GERMANY TRENDS AND DEVELOPMENTS Contributed by: Daniel Möritz, Jan Bonhage, Hendrik Bockenheimer, Carl-Philipp Eberlein, Markus Ernst, Matthias Rothkopf, Christoph Wilken and Alexander Rang, Hengeler Mueller
the provisional agreement for endorsement ahead of formal adoption. The new rules are expected to apply from late 2027 or early 2028, 18 months after coming into force. The impact of outbound investments in the EU is still under review by the EC and the member states (as initiated by the EU’s Economic Security Strategy). Remedies Neither the EU Screening Regulation nor German FDI laws confine the regulatory toolbox in response to transactions that affect public order or security. If required, the German government may, for example, fully or partially ban the transaction or unwind a com - pleted transaction. If the German authorities have security concerns, the MoE often tended to aim for conclusion of a mitigation agreement. In such miti - gation agreement, the MoE requests security-related commitments of the transaction parties (typically, buy-side and target) – for example, on the protec - tion of classified information and other sensitive data, (non-)integration of a target’s critical IT systems into the acquirer’s IT systems, or assurances that German companies or sites will be maintained and that cer - tain production or R&D divisions will not be relocated out of Germany or the EU. More recently, the MoE imposed such remedies more frequently through an administrative order. Transaction implications Against this background of ongoing high German scrutiny of FDI, buyers and sellers alike should gen - erally aim to assess FDI screening matters early on in the deal. This involves, firstly, an analysis of sensitive aspects that trigger an FDI clearance requirement. If the transaction requires FDI clearance, the acquisition of the German target may not be closed prior to the clearance. This statutory condition precedent cannot be waived. Secondly, even if an FDI filing is not mandatory, it often makes sense to voluntarily apply for a so-called cer - tificate of non-objection. Such certificate confirms that the transaction does not endanger public order and security; as such, it gives transaction security to all the parties. It is quite common in transactions with non- EU/non-EFTA investors to provide for a closing con -
ditional on an FDI green light to ensure deal certainty and, in particular, to avoid the potential unwinding of an acquisition in the event of the transaction being prohibited or restricted after closing. The transaction parties need to consider FDI aspects when negotiating the purchase agreement. They need to factor in the implications for the closing schedule and long-stop dates, limitations on the sharing of particularly sensitive information under applicable FDI gun-jumping rules, and the allocation of risks potentially resulting from state intervention in the FDI screening, among other things. The parties may, for example, address whether, to what extent and under which conditions the purchaser must accept potential MoE conditions to a clearance or remedies requested in a mitigation agreement or through an administra - tive order. Furthermore, it is usually agreed that the acquirer should prepare and submit the FDI filing in close co-operation with the seller. Timing considerations The foregoing underlines that the FDI screening is (also) relevant to the transaction timeline. In this respect, the German FDI screening set uniform screening dead - lines for all FDI screening procedures. The deadline for the initial review is two months for any FDI filing (FDI Phase I). If the MoE opens an in-depth screening (FDI Phase II), the deadline is generally a further four months, starting from the submission of the informa - tion requested at the opening of the Phase II. The MoE may extend the four-month period by three months if the case entails special factual or legal difficulties. The review period may be extended by another month if the Federal Ministry of Defence asserts that the trans - action specifically affects German defence interests. The Phase II period is suspended if the MoE requests further information or negotiates a mitigation agree - ment with the parties to the transaction. A mandatory filing must be made in due time after conclusion of the contract. The parties often prepare the FDI filing before signing the acquisition documen - tation to ease timing constraints. The early collection of the required information will generally speed up the process.
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