing a deal to acquire an investment company?
In this article I will break down the top‑8 typical mistakes when buying an investment company in the EU, show their real consequences and provide practical checklists for Due Diligence when purchasing an EU company, SPA structuring and post‑merger integration. If you are planning to buy an asset manager, broker, management company or fund in any EU jurisdiction, I recommend reading to the end: it will save months and millions.
Buying an investment company in the EU: risks for businesses from the CIS and Asia
Purchasing an EU investment company for entrepreneurs from Asia and the CIS may seem logical: an existing license, active funds (UCITS, AIF), established AUM and access to passporting/freedom to provide services across the Union. But the regulatory landscape in Europe is complex: MiFID II / MiFID III, AIFMD, PRIIPs, national rules FCA, BaFin, AMF, CSSF, CNMV — all of this creates a dense layer of requirements on capital, governance, product governance, suitability and reporting.
For a cross‑border buyer it is critical how corporate due diligence is structured:
- verification of owners and beneficiaries in the transaction;
- UBO verification across all levels of holding/SPV/feeder funds;
- analysis of the Beneficial Ownership Register in the relevant EU country;
- assessment of the anti‑money‑laundering program’s compliance with AML/CFT standards and sanctions lists.
| Jurisdiction | Regulator | Key risks | Advantages for Asia/CIS |
|---|---|---|---|
| Luxembourg | CSSF | Strict AIFMD compliance, capital adequacy, focus on shadow banking risks | Developed fund infrastructure, convenient for fund migration and re‑domiciliation |
| Ireland | CBI | Passporting limits, strict oversight of UCITS/AIF, depositary requirements | Strong UCITS wrapper platform, good reputation for international investors |
| Malta | MFSA | Sanctions and reputational risks, scrutiny of Asian capital | Faster Licensing, flexible SPV structures and segregated portfolio companies |
Against this background, a superficial legal due diligence of an EU investment company becomes a direct threat: you are buying not only the license but the entire historical baggage: legacy liabilities, unresolved AML cases, opaque master‑feeder structures and potential breaches of MiFID/AIFMD.
8 mistakes to avoid when buying an investment company
Top‑8 mistakes when buying an investment company can lead to serious financial losses, legal risks and failed business integration. The consequences of these missteps, such as overpayment or hidden liabilities, often become apparent only after the deal, as real M&A cases show. We’ll examine each in detail, starting with insufficient AML due diligence.
Insufficient AML due diligence at the start
A typical mistake is to limit yourself to passport copies of key clients and superficial KYC/KYB, without digging into payment flows, PEP statuses and sanction-related links. This is especially critical for funds with investors from Asia, the Middle East and offshore jurisdictions.
In COREDO’s practical projects a full AML check included:
- analysis of the target’s anti‑money laundering program (internal policies, transaction monitoring, suspicious activity reporting);
- use of AML screening tools (World‑Check, RDC, LexisNexis) and PEP screening;
- sampling test of client KYC files for compliance with MiFID, AIFMD and national AML directives;
- assessment of sanctions compliance & screening workflows, including response to list updates.
| Step | Action | Tools/Focus |
|---|---|---|
| 1 | UBO verification | EU BO registers, corporate registries |
| 2 | Sanctions & PEP screening | World‑Check, LexisNexis, national lists |
| 3 | Analysis of source of funds / wealth | KYC/KYB dossiers, bank confirmations |
| 4 | Review AML policies & transaction monitoring | Internal regulations, suspicious activity reports |
| 5 | Check of CRS/FATCA reporting | Compliance with automatic exchange |
Mistake: ignoring UBO verification
The second area that is often underestimated is the verification of owners and beneficiaries in a transaction. The buyer focuses on the current legal owner but does not trace to the ultimate economic owner — the final economic beneficiary, especially if the structure includes several SPVs, holdings and feeder funds across different jurisdictions.
EU regulators conduct their own regulatory fit & proper tests for new owners, analyzing not only financial solvency but also reputation, sanctions history and connections to high‑risk jurisdictions. If you have not conducted reputational due diligence and vendor/seller screening in advance, approval may be delayed or not granted at all.
It is important not only to verify the UBO’s identity but also to understand what you are actually buying: how to verify real access to the target’s investment strategies and IP, and whether there is a hidden “competing” UBO who controls key managers or distributors?
Tax traps without optimization
Buyers often assume that tax optimization when buying a company in the EU is a later concern: first we close the deal, then we will deal with transfer pricing, tax residency and permanent establishment. In practice, tax traps on acquisition (deferred tax, hidden VAT, non‑deductible expenses) appear in the first year and directly hit ROI.
Key questions we work through with clients’ tax teams:
- what are the tax consequences of an ownership change for an investment fund in the EU, including changes in tax residency and the impact on investors;
- how cross‑border tax treaties and double tax issues work for your cross‑border holding structure;
- whether there are hidden tax liabilities such as deferred tax, unrecognized VAT, thin capitalization and aggressive transfer pricing from past years.
Superficial legal compliance audit
Legal due diligence of an investment company in the EU often boils down to checking corporate documents, key contracts and litigation. At the same time, a superficial check of MiFID/AIFMD compliance is much more dangerous.
Before buying a management company or broker you need to systematically answer at least three questions:
- what to check in MiFID/AIFMD documents before buying a management company: suitability/appropriateness policies, product governance, inducements, best execution, reporting;
- how to ensure that the target’s investment products comply with MiFID/AIFMD and PRIIPs disclosure requirements, correctly disclose risks and fees (performance fees, high‑water marks);
- whether regulatory capital is sufficient and whether capital adequacy and regulatory capital requirements are met under national rules.
