The second step involves determining whether local quantitative thresholds set by different international regulators are met. This can require the assessment of various factors, including the parties' revenues, assets in the jurisdiction, and market shares. Revenue data calculation rules vary across jurisdictions, with most basing thresholds on sales to customers within the jurisdiction. Considering the wide range of data needed to perform a multi-jurisdictional analysis, it is not uncommon for counsel to several requests for information to the parties before being able to finalize their analysis.
Early identification of filing requirements and potential substantive concerns is crucial for the successful navigation through the complex landscape of global merger control regimes.
II. Foreign Investment Screening – Multijurisdictional analysis
Foreign direct investment (“FDI”) screening, which concerns the review of foreign investments by national governments on the grounds of national security and other public policy concerns, is of increasing importance for deal certainty in international M&A transactions. In many jurisdictions, where (i) a foreign-controlled investor acquires shares or certain assets in (ii) a domestic target which (iii) is active in a “sensitive sector” (as defined by the law), and (iv) the transaction meets certain thresholds (in particular, with respect to voting rights), a mandatory and, in many cases, suspensory filing can be triggered. Suspensory in this context means that closing of the transaction is prohibited (and often sanctioned) before clearance is granted. While review periods vary between jurisdictions, they often last several months and, thus, can have a huge impact on a deal’s timeline. Further, regulators typically have the authority to block investments, order divestments and condition clearance on commitments made by the transaction parties. For these reasons, transacting parties should assess potential FDI risks early in the transaction process.
In recent years, various jurisdictions worldwide have either established new FDI screening regimes (e.g., India, the UK or Belgium) or strengthened existing ones (e.g., the US, Germany or Canada), moving towards lower filing thresholds and expanding lists of sensitive sectors that require a mandatory filing. Notably, sensitive sectors are no longer limited to defense or critical infrastructure, but often span a wide range of sectors specific to the jurisdiction (common examples include activities related to health / pharma, artificial intelligence, certain raw materials, energy, high technology, and many more).
The heightened focus on FDI is driven in part by the politics of globalization versus protectionism, vulnerabilities and dependencies arising from globalization (e.g., with respect to supply-chains), and the increased collection and manipulation of data. The COVID-19 pandemic accelerated this focus, leading to emergency rules and measures in many jurisdictions, an increase in filings, and heightened enforcement actions by regulators.
As indicated above, FDI regimes differ widely between jurisdictions. For instance, in the European Union, FDI screening remains national, with a patchwork of Member States' laws. Hence, filing thresholds, sensitive sectors, review timelines, etc. differ from Member State to Member State. However, under the so-called cooperation mechanism Member States notify the European Commission and other Member States of foreign investments in their own jurisdiction. As a result, it is possible to observe foreign investment activities across the European Union and share any concerns. In North America, by contrast, the U.S., Canada, and Mexico, each have their own laws. In the U.S., there has been a rise in filings and transactions requiring mitigation, with the Biden administration issuing new guidance and penalty guidelines.
Because of these jurisdictional differences and often (still) unclear regulations , filing assessments involve legal uncertainties. As many FDI regulators have ex-officio powers to “call-in” and screen foreign investments (even if a filing is not mandatory and after closing), voluntary or precautionary filings are common to manage the regulatory risk for the transaction parties. Among the main areas of uncertainties are notably the exact scope of the sensitive sectors, the type of transactions caught (share deals, but often also certain asset deals, e.g., with respect to employees, R&D activities, certain IP rights, branches / offices, etc.) and the relevant investment thresholds. With respect to the investment thresholds, it is important to note that even very small transactions can trigger a mandatory filing in certain jurisdictions. For share deals, as a rule of thumb, investments of 10 % in (voting) shares or more may trigger a filing (lower thresholds exist, e.g., for defense activities). Also, special governance rights can trigger a filing (e.g., veto rights, golden shares, appointment of directors), even if the investment is far below 10 %. For asset deals, filing triggers differ more across jurisdictions. Lastly, value thresholds (monetary de minimis exemptions) are rare, but exist.
Gathering the information necessary to perform a foreign investment screening multi-jurisdictional analysis is a data-intensive exercise and often involves several rounds of information requests to the parties. This is because the assessment requires very detailed information with respect to the target’s activities in each individual jurisdiction with a local nexus. Examples of the information required includes a detail description of all local assets and their value, their activities, intellectual property rights, employees, the nature of any data processed or stored, local revenues, sensitive customers (e.g., government authorities), dual-use items, or any security clearances. Additionally, with respect to the investor, it is crucial to examine its chain of control since most FDI regimes also catch indirect investments through domestic vehicles. Therefore, it is necessary to identify all investors holding 10 % or greater (voting) interest in the direct investor, and those indirect investors, etc., all the way up to the ultimate parent. Further, any foreign state interest-holders in the investor’s chain of control must be identified.
In light of the foregoing it is crucial to tackle the legal analysis and involve local counsel in the relevant jurisdictions as early as possible. If multiple filing obligations exist and / or voluntary filings are advisable, efficient coordination (in particular, of information collection) between local counsel (including opposing counsel) and the parties are the main responsibilities of the legal advisor in charge of the FDI work stream.
