In the latest episode of our Global Foreign Investment Podcast Series, Christoph Barth, Linklaters Partner in the Antitrust and Foreign Investment Group based in Düsseldorf, discussed Germany’s foreign investment screening regime with Florentine Kessler-Grobe. Florentine is Head of Unit for Foreign Investment Screening at the German Ministry for Economic Affairs and Climate Action.

Germany’s foreign investment screening regime is well established and has been in force for more than 12 years. But over the last few years, the regime has undergone major changes and its scope has been expanded significantly.

We set out below key takeaways from our interview with the Ministry.

A surge in case numbers, but also of staff…

• The number of cases reviewed by the Ministry tripled from 2017 to 2020, and then doubled within just one year from 2020 to 2021. The number of national cases peaked last year to 306 cases, alongside 250 EU cases.

• The department also saw significant increases in staff from 2019 to 2021 – taking the number of case handlers from 5 to 15, with more to come.

… but are reviews taking longer?

Investors are often concerned about the potential duration of reviews and the uncertainty they add to the transaction timetable. Florentine explained that reviews have actually got shorter – 87% of the cases in 2021 were cleared within the initial two-month review period. However, cases that are referred for an in-depth review can take considerably longer – an additional four months are added to the review period and the Ministry has the power to prolong cases for a further three months, although this only occurred in fewer than 10 cases last year. There are additional means to further extend the review period, in some cases beyond a year, but these cases are truly exceptional, as discussed in our previous post on the IMST case.

Cooperation is key

Under the EU Screening Regulation, there is close interaction between EU Commission and Member State regulators (see our earlier post on this mechanism). The Ministry will typically submit comments about a case to the Commission and Member States if:

• German industry is affected – but only if the transaction has not already been filed in Germany, or

• the Ministry has useful information from previous cases, for example, regarding the investor or the products concerned.

Where does that leave non-EU regulators? While Germany has bilateral relations with non-EU regulators, such as with the U.S.’s CFIUS and the UK’s BEIS, it does not share information on cases due to the sensitive nature of this information.

Are foreign investment reviews becoming stricter?

Florentine thought not – but with heightened geopolitical and strategical challenges, the Ministry is now screening cases more thoroughly than a few years ago. Even so, the Ministry very rarely uses its broad residual powers (which allow cases to be called in, even where relevant thresholds are not met or where an investor obtains “atypical control”), and the grounds for intervention have never been met.

Out of the national cases reviewed, very few were picked up by the Ministry on its own initiative.

What are the “trending sectors”?

In 2020, 21% of FI control cases reviewed by the Ministry related to the IT and communication technology sector, while healthcare accounted for 18% of cases. Florentine painted a similar picture for 2021, adding that the “trending sectors” were the semiconductor industry, followed by healthcare and the gaming industry. For 2022, the Ministry expects a high percentage of reviews will relate to semiconductors and supply chains.

Top tips for investors

Foreign investors navigating the German rules should:

• Communicate with the Ministry in an open and transparent way – this is especially important if a transaction has not been notified and the Ministry contacts the target. Parties should use the opportunity to explain the background of the case and why they did notify.

• Instruct a lawyer who is an expert in foreign investment.

Also, there are a range of further factors to be considered by investors early on, such as the anticipated risk profile of a transaction, how risks should be allocated amongst transaction parties, whether or not certain remedies may be required and how the process should be run to get the review completed within the shortest possible timeframe.

Further insights

Listen to the episode for more insights.