20 December 2017

New takeover regulation – stricter regulations and additional documentation requirements for non-EU investors for acquiring certain German businesses


Germany is not only famous for its beer festivals and cuckoo clocks, but also for its very strong medium-sized companies, which are the backbone and growth drivers of the German economy.

In the recent years, especially, but not only, Chinese investors entered the German M&A market and acquired medium-sized companies with crucial know-how, e.g. the acquisition of Kuka, a world-leading group for intelligent automation solutions based in Augsburg. This and also other successful and failed acquisitions were discussed controversially in the German press and by German politicians as it was feared that the Chinese investors will pull-out technical know-how and reduce the companies’ workforce. Until then the access for foreign investors to the German mergers and acquisitions market had not been restricted. Only for companies of the defense industry the German Ministry of Economics had a final veto-right.

Surely as a reaction of the Kuka acquisition, the German Economic Affairs Ministry has amended as of 12 July 2017 the existing German Foreign Trade and Payments Ordinance by introducing better rules of scrutiny of corporate acquisitions by non-EU investors. The purpose of the amendments is to finally ensure Germany’s security interests by giving the Economic Affairs Ministry more scrutiny rights for investments of non-EU investors in companies operating in sectors with a critical infrastructure.

The new regulations especially added the sectors energy, IT, cloud computing, telecommunications, telematics, transportation, healthcare, water, nutrition, finance and insurance as relevant sectors as well as companies developing software for either of these.

If a foreign non-EU investor or an acquisition vehicle based in Germany but acting on behalf of a non-EU investor intends to acquire a German company falling under the scope of the foreign trade regulations, the investor has to inform the Economic Affairs Ministry about the planned acquisition.  The scrutiny period for the Ministry to potentially prohibit a transaction is four months and will not start before all documents are available for review. The decision whether documents and information are complete is thereby under the sole discretion of the Ministry.  To have faster legal certainty, investors can apply for a certificate of harmlessness of a transaction. This certificate is deemed to have been issued by the Ministry after two months, unless the Ministry has not kicked-off a scrutiny, about which the Ministry has to inform the investor and the target in writing. The investor has then to provide detailed information in German language to the Ministry, e.g. the purchase agreement, the transaction structure, financial statements or the investor’s strategy. Additionally, further information might be requested by the Ministry of Economics in respect of influence of the target company on the market, information about the locations in Germany, the future collaboration between the investor and the target company or e.g. information about the target’s R&D position compared to its competitors.

In either case, five years after the signing of a share and purchase agreement, the scrutiny right of the Ministry has finally expired.

Overall it must be waited and seen whether the amended takeover regulations in general will lengthen the M&A deal processes. Nonetheless it can be expected that the number of harmlessness certifications will increase to receive as early as possible legal certainty about a relevant transaction. In case the Economic Affairs Ministry starts a scrutiny, all parties involved must be prepared for a more time-consuming process with exchanging lots of documents and information.

In case you plan an investment in Germany in the near future and you have questions concerning how to approach the transaction, we are pleased to assist you.

 Christian Basler, Auren Germany

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