Increasing importance of foreign investment control in M&A practice


Governments worldwide, including in the US and the EU, are increasingly tightening up controls on foreign investments in their countries. One reason for this trend is a general fear of a sell-off of key national technologies and related threats to national security. Correspondingly, it is becoming increasingly important to comply with the relevant regulations. This article addresses the main effects of investment control regulations on corporate transactions, including those involving German companies or assets located in Germany.

Current tightening of the Foreign Trade and Payments Ordinance

With the 12th Regulation amending the Foreign Trade and Payments Ordinance (AWV), which was adopted on 19 December 2018 and entered into force on 29 December 2018 (see our report), the German government significantly lowered the thresholds for a review in some areas and also included media companies in the group of companies particularly at risk and subject to investment control. It considerably extended the scope of investment control regulated by the AWV.

Scope of investment control

The scope of application of the investment control regime differs according to the type of target company:

  • For companies in the defence and IT security industries, the threshold for a review is 10% of the voting rights.
  • For companies that operate certain highly security-relevant types of civil infrastructure or provide services in the vicinity of such infrastructure, the threshold is also 10% of the voting rights.
  • Companies in the following sectors are affected: energy, water, food, information technology and telecommunications, cloud computing, health, finance and insurance, transportation and traffic, telematics and media.
  • In the case of other companies, the Federal Ministry for Economic Affairs and Energy (BMWi) is only authorised to initiate a review if the investor acquires at least 25% of the voting rights.

Impact on transactions

Due to the extension of the scope of investment control, transactions are now subject to foreign investment control even more frequently. The following aspects in particular must be taken into account:

Reporting obligations

The acquisition of a company in the defence or IT security industry must be reported in writing to the BMWi. The acquisition of companies in the area of particularly security-relevant civil infrastructure is also subject to a reporting obligation. Breaching the reporting obligations does not currently trigger a fine, but delays the start of review periods (see below).

Application for a clearance certificate

Irrespective of the existence of a reporting obligation, it may be advisable for reasons of legal certainty to apply for a clearance certificate from the BMWi. Although the clearance certificate is not a legal requirement for a transaction and there is no suspension obligation as in antitrust law, a future prohibition of the company acquisition constitutes a condition subsequent of the contractual transaction. In the case of companies in the defence and IT security industry, the prohibition even leads to the invalidity of the transfer in rem. To avoid unnecessary risks, it may be advisable to obtain a clearance certificate before closing. Otherwise, the parties would risk the reversal of the transaction and would have to take precautionary measures to ensure the repayment of the purchase price and the re-transfer in rem of the company in its original condition.  Such measures are not usually feasible.

Consideration of time requirements

It should also be noted that investment controls may delay the transaction concerned. The BMWi has three months from the time it obtains knowledge of the transaction to initiate a review and a further four months to carry it out. The maximum period for initiating the review is five years. Note that different time requirements apply to target companies in the defence and IT security sectors. Applying for a clearance certificate on a voluntary basis has the advantage that it is deemed to have been granted if a review is not initiated within two months of receipt of the application (known as a phase 1 review). The first deadline can be reduced by one month by this. In addition, the inclusion of certain contractual clauses can ensure legal certainty as well as a better distribution of risk in line with the interests of the parties regarding the extended review procedure. For example, the long-stop date can be adjusted to the expected duration of this procedure.


Unlike antitrust proceedings, for example, proceedings under foreign trade law are not open to the public. The BMWi has also taken special measures to ensure confidentiality. The confidentiality of certain information relating to the transaction should therefore not per se prevent the parties from applying for a clearance certificate.


In cross-border transactions, compliance with investment control requirements is an increasingly important aspect. The aim when making investment decisions and planning transactions is to anticipate their possible implications. Provided that the parties consider these aspects, foreign investment controls should not become a deal breaker.

Private Equity
Regulatory and Governmental Affairs