Foreign direct investment (“FDI”) regulation has featured increasingly on the radar for cross-border M&A, against a backdrop of amplified protectionist rhetoric.
Even before the COVID-19 pandemic, a number of countries which have traditionally been seen as open to foreign investment were moving towards stricter public interest and FDI scrutiny of transactions (such as the UK, USA and Australia).
Following the outbreak of the pandemic, this trend towards protectionism has only increased. In particular, governments have sought to move quickly to protect businesses (affected by the COVID-19 economic fall-out) from opportunistic acquisition by foreign buyers. Indeed, while there is still a degree of uncertainty and volatility in the global markets, there is nonetheless scope for such opportunistic acquisitions, perhaps especially by Chinese buyers (with the wider Asian region emerging sooner from the COVID-19 restrictions). Conversely, many businesses in Europe are still subject to stringent restrictions. Europe, therefore, may provide a more fertile ground for opportunistic takeovers of distressed targets by foreign investors. The rhetoric surrounding the introduction of the EU-level guidelines on FDI screening during the pandemic (as further explored below) is telling in this respect: on 25 March 2020 the European Commission urged EU Member States to be “particularly vigilant to avoid that the current health crisis does not result in a sell-off of Europe’s business and industrial actors”.
European countries such as Spain, Italy and France have responded by making specific amendments to their FDI regimes to address these concerns such as lowering thresholds for review for certain/all foreign investors and/or expanding the list of sectors subject to review. However, these changes have not been limited to Europe, with Australia, Canada and India all imposing stricter restrictions on FDI to protect domestic targets from opportunistic takeovers. For more information, please click here to read our detailed briefing.