Outside of anti-trust and heavily regulated sectors, are there any foreign investment controls or other governmental consents which are typically required to be made by financial sponsors?
The acquisition of ownership and certain lease interests in real estate by non-EEA nationals, or the acquisition of control over companies owning such interests, is subject to notification or approval by the local Real Estate Transfer Commission (Grundverkehrsbehörde). What interests are covered and whether notification or approval is required varies from state (Bundesland) to state. Where the real estate is used for commercial rather than residential purposes approvals are usually granted.
Foreign Trade Act
The acquisition of an interest of 25% or more or a controlling interest in an Austrian business by a foreign investor (that is, an investor domiciled outside of the EEA and Switzerland) is subject to advance approval by the Austrian Minister of Economic Affairs under the Foreign Trade Act (Außenwirtschaftsgesetz) where that business is involved in:
• Inner and outer security (Innere und Äußere Sicherheit), for example, defence and security services.
• Public order and security, including public and emergency services (öffentliche Ordnung und Sicherheit einschließlich der Daseins- und Krisenvorsorge), for example, defence, security services, hospitals, emergency and rescue services, energy and water supply, telecommunications, traffic and universities.
Within one month of submitting the application, the Minister of Economic Affairs must either approve the transaction or initiate phase two investigations. If phase two investigations are initiated, the decision is due within two months following the application. If no decision is adopted within those time limits, the transaction is deemed approved by law. The application for approval must be filed prior to signing. Transactions subject to approval cannot be completed pending approval. Failure to obtain approval is subject to criminal penalties.
While the acquisition of an interest of 25% or more or a controlling interest in an Austrian business by an investor that is domiciled in the EEA or Switzerland is not subject to advance approval under the Foreign Trade Act, ex officio investigations may be initiated at any time (that is, there is no time limit to start that procedure). These investigations can be initiated, for example, to counter abusive structures.
Investments by foreign financial sponsors will typically be subject to pre- or post-transaction reporting requirements under the Foreign Exchange and Foreign Trade Act (“FEFTA”). In most cases, acquisition of 10% or more shares of Japanese companies requires either pre- or post-transaction reporting under the FEFTA.
Generally, only a post-transaction reporting will be required under the FEFTA. A pre-transaction reporting and screening by the government is required in limited circumstances if, among others, (a) the target is engaged in certain industries such as the defense industry or nuclear energy, social infrastructure or agriculture, or (b) the investment is made from a country with which Japan has not entered into a treaty relating to inbound direct investment. In such cases, a waiting period of 30 days will apply, which is usually shortened to two weeks if the investment does not relate to national security.
The only case in which the government issued a cease and desist order under the FEFTA was the proposed follow-on investment (from 9.9% to 20%) by The Children’s Investment Fund, a British investment fund, in Electric Power Development Co., Ltd., the largest wholesaler of electricity in Japan.
The Norwegian National Security Act provides that certain transactions are subject to ownership control by Norwegian public authorities. Pursuant to the Act, a direct or indirect acquisition of a "qualified shareholding" (i.e. 1/3 of shares/votes, or rights to 1/3 of shares/votes or other significant influence over the management) in a target company being of particular interest for the Norwegian national security and which as a result thereof is included on a "National security list" by the Norwegian Ministry responsible for the sector of such company, must be notified to and approved by such Ministry.
Switzerland takes a rather economically liberal approach to foreign investment and financial sponsors are, broadly speaking, not restricted or treated differently to domestic investors.
Investment in specific Swiss industries, for instance the banking or insurance sectors, might require certain governmental approvals or state-licensed undertakings. For public policy reasons, Swiss law applies restrictions to foreign investors seeking to acquire real estate that is not permanently used for commercial purposes, such as residential, state used property, undeveloped land or permanently vacant property (Lex Koller). Foreign investors are required to obtain special permits which are limited in application. This rule applies to Swiss companies who are ultimately owned by non-Swiss citizens and is the main exception to Switzerland's foreign investor friendly business environment.
The Dutch government maintains an open policy towards foreign investment. In principle, foreign investors can freely incorporate new companies, establish subsidiaries, transfer a company or acquire shares in Dutch companies. Other than competition legislation, rules for heavily regulated sectors (e.g. financial sector, healthcare sector) and specific rules for public take-overs, no specific governmental consents are required.
However, in line with similar initiatives in other European countries, in the Netherlands there is a legislative proposal whereby it would be able to veto foreign takeovers of companies active in the telecom industry for national security or public order reasons. The government is also looking at other sectors of ‘vital interest’ for the national security and public order where proposals may be made for intervention possibilities in case of foreign direct investment.
