Germany strengthens foreign investment controls
Out-Law News | 02 Feb 2021 | 3:15 pm | 2 min. read
The German government intends to tighten the rules on foreign direct investment control by extending the list of businesses whose acquisition must be notified to the German Ministry of Economics. The acquisition of control rights will also trigger an investment review.
The German Ministry of Economics and Energy (Bundesministerium für Wirtschaft und Energie/BMWi) has published a draft bill to change the Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung/AWV). New business areas will be added to the list of sectors in which acquisitions by foreign investors have to undergo a security screening. The list will be extended from 11 to 27 security-relevant areas. Foreign direct investments (FDIs) in these areas will then have to be notified to the BMWi and may not be conducted until the ministry has finished the review.
The proposed amendment will possibly lead to significant delays for non-EU investors.
Investors that already hold at least 10% of the voting rights and acquire additional voting rights can also trigger such a mandatory notification and standstill obligation.
In the future, non-EU investors will likely face a competitive disadvantage compared to their EU competitors.
Action items for our clients
Check transactions that are currently being negotiated and determine if they can be completed before the proposed amendment becomes effective.
Review your plans for future acquisitions and investments to account for potential significant delays. Solid preparation will become even more critical.
Going forward: The Ministry has launched public consultations on the draft of the FDI amendment keep an eye on this development! Of course, we will keep you posted.
(only available in German).
For M&A transactions involving German target companies directly or indirectly via the acquisition of a foreign group, the draft contains some good and bad news:
Future deals will be made more difficult by the fact that the catalogue of companies whose acquisition is subject to notification will be
significantly expanded once again.
Moreover, in addition to the acquisition of voting rights, the acquisition of
control and management rights can now, for the first time, also trigger a notification or an
ex officio review. Furthermore, the draft confirms that
share increases beyond existing stake-holdings are subject to foreign investment control, even if the thresholds were already exceeded before the transaction.
January 14, 2021
In 2020, the COVID-19 pandemic taught the world another lesson about the unpredictability of life. Each country responded to the challenges posed by the pandemic in its own way. The German Government in its familiar technocratic and sober approach quickly unlocked massive financial resources to mitigate any immediate economic damage. It supported a further relaxation of the purse strings at EU level and put legislative acts in place that helped manage the uncertainty in the most affected industries for now. Hit by a second wave of the pandemic in an unexpectedly hard way, Germany is now left wondering whether the country really was smart in the spring or just lucky. The new year 2021 will provide the answer to this question.