As of 12 October, a merger control and foreign direct investment analysis will not be sufficient for M&A transactions. An analysis will also have to be carried out as to whether the transaction must also be subject to European Commission approval under the new foreign subsidy rules. This will inevitably lead to longer lead times and higher transaction costs.

We tell you about it in detail.

New regulation on foreign subsidies distorting the internal market

On 23 December last, Regulation (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies that distort the internal market was published in the Official Journal of the European Union. Known by its acronym FSR (Foreign Subsidies Regulation), its content is inspired by European regulations on state aid and merger control.

The new regulation provides that any foreign subsidy to European companies may be subject to investigation by the European Commission. The Commission will have wide-ranging powers to carry out information requests, inspections and market investigations in specific sectors. For this reason, all companies receiving any such subsidies will have to collect information both for the five years prior to 12 July 2023 and on a recurring basis in the future.

How the FSR affects mergers and acquisitions

In this way, the EU wants to avoid distortions in the internal market and in the level playing field. This is particularly the case if these subsidies are subsequently used to finance M&A transactions in whole or in part.

The FSR has a direct impact on M&A transactions for companies that have received foreign subsidies in the three years prior to 12 July 2023 and beyond.

As of 12 October 2023, M&A transactions will be subject to the same merger control and FDI analysis as before. In addition, however, an analysis will have to be added as to whether the transaction must also be subject to the condition that the Commission authorises it under the foreign subsidies rules.

Which operations are subject to notification

  • Those where one of the participating companies is established in the EU and generates a turnover of EUR 500 million or more in the EU.
  • Whether the following companies have obtained from third countries in the previous three financial years combined financial contributions of more than 50 million euros.

Notification procedure

For M&A contracts affected by the FSR, prior authorisation must be sought from the European Commission.

This notification must be made by the parties involved:

  • In the case of a merger: jointly by the parties to the merger or acquisition of joint control.
  • In the case of an acquisition: the person or undertaking acquiring control of all or parts of one or more undertakings.

The Commission has 25 working days from receipt of the complete notification to decide to initiate an in-depth investigation. It will do so if it sees indications of foreign subsidisation that distorts the internal market. This in-depth investigation can take up to 90 working days before the Commission takes a decision.

The Commission can adopt three types of decisions:

  • With commitments, such as repayment of the subsidy, reduction of market presence, refraining from certain investments, etc.
  • No objections.
  • Prohibiting the concentration operation.


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