Since it came into force in October 2020, the EU framework for the screening of foreign direct investments has further increased the level of scrutiny over current and future transactions affected by these regimes.

In the period to 6 January 2021, a total of 47 transactions were notified under the EU mechanism. Extrapolating this figure to a full year - and considering that many Member States have only gradually started making use of the mechanism - we should expect at least 200 transactions to be reported under the mechanism each year. This number may increase even further in light of (a) more Member States introducing foreign investment control rules or expanding existing regimes and (b) the EU Commission insisting on all cases being notified under the mechanism - as opposed to only those cases for which an in-depth investigation is being initiated (which is currently the approach taken by e.g. Germany).

A framework for cooperation

The EU framework does not introduce its own stand-alone screening mechanism. However, while the ultimate decision on allowing a foreign investment remains the responsibility of individual Member States, the EU framework is intended to complement national screening mechanisms and strengthen their effectiveness. The framework does so in two main ways:

• A Member State that has received a notification has an obligation to communicate that notification to all other Member States and the European Commission. As such, all authorities will become aware of transactions notified in other Member States.
• Further, both Member States and the EC are able to intervene in the national screening process by making comments or issuing (non-binding) opinions when a foreign investment potentially threatens the security or public order of other Member States, or when a foreign investment could potentially affect projects or programmes of Union interest on grounds of security or public order. Where Member States and/or the EC provide comments, the Member State processing the filing will need to take these into account. The Member State running with the process may also base an intervention on effects in another Member State, thereby significantly increasing the overall level of scrutiny.

Finally - and outside the screening mechanism - we are aware of a number of instances in which Member States “made use” of the notification through the screening mechanism to “call in” transactions which they considered reportable under national laws.

A few initial reflections on the practicalities

While the co-operation framework has only been operational for a few months, our initial experiences show some practical implications that transaction parties need to be mindful of:

• Each Member State maintains its own form of notification, requiring varying degrees of information to be provided regarding the investor and the target. However, the EU framework requires Member States to complete a set template of information. Notifying parties should therefore expect (and be prepared for) (i) follow-up questions by authorities needing to complete this detail where it was not required up-front as part of the filing form in that country and (ii) certain information contained in filings to be shared more broadly with the EC and other Member States. 
• Where the co-operation mechanism applies, Member States and the EC have up to 35 days to share comments or an opinion. This has meant that, already comparatively lengthy review periods in individual Member States have been extended by a month or more while feedback (if any) is awaited. As Member States are starting their interaction under the framework at different times, there is also increasing timetable divergence between them. Perhaps most illustrative of this divergence is Austria, where the Phase I review period only starts when the process under the screening mechanism has been completed - as opposed to Germany, where this review is currently being dealt with in the first week of a Phase II investigation.
• There is limited transparency regarding the nature or content of the interactions between Member States and the EC - beyond answering questions to assist Member States in gathering the necessary information (and being made aware that an authority is waiting for feedback). Transaction parties are largely left to await the completion of the period within which Member States / the EC may provide comments / issue an opinion to (i) understand any comments / opinion and (ii) meaningfully address any areas of possible concern.

Looking ahead

The co-operation process will no doubt become clearer as Member State authorities and the EC become more familiar with the procedures and refine their application. But with 16 Member States now having foreign investment screening regimes in place - and with Belgium, Ireland, the Netherlands and Sweden each in the process of adopting their own - a complex web of interactions looks set to remain a major feature of European foreign investment screening procedures. Since this feature is here to stay, companies engaged in M&A will need to factor it into their transaction timetable and strategic planning.