EU M&A Regulation is Getting Tougher – What You Need to Know in 2020 and Beyond

By: (Bryan Cave)

The COVID-19 pandemic has made 2020 a difficult year for many companies looking to do deals. Competition agencies and other government regulators have in many cases slowed down their timeframes or even refused to accept regulatory filings. However, even putting the pandemic to one side, a number of new EU regulations and proposals are adding possible additional hurdles for companies looking to do deals – both now, and in the future. Companies need to ensure they are aware of the new obstacles in order to properly plan ahead and mitigate any potential deal risks. In addition to the EU’s new foreign direct investment screening regulations coming into effect yesterday, the European Commission is proposing other deal obstacles such as a new foreign subsidies control regime and, of increasing importance, a change in its approach to accepting deal referrals from the competition agencies of EU Member States.   

European FDI screening is here

In September 2018 (see here), we flagged the coming of the Commission’s involvement for the first time in FDI screening through its proposal for a new foreign direct investment (FDI) screening regulation. The final regulation entered into full force yesterday adding an additional layer of regulatory scrutiny for mergers within Europe. 

The new regime establishes a new EU-wide framework for reviewing FDI coming into the EU on the grounds of national security or public order, and encourages co-operation between Member States relating to any FDI that could present a threat on these grounds.

The key aspects of the new regime include in summary:

• a definitive list of the areas in which FDI may cause concerns, including: critical infrastructure (including transport, media, data processing/storage, defence), critical technologies (including AI, robotics, semiconductors), critical inputs (including energy and raw materials as well as food security), access to sensitive information (including personal data) and freedom and pluralism in the media;
• the establishment of a cooperation mechanism between the Commission and Member States for the exchange of information and comments and importantly “opinions” by the Commission on planned or completed FDI that might threaten national security or public order;
• minimum standards for Member States’ FDI screening regimes, including clear timeframes for screening decisions, the possibility for judicial redress of decisions and non-discrimination between third parties; and
• although the Commission does not have authority to clear or block any FDI, it can issue non-binding (but very influential) observations where it considers that FDI could threaten the aforementioned grounds in more than one Member State or for projects of EU-wide interest.

So, while the new regime is a long way from an “EU approval” regime for foreign investments as exists at EU Member State level and in many countries around the world (e.g. in the US, with its CFIUS regime), it nevertheless represents the first serious involvement by the European Commission in this space that has always been the domain of the Member States.  And depending on how the new regime works in practice, we may see the EU looking to enhance its FDI powers over the coming years…

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