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Countries traditionally open to foreign direct investment tightened their regimes in 2018

The backdrop to this shift in approach was a rise in protectionism on a global scale, with governments keener than ever to preserve their own country’s position in increasingly global value chains, as well as protecting their own national security.

Much of the global focus has been on the evolution of the Committee for Foreign Investment in the United States, but developments in Europe, such as the UK's proposals for a distinct national security regime and the tightening of Germany's foreign direct investment (FDI) controls are equally relevant. For 2019, those involved in cross-border M&A need to be aware that the concept of national security will be extended beyond defence-related activities to include critical infrastructure, communications assets and advanced technology.

Although the most high-profile prohibition decisions to date have tended to relate to acquisitions by Chinese companies, most FDI regimes apply to any foreign buyer if the deal could result in a threat to national security or, in some regimes, involve "national champion" companies or sectors of "strategic importance".

FDI regimes tend to be less transparent than the merger control process, with some countries choosing not to publish any decisions, or only very brief details. It is also apparent that FDI authorities are starting to liaise with each other more behind the scenes, so adopting a global (and consistent) approach to FDI filings will be key in 2019.

“Checking for possible FDI filings is now a key regulatory consideration in cross-border M&A, alongside merger control filings. Sensitive engagement with the authorities, at the right time, will help to navigate the FDI process and minimise delay.”

In some cases, it will be advisable for dealmakers to consider whether any remedies could be offered up in order to ease the FDI process. FDI approval is inherently political, so understanding the process and communicating effectively with stakeholders is critical.

Blocked deals

  • Broadcom’s hostile bid for Qualcomm was blocked in the US
  • Yantai Taihai Corp’s acquisition of Leifeld Metal Spinning AG (a manufacturer of aerospace materials) was abandoned before being blocked in Germany
  • Hong Kong based CKI’s takeover offer for APA Group was blocked in Australia

The value of deals abandoned due to foreign direct investment intervention

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Key contacts

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Veronica Roberts

Partner, UK Regional Head of Practice, Competition, Regulation and Trade, London

Veronica Roberts