The UK generally welcomes foreign investment, and in the vast majority of cases financial sponsors are able to invest in UK companies without undergoing foreign investment review of any kind. The UK government nevertheless has the ability to review transactions on public interest grounds relating to defence, media, and prudential stability, either because they meet certain criteria or as a matter of discretion. These powers have been used in recent years to secure commitments from merging parties to safeguard the public interest - for example, in 21st Century Fox’s bid for Sky, and Melrose’s acquisition of GKN. The UK anti-trust authority (the CMA) also has jurisdiction to review transactions that involve military and dual-use products, as well as technologies of a sensitive nature such as quantum technology. Further, a proposed new regime for National Security and Infrastructure Investments, which will give the government additional powers over deals involving critical infrastructure, has been the subject of a public consultation and is undergoing further review, but this is not expected to become operative until at least 2020.
The Belgian government maintains an open policy towards foreign investment. Foreign investors can freely incorporate new companies, establish subsidiaries, transfer a company or acquire shares in Belgian companies. Currently, no general system of foreign investment control is in place.
However, in line with similar initiatives in other European countries, the Flemish government has recently approved a proposal whereby it would be able to veto foreign takeovers of state-controlled entities for national security reasons. The proposal still needs to be approved by the Flemish parliament.
Apart from the anti-trust aspects and specific requirements related to highly-regulated industries, the most important governmental consents concern acquiring real estate properties, either directly or through a special purpose vehicle.
In particular, acquisition of real properties by a foreigner requires a permit issued by the minister competent for internal affairs, unless the minister of defence lodges an objection, and as regards the agricultural real properties - unless the minister competent for rural development lodges an objection.
Such permit is issued upon a foreigner’s application.
Additionally, different types of pre-emptive right, which depend on the real estate types and locations (e.g. special economic zones, forest real properties, developed real properties) might be applicable to a transaction.
Financial sponsors generally do not have to obtain further consents or authorizations related to the ownership of companies and assets other than in what regards anti-trust and sector specific authorizations. However, in Portugal, if the transaction implicates a financial sponsor resident in a non-European Economic Area (“EEA”) country, this financial sponsor may eventually have to comply with the governmental authorizations required pursuant to the regime set forth in decree-law no.138/2014, of 15 September.
This statute establishes a regime for the safeguarding strategic assets essential to guarantee the security of the national defense and security and the provision of the State in services fundamental to the interest in the fields of energy, transport and telecommunications. Accordingly, transactions that include acquisitions of assets in these strategic areas by a financial sponsor from outside of the EEA should thus be subject to prior review from the Portuguese government; failure to obtain such a clearance prior to the execution of the transaction may subject the latter to the risk of being deemed null and void (if the government finds a posteriori that said transaction poses a risk to national security).
Outside of heavily regulated sectors (for example the financial sector), Sweden has no foreign investment controls or other governmental consents that are specifically required for financial sponsors. Swedish investment funds, or their managers (as applicable), may however be subject to the Alternative Investment Fund Managers Directive and therefore required to register with, or seek a permit from, the Swedish Financial Supervisory Authority. The same applies to foreign investment funds, or their managers (as applicable), that intend to market their funds in Sweden.
Foreign investment in a sector listed in the Negative List requires a pre-closing approval by MOFCOM. Additionally, an acquisition of a Chinese company by a non-Chinese investor is subject to a national security review by a joint committee led by MOFCOM and NDRC in case of (i) a non-Chinese investor’s acquisition of any stake in a military enterprise, a supplier to a military enterprise, a company located near sensitive military facilities, or any other company relating to national defense, or (ii) a non-Chinese investor’s acquisition involving control of a Chinese company the business of which involves key agricultural products, energy and resources, infrastructure, transportation services or technologies or manufacturing of equipment and machinery affecting national security. Moreover, China has foreign exchange control and cross-border currency remittance relating to capital account transactions is subject to the approval by and registration with the State Administration of Foreign Exchange (“SAFE”). These regulatory requirements apply to not only financial sponsors but strategic investors.
There are no foreign investment controls or other governmental consents, which apply to financial sponsors in particular. However, on rarer occasions and more sector-specifically, the Act on Monitoring Foreign Corporate Acquisitions in Finland may become applicable if a foreign buyer acquires a controlling stake of 10% or more in a target company, which operates in a sector considered critical to the functioning of the society. In the defence materiel industry, monitoring covers all foreign owners, whereas in other sectors, such as pharmaceuticals, monitoring only applies to foreign owners residing or domiciled outside the EU or EFTA. Acquisitions in the defence or dual-use sectors are subject to prior approval from the Ministry of Economic Affairs and Employment. In other sectors, an advance notification is voluntary, but the Ministry of Economic Affairs and Employment may subsequently examine the acquisition if no advance notification is made. The Act is rather open-ended giving the Ministry leeway in determining which companies are vital to the functioning of the society.
In France, investment is in principle unrestricted. However, by way of exception, foreign investments carried out in business sectors deemed to be sensitive are subject to prior authorization from the French Minister for the Economy.
