1. Introduction

In an era of greater economic nationalism and protectionism, there are increased regulatory burdens for buyers generally around the globe, and the EU and UK are no exception to that, albeit fewer such barriers exist in the UK. We highlight three key ones below.

2. Merger control

If the parties to a transaction meet certain well defined monetary turnover and/or market share thresholds in EU countries, then a mandatory EU merger control filing will be triggered, either on a one-stop-shop basis at the EU level (i.e., with the EU Commission) or alternatively, at the national Member States level (i.e., with national competition authorities). The EU Commission’s jurisdictional turnover based thresholds are set high and require substantial turnover in the EU to be achieved by at least two parties to a deal in order to trigger a filing. By contrast, the jurisdictional thresholds of the EU Member States tend to be lower and filings are therefore more easily triggered at the national level in practice (e.g., Ireland where a filing is required where (1) the parties’ combined turnover in Ireland is at least €60m (approx. US$64.8m), and (2) the Irish turnover of each of at least two parties is at least €10m (approx. US$10.8m)). This can lead to multiple mandatory national filing requirements which need to be carefully managed from a time and cost perspective (but note that when three EU Member States filing requirements are triggered, a deal can normally be reviewed by the EU Commission by following the specific Form RS procedure). A failure to make a mandatory filing is the commission of a criminal offence in certain EU countries such as Greece and Ireland, so it is important for a proper analysis to be made and advice taken. In most EU countries though, failure to file can lead to the imposition of significant fines on the party(ies) responsible for filing.

In the UK, unlike the mandatory regimes of EU and national Member States, merger filings are voluntary. This means that there are no sanctions for not filing in the UK before closing, even if the relevant jurisdictional thresholds are met, namely either (1) the target’s UK turnover exceeding £70m (approx. €82.1m/US$87.0m), or (2) a combined share of supply of 25% or more. In practice though, it is advisable to file if any of the UK relevant thresholds are met as otherwise, the risk is that the deal could be called in for investigation by the UK Competition and Markets Authority (the CMA) at its own initiative, and in a worst-case scenario set aside and un-wound even if the deal has already been closed.

Merger filings in the EU and the UK require a significant amount of information on the target, the buyer and the corporate group to which it belongs and on the market(s) in which both businesses operate. Merger filings also require substantive input on why the deal will not impede competition. This means that the parties must factor in sufficient time to collect information and to prepare the merger filing. This is much more time consuming and burdensome than a simple “tick the box” exercise, although the EU Commission has made recent efforts to simplify and expedite the merger control process for categories of mergers deemed from the outset not to raise competition concerns.

Filings tend to be suspensive in most jurisdictions and closing is not permitted until the relevant wait-ing period has expired and/or clearance has been obtained. A straightforward ‘no issues’ clearance can take at least one month from filing and in complex cases, anywhere from an additional 4-5 months to one year or more, if remedies are necessary. If a buyer already owns a business with significant market share that competes with the target, then this will be a likely trigger for an extended in-depth investigation by the competent competition authorities.

Filing fees will depend on each jurisdiction. It is noteworthy that there are no filing fees associated with an EU filing, but then the cost of preparing an EU filing is not negligible.

3. Foreign Direct Investment (“FDI”)

More and more transactions are subject to formal FDI reviews in the EU and the UK.

The key question is whether the proposed transaction concerns a sensitive business area such as advanced robotics, AI, satellite and space technologies, energy, transport, and/or one where national security could be affected. If so, then as a “foreign” buyer, there is likely to be a filing required in one or more countries in order to get clearance under the local FDI regime. Note that some national regimes cover investments only by non-EU investors while others apply to any non-domestic investors. There is currently no pan-EU FDI filing mechanism akin to what exists in EU merger control, but instead, national regimes differ widely in terms of industries viewed as “critical”, filing trigger requirements and process, including whether they are suspensory or not.

Apart from the UK, most EU countries currently have their own FDI regime, including Austria, Belgium, Cyprus, Czechia, Denmark, Estonia, Finland, France, Germany, Italy, Latvia, Lithuania, Luxembourg, Hungary, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden.

FDI regimes typically have no lower limit in terms of deal size, and are usually very broad in scope and particularly so in some countries such as Italy’s “golden share” legislation or more tightly defined in for example the UK where 17 sensitive areas of the economy are listed.

The duration of proceedings also varies depending on the jurisdictions. These typically can vary from approximately 45 days if straightforward and much longer if not straightforward – typically 6 to 8 months, with perhaps a refusal at the end or significant conditions imposed if the transaction is permitted.

The FDI regimes are quite political in nature and are typically overseen by a minister in the relevant EU/UK government of the day, and so far appear to have resulted (but by no means always) in a number of Chinese owned investors being blocked from making the relevant transaction, or at least subject to some conditions (where not blocked). Since their introduction, even investors from so called allied or friendly countries are not immune, and have in a small number of cases, had deals blocked or made subject to conditions.

4. EU’s Foreign Subsidy Regulation (“FSR”)

The FSR targets foreign subsidized transactions in the EU and complements existing EU merger and FDI rules. It is a relative newcomer to the EU regulatory arsenal (i.e., it only came into force in October 2023). It impacts transactions (i) where the target, the merging undertakings or a JV have turnover in the EU of EUR 500 m or above, and (ii) where the parties to a transaction have received from a foreign (non-EU) state or from entities controlled by that foreign state financial contributions exceeding EUR 50 m in the three years preceding the deal. Financial contributions are widely defined and capture all forms of contributions, regardless of their nature and rational. In practice, this means that businesses must closely monitor all financial contributions that they receive from non-EU states on an ongoing basis.

The aim of the FSR legislation is to tackle foreign non-EU subsidies that distort the level playing field between overseas and local EU based buyers of EU assets. However, despite the rhetoric that the FSR is centered around the protection of EU companies from subsidized foreign companies, the FSR also catches EU buyers who receive foreign subsidies from outside the EU.

The EU Commission’s FSR enforcement has so far, and it is still early days, focused mainly on Chinese subsidized business activities in the EU, but the EU has and will investigate all types of foreign subsidies, irrespective of the third country behind them.

Detailed filings to the EU Commission in parallel to any applicable merger control filings will be required. This involves again a lot of information gathering for the buyer in making a filing and is both time consuming and costly. The timelines for obtaining clearance under the FSR have been deliberately aligned with the EU merger control rules. A straightforward case will be cleared in a Phase I investigation lasting 25 working days, and more complex cases are subject to an extended review period of an additional 90 working days (extendable).

5. Takeaways

For any buyer, ultimately the costs of making the filings, if required and the length of time for obtain-ing clearance will need to be factored into the sale and purchase agreement with a suitable long stop date, and in certain cases a buyer would also want the ability to extend the period if a final clearance decision has not yet been issued, but the clearance process is well advanced.

A robust upfront assessment of whether or not any such regimes are triggered, as well as a risk assessment on the likelihood of getting a positive outcome if any relevant thresholds are tripped or the investment is in a sensitive sector, are very important. This can then inform any buyer’s approach to the deal, and whether it is worth pursuing.