What impact on M&A transactions?

The exponential growth of foreign investments, particularly in China and the United States, in recent years as well as the economic crisis linked to the recent outbreak of Covid-19, which has weakened many sectors of activity considered strategic by the States, have led many European States, to strengthen their control mechanisms for foreign direct investments (FDI). In France, the FDI control system is codified in the Monetary and Financial Code. Here is a review of this system and its impact on M&A transactions in a few key questions.

What is the legal framework for controlling foreign direct investments?

The French foreign investments control regime is one of the oldest in Europe, dating back to a law of 28 December 1966, which provides that foreign direct investments
(the "FDI") in certain sectors deemed sensitive is subject to prior authorization by the Minister of Economy and Finance (the "Minister").

This control mechanism was extended and strengthened recently by the Loi PACTE of 22 May 2019, two implementing decrees of 31 December 2019 and 1 April 2020 as well as by a recent order of 10 September 2021, which came into force on 1 January 2022.

At the European level, under the impact of the exponential development of foreign investments in recent years a European Regulation 2019/452 of 19 March 2019, applicable since 11 October 2020 established a framework for screening foreign direct investments in the Union (the "Regulation").

This Regulation does not, per se, organize FDI controls at the European level, but it establishes a mechanism of cooperation within the member states by setting up an alert procedure for investments in crisis or strategic sectors. It grants the European Commission the power to send opinions to member states concerning investments to be controlled. The member state will have to follow this opinion or give reasons for its refusal.

More recently, on the 29 September 2021, the Commission voted the regulation 2021/2126 entering into force on 23 December 2021 and amending the annex of the Regulation by completing the definition of investment of interest to the Union and likely to be subject to control. Thus, the list of projects and subsidy programs that make the investment target interesting has been expanded.

It is within this framework that more than ten member states have implemented or significantly modified their FDI control mechanisms.

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