'Deals by China-based investors in the EU fell by 63% in 2020 - Scrutiny of foreign takeovers in the EU has expanded to focus more on tech sovereignty' - fDi intelligence
In the days before Christmas in 2020, France’s minister of armed forces Florence Parly gave a strong signal of support for the local defence industry. She announced that US industrial group Teledyne’s plan to buy Photonis, a supplier of night-vision goggles to the French armed forces, would be blocked.
“Photonis is essential to our military operation,” she tweeted on December 18, 2020. “The state is therefore working on a solution for the national recovery of this jewel: the sovereignty of France is our priority.”
Aside from being the first foreign takeover to be prohibited under France’s national regime, the Photonis deal is indicative of the expansion in foreign direct investment (FDI) screening across the EU that has been accelerated by the pandemic. Scrutiny of foreign mergers and acquisitions (M&As) in the EU has now shifted from a focus on the nationality of investors to technology sovereignty.
“It’s become the norm that it’s not only Chinese investors who may face tough scrutiny,” says Tilman Kuhn, a partner in the Germany office of global law firm White & Case. He continues that when the target company’s assets are deemed critical, even M&A proposed by “totally benign investors” from jurisdictions with close ties to EU countries are being screened.
As governments aim to shield potentially transformative technologies from foreign acquirers — in areas such as quantum computing, advanced materials and synthetic biology — national FDI regimes in the EU are constantly evolving.
In the wake of the first annual report into the EU-wide FDI screening regulation published in November 2021, experts say more co-operation on these issues across the bloc is broadly a positive development.
But as the EU’s governing body and member states continue to balance investment promotion with technological sovereignty and the protection of national interests, buyers and sellers face a dynamic and increasingly complex dealmaking environment.
Diverse FDI regimes
The EU-wide screening framework has led to an expansion of national screening mechanisms since it was first proposed to the European Commission in 2017. Despite the number of member states with national FDI regimes increasing from 11 to the current 18, the types and number of deals that are assessed vary widely from country to country.
Since being fully implemented on 11 October 2020, the EU-wide FDI screening regulation has required member states to report their national screening activities to the European Commission and other member states. This reflects the premise that some FDI may pose a security or public order risk in more EU countries than just the member state in which the target company is based.
The Commission can then issue a non-binding opinion about the risk of certain FDI transactions to the screening member state within a 15-day period. But notifications sent to the Commission about FDI that is being screened is the preserve of only a small number of member states.
“The problem of FDI screening is that we have such a diverse situation in Europe,” says Orion Berg, a partner in the France office of White & Case.
18 EU countries have active screening mechanisms for foreign investment Status* of national FDI screening regimes by EU member states