As a reminder, companies must notify a transaction to the EC if the acquisition target or joint venture (or, if a merger, at least one of the merging parties) is established in the EU and has EU turnover of at least EUR500 million, and the parties received combined “financial contributions” from non-EU countries of more than EUR50m across the three year period prior to the date of the transaction.
The EC has wide powers to act if it finds there are foreign subsidies that distort competition in the EU internal market. These include prohibiting deals.
So far, the authority has only intervened once, clearing a transaction with remedies. With vigorous enforcement of the FSR marked as a priority for the new EC, we could see more action in the coming year.
Filings soar beyond the predicted level
The EC initially estimated that 30 transactions a year would require notification. The actual number of notifications in the first year was three times this level.
The majority of deals filed under the FSR also require notification under the EU merger regime and trigger one or more member state foreign investment screening reviews. The FSR is now firmly established as a third regulatory approval hurdle for M&A with a connection to the EU. Managing filings under all three sets of rules requires strategic coordination and alignment.
Deal timetables are significantly impacted
Dealmakers are having to take full account of the FSR process in transaction timetables:
- Determining whether a filing is required is often complex and challenging due to the extremely broad definition of “financial contribution.” Even if the notification thresholds are not ultimately met, time needs to be factored in for this resource-intensive analysis.
- If a notification is triggered, the timetable must allow for the preparation of the filing as well as pre-notification with the EC. The EC says that pre-notification averages around two months, though notes it is decreasing, presumably as parties and the authority get more familiar with the regime. Multiple requests for information are common at this stage, adding to the burden.
- The EC’s initial review period is 25 working days, in line with phase 1 of the EU merger control regime. However, unlike the merger control rules, the FSR lacks any fast-track or simplified procedure for deals raising no concerns. The EC has indicated that one may be introduced, but it could be a year or more away.
Acute burden on PE/investment funds
The FSR filing regime is biting particularly heavily on investment funds and PE.
With multiple portfolio companies, the task of collecting the information on non-EU financial contributions needed to apply the notification thresholds can be formidable. As can preparing the disclosures required on the notification form.
Investment fund/PE-backed deals are also triggering many filings.
The EC reports that half of all FSR cases involve an investment fund as a notifying party. While there are some disclosure exemptions available (e.g., in certain situations, only foreign financial contributions granted to specific PE funds need to be reported in the filing form), determining whether these apply can be tricky.
It seems that EC officials are alive to this burden. Their discussions around possible simplified treatment of cases hint at having PE transactions in mind. Steps to introduce relaxations as soon as possible would be welcome.
Intervention is rare (so far)
While an additional M&A approval regime heightens the administrative burden on dealmakers, in good news the risk of intervention appears to be low.
The EC has only accepted a remedy proposal in one transaction. It opened an in-depth review and ultimately accepted remedies in relation to PPF’s acquisition by e&. e& is a telecoms company controlled by the Emirates Investment Authority (EIA), a UAE sovereign wealth fund.
The EC had concerns that alleged foreign subsidies from the UAE—an unlimited guarantee to e& and grants, loans and other debt instruments to EIA—could artificially improve the merged entity’s capacity to finance EU activities and increase its indifference to risk. The ten-year remedy package includes a prohibition on EIA and e& financing PPF’s EU activities and a requirement for e& to inform the EC of all future acquisitions.
With only one intervention to date, and no comprehensive guidance on the EC’s procedure and substantive assessment, it is hard to draw firm conclusions on the authority’s FSR enforcement practice.
Full guidelines on the regime should add more color but will not be published until January 2026. Until then, parties must rely on piecemeal clarifications issued by the EC and any other enforcement cases in the meantime.
Risk of call-in and post-closing probes
The FSR gives the EC powers to call-in M&A that falls below the notification thresholds. There have been no such cases to date.
However, officials have indicated that the EC is screening transactions and sending inquiries to market players. Plus, as noted above, e& has committed to inform the EC of all future acquisitions—even if not notifiable under the FSR.
It is plausible that an increased appetite to scrutinize deals falling below EU merger control thresholds (see our article Rising review risk for deals not meeting merger control thresholds) could seep into FSR practice.
Post-closing reviews are also a possibility under the EC’s “own initiative” powers. So far it has used these only twice and has not focused on transaction structures. But action against completed M&A cannot be ruled out.
Looking ahead in the EU and beyond
The EC’s FSR practices will evolve over the coming year as the regime continues to bed down. The new competition commissioner has said she will give enforcement of the FSR the “highest priority” and will not hesitate to use the full powers of the tool where appropriate.
Concerns over the impact of foreign subsidies on M&A are not confined to the EU.
In the U.S., the revised Hart-Scott-Rodino (HSR) filing form requires parties to describe any subsidies received from certain governments or related foreign entities. It is not clear what the U.S. antitrust agencies will do with this information. But with the Trump administration likely to adopt a protectionist stance, any perceived adverse impact of foreign subsidies on post-merger competition could prove a hurdle to clearance.
Assessing the impact of domestic and foreign subsidies on market competition is also advocated by new Chinese horizontal merger guidelines. If there is evidence that these subsidies could harm competition, the Chinese authority could request detailed information.
Other jurisdictions may follow suit. Early identification and consideration of any foreign subsidies that either benefit the acquirer’s operations or facilitate the transaction will be key to assessing execution risk.