III. Reviewing Sales and Purchase Agreements (“SPAs”) – Issue spotting
Antitrust lawyers are often asked to advise on the regulatory clauses of SPAs, and other associated transactional documents, such as letters of intent and/or term sheets. Hopefully, you will have had sufficient time to conduct the multijurisdictional filing analysis, given that this will inform your review of the transactional documents. Importantly, whether you are advising an acquirer, a seller or a joint venture party will also play a role in how you review an SPA, as well as the risk profile of the client and how this interplays with the commercial negotiations (e.g., valuation).
The key provisions for antitrust lawyers to review are as follows:
- First, counsel must review that the conditions precedent identify which regulatory clearances (merger control, foreign investment screening and now also a potential filing under the EU Foreign Subsidies Regulation (FSR)) must be obtained before closing can take place. Allowing closing to take place absent these clearances will amount to gun jumping and may involve significant fines for the parties.
- Second, counsel must review efforts clauses, including clauses relating to cooperation between the parties in securing the necessary clearances. Such clauses are often qualified according to the different levels of efforts required from the parties (including, without limitation, best efforts, reasonable efforts, and commercially reasonable efforts) and may include filing deadlines for the parties. These clauses also often include provisions relating to the type of remedies, if any, that the acquirer will be required to agree to in order to secure clearance from jurisdictions where competition concerns may arise. For instance, a hell-or-high-water clause requires the acquirer to take any action necessary, and commit to any remedy necessary, to obtain the necessary regulatory clearances to get the deal through.
- Third, counsel must ensure that pre-completion covenants do not give rights to the acquirer to acquire premature control over the target. Acquirer rights that go beyond the preservation of target value pending closing, such as, for example veto rights over the target’s commercial decisions, may confer control from a merger control perspective and therefore involve high risks of gun jumping. On the other hand, provisions listing particular non-commercial actions that seller cannot take (or at least cannot take without acquirer consent) prior to closing are generally permissive from an antitrust perspective. Examples include restrictions on entry/modification of material contracts and/or incurring capital expenditures above a certain materiality threshold.
- Finally, counsel must review ancillary clauses such as non-competition covenants, costs provisions (e.g., filing fees) or clauses relating to information exchange and access to information covenants (ensuring limited access to competitively sensitive information pre-closing) for compliance with competition laws,.
This comprehensive review ensures that the SPA aligns with antitrust laws and mitigates potential risks throughout the deal lifecycle.
IV. Managing Parallel Reviews
Managing multiple parallel antitrust reviews across different jurisdictions presents both opportunities and challenges. Careful organization, effective communication and diligent planning are essential for maintaining and efficient review process, minimizing the burden on the client and mitigating the risk (to the extent possible) of divergent outcomes which could impact significantly on deal closing and timelines if not managed correctly. Key considerations and strategies for the efficient and effective management of multiple review processes include:
- Plan Ahead: Prior to filing, understand the review procedures across the different filing jurisdictions and develop a multijurisdictional timeline. Take note of overlapping informational requirements and develop a strategy for leveraging individual workstreams across different reviews. For example, it is common for the production of normal course business documents and data to be required in the course of merger reviews; consider whether a single collection processes can be used to respond to multiple agencies and, where applicable and possible, align review timelines across jurisdictions to facilitate this outcome (i.e., to ensure the collection will be sufficiently “fresh” for each jurisdiction). Look ahead to a potential remedy phase and develop a strategy for maximizing the ability to pursue a coordinated approach across jurisdictions. Plan ahead for filing formalities and be aware of your client’s internal procedures. Watch out for common issues, e.g., early notifications in certain jurisdictions.
- Develop a Cohesive Advocacy Strategy: Global transactions may raise consistent and / or distinct substantive antitrust considerations across different jurisdictions. The degree of convergence will inform the development and implementation of an advocacy strategy, both substantively and procedurally. Substantively, while a “one-size” fits all approach will be appropriate only in cases with consistent implications across jurisdictions, in all instances, be mindful of maintaining consistency; ensure that the positions being taken in one jurisdiction do not undermine those in another. Given the importance of managing the burden on the client, and the need to avoid duplicative requests from multiple jurisdictions, it may be appropriate to maintain a central conduit for client communication or depending on size or resources of the client, may be more beneficial for local counsel to engage directly with the client’s local team. Plan third-party expert projects with an eye to their application across different jurisdictions.
- Communicate Regularly: Antitrust agencies regularly communicate with one another in connection with multijurisdictional reviews and it is important that counsel do the same. As questions raised in one jurisdiction can foreshadow the likely course elsewhere, open lines of communication between counsel in different jurisdictions can support more effective planning, and, where appropriate, proactive advocacy. Similarly, feedback on which evidence and analysis was persuasive in one jurisdiction (or not persuasive) is useful for managing efforts and messaging in other jurisdictions.
- Think Beyond Antitrust: Other regulatory reviews, such as foreign investment clearances and the EC’s Foreign Subsidies Regulation, are increasingly common. Consider the interplay between these reviews and antitrust clearances, both procedurally (e.g., with respect to timing implications and the degree, if any, of information sharing) and substantively (e.g., whether there is any tension between the positions being taken across reviews and whether evidence developed for one process may be relevant for another).