Amendment to Investment Control — New Challenges for M&A Practice

The number of repor­ta­ble sectors will be expan­ded from 11 to 27. This affects areas such as arti­fi­cial intel­li­gence, robo­tics, cyber­se­cu­rity, semi­con­duc­tors, aero­space, quan­tum tech­no­logy, criti­cal raw mate­ri­als, etc. Sector-speci­fic invest­ment control will also be expan­ded. A report­ing obli­ga­tion now also exists in parti­cu­lar for share­hol­dings in compa­nies whose goods are subject to export controls.

In addi­tion, the amend­ment intro­du­ces thres­holds for incre­asing exis­ting share­hol­dings. For exam­ple, the increase of an alre­ady released share­hol­ding to 25%, 40%, 50% or 75% may be subject to a new noti­fi­ca­tion requi­re­ment. Intra-group restruc­tu­rings are exempt from a report­ing requi­re­ment only under very narrow condi­ti­ons. Finally, the Fede­ral Minis­try for Econo­mic Affairs and Energy (BMWi) is to be able to initiate an ex offi­cio review proce­dure in the case of “atypi­cal control acqui­si­ti­ons” below the thresholds.

It is to be welco­med that the legis­la­tor defi­nes the new sectors in part much more narrowly than is the case under the EU Scree­ning Regu­la­tion. In addi­tion, the thres­hold (20% of voting rights) was set higher than origi­nally plan­ned in order to ease the burden on start-ups and finan­cial inves­tors in particular.

The first requi­re­ment is that the (direct or indi­rect) acqui­rer is a non-EU natio­nal, i.e. from outside the EU or EFTA. For sector-speci­fic invest­ment control, howe­ver, it is suffi­ci­ent if the acqui­rer is not from Germany. As a second requi­re­ment, the German target company must operate in a covered sector.

Third, the share­hol­ding must reach a certain thres­hold. In some sectors, a noti­fi­ca­tion obli­ga­tion is trig­ge­red by an acqui­si­tion of at least 10% of the voting rights, for exam­ple criti­cal infra­struc­ture and the areas of sector-speci­fic invest­ment control. In other sectors, a higher thres­hold of 20% applies, such as in the now newly intro­du­ced sectors.

Key chal­lenges relate to the review of report­ing requi­re­ments, timing impli­ca­ti­ons and poten­ti­ally mate­rial risks.

Acqui­si­ti­ons subject to report­ing requi­re­ments are subject to a prohi­bi­tion on enforce­ment. Such tran­sac­tions may only be execu­ted after appr­oval by the BMWi. Other­wise, there is a risk of the tran­sac­tion beco­ming inef­fec­tive and even of crimi­nal penal­ties and fines. Ther­e­fore, the domic­ile of the (direct or indi­rect) acqui­rer and the area of acti­vity of the target company should be carefully exami­ned before­hand. For tran­sac­tions with an inter­na­tio­nal element, it should be noted that more and more count­ries are intro­du­cing or have alre­ady intro­du­ced invest­ment control regimes. If there is a report­ing requi­re­ment or a risk of an ex offi­cio audit, this should be reflec­ted in the sche­dule. The proce­du­res can take a very long time. Upstream test­ing up to two months and the actual test­ing process four months or longer.

If the tran­sac­tion could meet with concerns from the fede­ral govern­ment, the parties should consider how to handle it in advance. The fede­ral govern­ment some­ti­mes inter­prets its secu­rity inte­rests broadly. For exam­ple, this is also about tech­no­lo­gi­cal sove­reig­nty. Howe­ver, prohi­bi­ti­ons have been rare so far. More often, the BMWi only releases funds on the condi­tion that certain commit­ments are made. It may be advi­sa­ble to stipu­late in the purchase agree­ment whether and to what extent the purcha­ser is to be obli­ged to do so.

About Daniel Wiedmann

Daniel Wied­mann is an Asso­cia­ted Part­ner in POELLATH’s Frank­furt office. In addi­tion to anti­trust law (in parti­cu­lar merger control), his prac­tice focu­ses on invest­ment control. He regu­larly repres­ents compa­nies vis-à-vis the BMWi, inclu­ding in in-depth review procee­dings. As part of the consul­ta­ti­ons on the 17th AWV amend­ment, he assis­ted the German Private Equity and Venture Capi­tal Asso­cia­tion with comm­ents and hearings.