Following the global trend of tightening the oversight of foreign direct investment (“FDI”), the German government has stepped up its FDI screening. In 2020 alone, 160 deals have been reviewed, with (as far as publicly known) one proposed acquisition of a German target blocked. Several recent legal and procedural reforms have had a three-fold impact: First, the number of deals subject to mandatory FDI screening (see below 1.) has been extended significantly. Second, the process of notifying a proposed acquisition (see below 2.) has become more formalized and thus cumbersome, even for non-problematic cases. Third, non-compliance can lead to hefty sanctions (see below 3.).

1. Triggers for FDI Screening

Any M&A transaction (a) involving a foreign acquirer (b) and a German target (c) that is active in one of the sectors of interest (d) should be analyzed with regard to a potential FDI filing obligation in Germany.

(a) Transactions that may trigger an FDI notification duty are the acquisition of (i) a company, (ii) of voting rights between at least 10 % and 25 % (exact thresholds depend on which sector(s) of interest are concerned; additional acquisitions by existing shareholders may also be reportable), (iii) or of all essential assets of a company.

(b) Foreign acquirer means any entity that does not have either a seat or its place of management within the European Free Trade Association (i.e. the EU and Switzerland, Norway, Iceland, and Liechtenstein) or within Germany if the target’s activities are military-related. Indirect foreign acquisitions are also captured, e.g., when a German acquisition vehicle that is controlled by a foreign acquirer is used, or in case of the acquisition of a foreign group company that controls a German company.

(c) German target means any entity that either has its seat or its place of management in Germany. For instance, the registered seat of a company may be in one country and the operational headquarter where strategic decisions are taken in another. If the seat and the place of management are in different countries, the likelihood of a multijurisdictional filing process is increased.