September means the start of autumn, days getting shorter while skies often remain blue and the air crisp. Since two years, September also means time for the annual conference of the German “Forum Investitionsprüfung” – an association/platform of foreign investment control practitioners. Here is a summary of my the main takeaways.
This post will spare you details on location, food, who gossiped what, which car brand is preferred by whom etc. I have covered that in my firm’s Teams chat bilateral conversations and will focus on substance here. Once again, the panels where mostly made up of representatives from regulators, speaking to and with lawyers in a way and with transparency that should only be lauded. Some in the audience mumbled that they would wish for the same kind of interaction in live cases.
Update on German foreign investment control
On the German foreign investment control regime, maybe the most important update is that the government is still working on a consolidated foreign investment control bill. A first draft might be ready for internal discussion within the next months. Having the somewhat scattered German rules consolidated into one piece of legislation would be welcomed by many.
It also seems that we can expect a few important changes:
- Review procedures are supposed to be streamlined, and the deadline for in-depth Phase 2 investigations might be shortened.
- Not unexpectedly, the scope of the regime might be broadened to cover certain types of licensing agreements, and potentially greenfield investments – although the details remain to be seen.
- The list of sectors covered by German foreign investment control might be amended, e.g., with regard to semiconductors and AI
Unfortunately, the Ministry is not minded to change its position that a company holding 10% of another company holding 10% of another company acquiring 10% in a German target still equals an acquisition of 10% by the first company in the chain – so the somewhat peculiar German math will remain: 10% of 10% of 10% of 10% equals 10%. But at least we got a hint that the Ministry is thinking about whether to take a more flexible approach when it comes to the typical limited partnership structures of financial investors.
What to file and substantive analysis
On the content of filings, the regulatory panellists seemed to agree on the following:
- Filings should include details on the parties’ activities. General descriptions along the lines of “the target is active in industrial components” are not helpful. Regulators also look at publicly available information and this should ideally be consistent with what is presented to them in filings.
- Parties should highlight topics that could spark regulatory interest. Proceedings are easier and faster when regulators know what to look at from the beginning compared to when topics only come up later in the review via a regulator’s own research.
- Companies should take expert lawyers when dealing with foreign investment control filings. And for those lawyers, there was more advice specifically for Germany – it generally makes little sense to call within three weeks of submission of a filing and ask for an update on a given proceeding since various governmental agencies usually have three weeks to comment on a case.
Further on Germany specifically, and this is admittedly not new, the government looks at both the risk profile of the acquirer and the risk profile of the target. If the target is active in sectors that are clearly not critical, there is more leeway with regard to the acquirer. This turns around in case the target is active in critical sectors.
The international perspective
Beyond this, conference participants learned more on the international perspective and the EU screening mechanism:
- From the perspective of the European Commission, all EU Member States should screen indirect acquisitions under foreign investment control. This means acquisitions where the direct acquirer might be based in the EU, but is ultimately owned/controlled by a company outside the EU.
- EU Member States these days agree on the principle that there should be a minimum list of sectors that fall in scope of national foreign investment control regimes. The next step is to agree on what those sectors are.
- Regulators would find it helpful if filings across the EU would have to be made within a day or at least within a week or so. Practitioners rightly pointed out that this would be challenging in practice, in particular if parallel filings would have to be made within a day. And there is no similar obligation in merger control.
- There is apparently less of a drive these days to screen outbound investments.
- At least some regulators seem to acknowledge that it might not be ideal for investors that they have to assess filing requirements in 27 EU Member States and potentially file in several of them. While it seems to be unlikely that the European Commission will take over foreign investment control reviews in the near future, maybe one could find middle ground to make things easier for investors.
On making things easier, we heard from certain regulators that they were surprised to learn that not every Member State allowed filings to be made in English. Separately, many agreed that Germany is “far advanced” with a relatively clear list of sectors that are covered by the foreign investment control regime while in other Member States it is unclear which sectors are actually in scope.
Looking back and ahead
It was an event worth attending and those who could not join might enjoy this post. I truly believe that these kinds of exchanges between regulators and practitioners help to foster more efficient use of regulators’ resources and help to bridge the “gap” between the perspective of practitioners and the regulators’ perspective.
While foreign investment control adds red tape for investors, it is here to stay. And a potential tension between wanting to attract foreign investors and wanting economic autonomy might only grow larger in the years to come – so foreign investment control will remain a delicate and interesting field.
Photo by Jaime Lopes on Unsplash
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