What German companies and foreign investors need to know after the reform!
A few weeks ago, the Federal Government approved the reform of the investment audit in accordance with the Foreign Trade and Payments Regulation (AWV) for foreign takeovers. Not only can the Bundeskartellamt examine the acquisition of domestic companies by foreign investors and, if necessary, prohibit or impose conditions, but also the Federal Ministry for Economic Affairs and Energy (BMWi). Although this was true even before the reform, the amended AWV regulations expand the room for maneuver of the BMWi significantly. While the merger control procedure serves to safeguard competition, the investment audit by the Federal Ministry of Economics and Technology (BMWi) serves to avoid any fundamental dangers arising from foreign takeovers.
In addition, the European Commission has published concrete regulatory proposals to establish an investment audit mechanism at EU level. Although the outcome of the legislative process is still open, the amended AWV rules must already be taken into account in foreign takeovers today. Only then can sufficient transaction security be represented.
The main changes at a glance:
- Specification of the area of application : For the first time, the Federal Government cites certain target companies whose acquisition, in the opinion of the Federal Government, regularly poses a threat to public safety. These include companies that operate Critical Infrastructures, develop industry-specific Critical Infrastructure-based software that is responsible for monitoring under Section 110 of the Telecommunications Act, providing cloud computing services, or companies involved in telematics infrastructure in the healthcare sector.
- Failure to notify with elementary consequences: The foreign investor is not only required to report if the business object of the target company falls under the aforementioned standard examples, but also if the company manufactures products or offers services that have similar security relevance. In both cases, the acquisition could potentially pose a threat to the public safety of the Federal Republic of Germany. The obligation to register intervenes upon conclusion of the contractual agreement. Unlike in merger control law, the achievement of certain turnover thresholds does not matter. If the message is missed, no fines are threatened, but the consequences can be serious. A prohibition of the acquisition leads to the invalidity of the sales contracts (SPA). If the BMWi does not otherwise learn about the transaction, the deadline for the first phase of the examination process does not start to run. The acquisition may be prohibited for up to five years from the conclusion of the contract in the worst case retroactively.
- Focusing on critical infrastructures : We expect the BMWi to increasingly examine transactions that affect companies in the CRITIS sectors (energy, information technology and telecommunications, transport and traffic, health, water, nutrition, and finance and insurance). This initially refers to operators of critical infrastructuresaccording to the BSI-KRITIS-Regulation. If the target company operates a critical infrastructure, the transaction is potentially at risk of being compromised. In addition, software or IT service providers who supply Critical Infrastructure customers are classified as security-relevant if they, as so-called key IT application manufacturers, produce specific IT applications. Specific IT applications are products that have been industry-specifically modified based on standard applications or developed specifically for the critical infrastructure sector. The demarcation between key IT application manufacturersand other IT application manufacturers can be difficult in individual cases. The necessary transaction security should then be obtained through the application for a clearance certificate.
- Particularly security-sensitive area of the armaments industry is broad : The existing special rules for the acquisition of German armaments and IT security enterprises extends the Federal Government to the protection of a sufficient military security precaution on further defense technology key technologies (so-called sector-specific investment examination). The demarcation between military and civilian security precaution continues to blur. In order to be able to estimate the risks of a ban on the transaction by the BMWi, an assignment should nevertheless not be waived as part of due diligence.
Design notes for the transaction practice
The amended AWV regulations must be taken into account in the process and contract design.
- Potential sellers from supply relevantKey industries should illuminate the bidders ahead of the transaction. With foreign investors is to represent, why in the individual case the security of Germany is not touched. The foreign purchaser should also be contractually obliged to notify the BMWi of the acquisition without delay. Otherwise, the BMWi can prohibit the transaction for up to five years after the conclusion of the purchase agreement and demand the reversal of a completed purchase - a disaster for both parties after so long. Therefore, the contract should also include a corresponding closing condition. If there are negotiations with the BMWi about contractual arrangements to ensure public safety, these are to be prepared carefully.
- In order to establish transaction and thus investment security in cases of doubt , a clearance certificate should be applied for at an early stage. If this has not been done at the time of the conclusion of the contract, the acquirer should, in view of the newly introduced absolute five-year period, assume the obligation to make such an application upon conclusion of the purchase agreement. This should be regularly flanked by a corresponding closing condition.
- The time factor plays an essential role in the transaction business because some deals have to be completed within a few weeks. At the same time, acquisitions are becoming increasingly complex. All the more important is a careful preparation of the transaction taking into account these new requirements of the investment audit. Although it is not expected that the BMWi will always exhaust the extended procedural deadlines, the parties will have to adapt to the extended procedure.