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Foreign Direct Investment (FDI) regulation is increasingly crucial in M&A transactions. Conducting an FDI analysis alongside merger control is now standard practice. The expansion of domestic FDI regimes across Europe, including the UK and EFTA countries, has led to multiple filings, impacting transaction timelines. Obtaining FDI clearances often takes longer and is less predictable than merger control processes, necessitating thorough preparation by investors and their lawyers. This article explores the current trends and dynamics of FDI regulation at both the national and EU levels, highlighting key developments expected in 2025 and their implications for M&A transactions.
National Level Trends
The Number of European Countries with FDI Regimes Continues to Grow. In terms of geographical coverage, almost all European countries have implemented or are in the process of introducing FDI regimes. For instance, the Netherlands, Belgium, Luxembourg, and Sweden introduced regimes in 2023. Ireland's regime, adopted in 2023, entered into force at the beginning of 2025 and allows reviews of transactions up to 15 months post-closure. Bulgaria introduced its regime in 2024, Croatia and Greece are expected to follow in 2025, and Switzerland in 2026.
Many Long-Established Regimes are Expanding their Scope. After the focus of FDI national authorities on pharmaceuticals due to the Covid-19 pandemic, dynamics of the FDI regimes at the national level show now a shift towards the entire technology sector and AI. In Germany, the pending revision of the FDI regime is considering expanding the scope of relevant activities to include quantum, advanced semiconductor, and artificial intelligence technologies. In France, where the FDI regime already covers such activities, the administration in charge of FDI control recently announced its intention to focus on deals related to these technologies in the coming year. In the Netherlands, the Dutch government is preparing an amendment to the FDI regime adopted in 2023 to extend expand its screening to include emerging technologies such as AI and biotechnologies. Finally, it is also worth to mention that, due to the invasion of Ukraine, critical infrastructure and raw materials have become a focus of several FDI authorities in the EU, including Germany and France.
Several European Countries are Introducing or Maintaining “Temporary” Rules Providing Special Protection for Listed Companies. Specific protection for listed companies has been adopted in two EU Member States: France and Spain. Regarding Spain, a regime that applies to EU/EFTA investors was adopted in 2020 on a “transitory basis” and was due to expire (after several extensions) on 31 December 2024. However, on 23 December 2024, the Spanish Government decided to extend this regime for EU/EFTA investors until 31 December 2026.
Most European FDI Authorities are Tightening their Screening, sometimes even on Investments from EU Investors. There have been a number of high-profile prohibition decisions and conditional clearances with stringent conditions, affecting even EU investors. This raises concerns regarding the compliance of such national decisions with superior EU law principles. For instance, in Spain, the government prohibited the acquisition by Hungarian investors of the Spanish listed company Talgo, a decision that the investor announced it would appeal to the Spanish Supreme Court.
EU Outlook
Revision of the FDI Regulation. As part of the current global shift towards investment protectionism and the safeguarding of national interests, the revision of the FDI Regulation aims to strengthen “European Economic Security” by making FDI screening mandatory for all Member States and harmonizing control standards.
If adopted as proposed, this proposal would significantly change the landscape of FDI regimes across the EU as the proposed changes would extend FDI control to greenfield investments (impacting sectors like solar, wind, EV, and EV battery production) and indirect investments (i.e. intra-EU investments, where investments in EU targets are made by EU entities which are directly or indirectly controlled by a foreign shareholder).
As regards indirect investments, it is interesting to note that many national FDI regimes within the EU already enable authorities to review such transactions. However, the European Court of Justice recently held that subjecting such indirect investments made through EU entities to a prior authorisation regime could be contrary to the freedom of establishment (CJEU, 13 July 2023, aff. C-106/22). It will therefore be interesting to see whether this case law will have an impact on the definitive version of the new Regulation.
The potential future adoption of a new EU control mechanism for outbound investment. While the focus in the EU in recent years has been on the regulation of inbound investment, the Commission is also considering measures to address potential risks associated with outbound investments. At this stage, it seems that this potential new outbound investment control regime would be similar to the US model targeting the following key advanced technologies: semiconductors, AI, and quantum computing.
Time will tell whether the Commission and Member States will agree on an EU-wide regime for the review of outbound investments or whether some Member States will create national rules. However, implementing such a control mechanism at the EU level would lead to the creation of an additional regulatory regime, adding another layer of regulatory burden for investors and their lawyers.
To conclude, the FDI landscape in Europe is rapidly evolving, with significant changes at both national and EU levels. Investors and their lawyers must stay informed and prepared for these developments to navigate the complexities of FDI regulation in M&A transactions. The increasing scope and stringency of FDI regimes, coupled with the potential introduction of outbound investment controls, underscore the need for comprehensive and proactive FDI analysis in the planning and execution of M&A deals.