In the beginning, foreign investment control was limited to a small number of specific activities, such as gambling, cryptology, weapons and warfare equipment. This list has grown considerably over time and the system has been profoundly overhauled, in particular by a Decree dated 14 May 2014 on foreign investments subject to prior authorization. At present the list includes six new sectors, notably energy, transport, electronic communications networks and services, as well as public health. This list will be extended in the short future to certain technologies including artificial intelligence.
An M&A transaction involving a German target company may be subject to review under the German Foreign Trade Ordinance (Außenwirtschaftsverordnung). The German Federal Ministry of Economics and Energy (Bundesministerium für Wirtschaft und Energie - "BMWi") is entitled to review any transaction provided that a non-EU person acquires (directly or indirectly) at least 25% of the voting rights in a domestic company. The review considers whether the respective acquisition poses a threat to the public order or security of the Federal Republic of Germany. The investment control procedure applies in principle to all sectors and regardless of the size of the companies involved in the acquisition (so-called cross sector review). Special rules apply to the acquisitions of certain defence and IT security companies (so-called sector-specific review).
For the purposes of a cross-sector review, it is sufficient if the German company is only acquired as part of an international Group that has been acquired by a non-EU person or if the non-EU person only indirectly acquires the respective stake in a German company through another EU-company. However, a notification of the BMWi is only required in case the German target company is active in the field of critical infrastructure. Since the BMWi is entitled to conduct a review even without having been notified officially and to issue orders or prohibit the transaction, parties to an M&A transaction that might fall in the scope of the German Foreign Trade Ordinance tend to notify the BMWi and to apply for a clearance certificate on a voluntary basis. As a result, clearance under the German foreign investment control regime is now frequently introduced as a condition precedent to closing in most share purchase agreements with a foreign purchaser acquiring, directly or indirectly a domestic company.
This is in particular true since recent developments have shown that the BMWi, since the amendment of the German Foreign Trade Ordinance in July 2017, takes a closer look to foreign investments. In July 2018, for the first time ever, the German government used its veto right to prevent a transaction based on the grounds of the German investment control procedures. In light of these recent developments, a further tightening of the German foreign investment control process is currently being discussed by the German government and it is expected that the threshold of 25% of the voting rights acquired by a non-EU acquirer will be lowered by 10% to 15%. However, changes to the German Foreign Trade Ordinance are still being discussed and private equity clients should be aware that a lower threshold may become effective to the end of the year.
Other than for anti-trust or regulated markets purposes, there are no foreign investment controls or other governmental consents that are typically required by financial sponsors investing in Greece. It is worth mentioning that Greece has been in a capital controls regime since July 2015; however such regime has been considerably relaxed and currently allows, inter alia, profit or dividend distribution to a foreign investor abroad for up to 100% of invested capital per year, provided that the investment derived from capital outside Greece and was invested within the capital controls period.
No, save in specific regulated sectors such as healthcare, financial services or energy and even in these sectors consents may not be mandatory.
Luxembourg has an open economy and offers a business climate favourable to foreign investment, without any general system of foreign investment control or governmental consent requirements for foreign investors.
Non-Luxembourg residents are free to incorporate new Luxembourg companies or acquire existing Luxembourg companies without restriction.
The United States has implemented an increasingly rigorous national security investment review regime over the last three decades, as foreign direct investment in the U.S. has grown and the nation's national security profile has evolved. Today, the Committee on Foreign Investment in the United States (CFIUS) administers this regime under the authority of the President.
CFIUS is an inter-agency national security body empowered to review certain transactions involving a “foreign person” (including foreign co-investors and non-passive foreign limited partners investing through U.S. funds) and a U.S. business in order to evaluate a transaction’s impact on U.S. national security. CFIUS has the authority to impose measures or conditions to mitigate any national security risks posed by transactions within its jurisdiction, and may even recommend that the President block (or, in the case of completed transactions, unwind) such transactions for national security reasons. Certain transactions also implicate complex policy and political factors, which must be carefully addressed in the context of pursuing CFIUS clearance.
In recent years, CFIUS has closely scrutinized transactions involving private equity acquirers and co-invest structures. New CFIUS reform legislation legislation passed in 2018 codified increased disclosure requirements applicable to private equity sponsors and investors, and a “pilot program” effective in November 2018 mandates that transaction parties submit short-form CFIUS “declarations” for certain investments. Forthcoming regulations to implement CFIUS reform are expected to further strengthen CFIUS’ agency authorities.
No. There is little bureaucracy outside of the regulated economic sectors for financial sponsors to acquire or sell Maltese companies, regardless whether such financial sponsors are based within the EU or outside it.
Generally, a substantial majority of the industry sectors are permitted to receive foreign investment without requiring governmental approval. However, there are minimum pricing requirements to be adhered under Indian foreign exchange laws based on the Indian/non-Indian residential status of the purchaser and the seller.
Sectors such as lottery/gambling, real estate and manufacturing of tobacco products are prohibited from receiving foreign investment.