Hidden liabilities and legacy risks
Hidden liabilities when buying an investment firm are not only “forgotten” claims and guarantees. In the financial sector, contingent liabilities and legacy liabilities play a major role: historical mistakesin NAV calculation methodology, controversial performance fees, undocumented guarantees to distributors and side‑letter agreements with major investors.
- how to identify hidden liabilities and clearing risks in M&A in the financial sector;
- which insurance checks (D&O, professional indemnity) are necessary when acquiring an investment company;
- how to assess and document contingent liabilities in the SPA for an investment company in order to invoke indemnities and escrow later.
Incorrect deal structure: share deal vs asset deal
The question «how to structure the deal – advantages of a share deal vs an asset deal for an investment company?» seems theoretical until you encounter regulatory and tax consequences.
A share deal allows you to more quickly preserve licenses, contracts and business continuity, but you assume all legacy liabilities, including historical AML and tax risks. An asset deal is cleaner, but:
- in some EU countries, new licensing of investment services is required when buying a business as a set of assets;
- there may be difficulties with transferring clients, termination & change-of-control clauses in distributor agreements;
- there are additional tax consequences and VAT effects.
Deal structuring is usually set out in an SPA (Share Purchase Agreement) or an APA (Asset Purchase Agreement) with a considered consideration structure: cash, shares, earn‑out. At COREDO we always pay particular attention to:
- escrow account / purchase price holdback;
- warranties & reps and indemnity mechanisms;
- earn‑out and payment structure, including anti‑avoidance clauses and earn‑out calculation disputes;
- completion mechanics and closing conditions, including regulatory approvals (FCA, BaFin, CSSF, etc.).
Problems integrating compliance processes after the deal
In a number of COREDO projects, preliminary operational due diligence (ODD) and IT & cybersecurity due diligence included:
- assessment of the investment process ODD: who actually makes decisions, how risk management works, whether there are insider risks and market abuse compliance breaches;
- analysis of KYC/KYB processes for key distributors and clients, assessment of business model risk dependency on third‑party distributors;
- audit of IT infrastructure, data protection, the existence of a data breach response plan and cyber insurance;
- assessment of GDPR risks when migrating fund data to another jurisdiction, including fund migration and re‑domiciliation risks.
Underestimating key person risk and operational risks
- provide for retention plans, option programs and bonus pools tied to post‑deal KPIs;
- secure non‑compete and non‑solicitation within permissible limits;
- assess corporate governance and board composition: whether there are independent directors, how powers are distributed.
Operational due diligence should identify business continuity risks, transaction carve‑outs, dependence on specific distributors (revenue concentration risk), and the company’s readiness for an operational resilience framework that European regulators are actively promoting.
Due diligence checklist for buying an EU company
In COREDO projects I always recommend viewing due diligence of an EU investment company as a set of parallel streams, each addressing a class of risks: legal, financial, tax, AML/compliance, operational (ODD), IT/cyber, reputational.
| DD Type | Key points | Risks without review | Success metrics |
|---|---|---|---|
| Legal due diligence | SPA/APA, licenses, MiFID/AIFMD, contracts | Loss of license, litigation, breach of covenants | Absence of critical red flags |
| AML/Compliance DD | UBO, sanctions, KYC/KYB, AML program | Fines, account freezes, license revocation | 100% of clients under sanctions screening |
| Financial DD | NAV, reporting, valuation policy | Valuation adjustments, deal repricing | Difference between actuals and model <5% |
| Tax DD | TP, deferred tax, double taxation, hidden VAT | Additional tax assessments, reduced ROI | Tax opinion, clear tax structure |
| Operational ODD | Investment process, key persons, distribution | Client outflow, loss of alpha, business gaps | Approved PMI plan before closing |
| IT & Cyber DD | Systems, GDPR, cyber risks | Data breach, GDPR fines | Data migration and protection plan |
| Reputational DD | Public cases, media, regulatory history | Reputational risk, sanctions exposure | No “toxic” connections |
Post-deal integration and ROI
A deal is considered successful not on the day of closing, but after 2–5 years. Clients often ask which KPI to use to calculate the economic effect of the deal and ROI after 2–5 years, and which metrics to use to assess the long‑term value and scalability of the acquired investment company.
In COREDO’s experience, the following metrics work well:
| Metric | Target (2 years) | Calculation |
|---|---|---|
| Deal ROI | >15% | (Synergies + cost savings – PMI costs) / Purchase price |
| Client retention | ≥90% of AUM | AUM post‑PMI / AUM pre‑deal |
| EBITDA margin | Increase by 3–5 p.p. | Operating profit / revenue |
| Time‑to‑integration | ≤12 months | Share of processes migrated to the target model |
| Regulatory incidents | 0 material cases | Number of material breaches of MiFID/AML/GDPR |
How to choose a partner for purchasing an investment company in the EU
- Form a team with EU‑M&A experience in the financial sector. It should include M&A and regulatory lawyers, tax advisors, AML/compliance experts and ODD/IT‑risk specialists. COREDO’s practice confirms: transactions with such a team proceed faster and with fewer surprises.
- Run preliminary AML and sanctions screening before the LOI. This allows you to weed out toxic targets early and avoid spending months structuring a fundamentally problematic deal.
- Model the deal structure and ROI before starting full due diligence. Scenario analysis of the tax structure, passporting restrictions, key person risk and dependence on distributors will help understand the upper price limit and which warranties & indemnities are essential.
Buying an investment company in the EU is a powerful tool for scaling a business from Europe, Asia and the CIS, but only if you manage regulatory, tax and operational risks systematically. If you are preparing for a deal or considering a specific target, the COREDO team can become the long-term partner that takes on the complexity of due diligence, structuring and post‑deal support, leaving you with the main thing – strategic decisions and business growth.