I. Introduction

1. German FDI Screening Regime in M&A Transactions

Whilst foreign direct investments ("FDI") in German companies have been subject to a screening regime for a long time, over the last few years the FDI regime in Germany has constantly become tighter and more M&A transactions are subject to review and the authorities take a closer look at those transactions. In 2018, for the first time in Germany, a transaction targeting a mid-size German metal spinning company was to be blocked under the FDI regime (although the deal was cancelled before this happened). The Covid-19 pandemic has drawn special attention to the FDI instruments that act to safeguard Germany's medical capabilities; as such, FDI considerations have become an important topic in terms of deal certainty and deal preparation.

Newly introduced "gun-jumping" rules require a thorough assessment to avoid fines and even criminal charges relating to information exchange and closing a deal without the requisite clearance. Since 11 October 2020, the EU FDI Screening Regulation applies, and, on 7 October 2020, the latest amendment to German FDI laws was introduced. Investments from the UK will be treated as FDI upon termination of the transition period for Brexit on 31 December 2020, absent specific arrangements. This white paper gives an overview of the German FDI regime and the key considerations necessary for the smooth navigation of an M&A process.

2. Overview of the German FDI Screening Regime

The German FDI regime differentiates between a (i) sector-specific (see III.1) and (ii) cross-sector (see III.2) review. Whereas the sector-specific review is applicable to transactions in the area of defense and military goods, the cross-sector review is applicable to all (other) transactions. The cross-sector mechanism differentiates between certain key industries, namely so-called "critical infrastructure", software relating to critical infrastructure, and certain further listed industries ("Key Industries"), and all other industries, and provides for tighter rules in respect of transactions in Key Industries. The German Ministry for Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie; "German Ministry") is the competent authority for the FDI review and coordinates the process with other German and European authorities. The FDI screening regime in Germany is governed by the Foreign Trade and Payments Act (Außenwirtschaftsgesetz; "FTPA") and the Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung; "FTPO") and, from EU level, by Regulation (EU) 2019/452 to establish a Framework for the Screening of Foreign Direct Investment in the Union ("EU FDI Screening Regulation") (see II.). These rules require certain steps to be taken pre- and post-signing to ensure a successful closing (see IV.).

Investments from the UK will be treated as FDI upon termination of the transition period for Brexit on 31 December 2020, absent specific arrangements.

II. EU Coordination Mechanism for FDI Screening

The purpose of the EU FDI Screening Regulation is not to create an overarching European investment control mechanism and not to transfer the corresponding decision-making power to the European Commission, as the Committee on Foreign Investment in the United States ("CFIUS") is equipped with in the United States. The ultimate decision remains with the Member State whose FDI regime applies (this can be more than one Member State for the same transaction). It imposes a coordination mechanism on all Member States that have an FDI screening regime, but it does not itself impose a screening mechanism on a Member State. Currently, 16 Member States have national screening regimes for FDI1. If a Member State has an FDI screening regime, it must ensure that it is transparent, non-discriminatory and complies with the common framework set by the EU FDI Screening Regulation. If a transaction affects more than one Member State, the cooperation mechanism of the EU FDI Screening Regulation shall ensure the involvement of the European Commission and of the relevant Member States.

The ultimate decision remains with the Member State whose FDI regime applies.


1 Austria, Denmark, Finland, France, Germany, Hungary, Italy, Latvia, Lithuania, the Netherlands, Poland, Portugal, Romania, Slovenia, Spain and the United Kingdom.

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