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23/10/2023

M&A: further clampdown by Brussels

Europe - Fusions - Acquisitions

As of 12 October, companies are required to notify the European Commission of all mergers and acquisitions involving public subsidies from third countries. The application of the European Foreign Subsidies Regulation (FSR) will have an impact on certain large transactions. The experts at AURIS Finance, an M&A consultancy, explain.

The European mergers and acquisitions market has been dealt another blow. M&A operations are now subject to the Commission’s scrutiny of foreign public subsidies. The stated aim is to guarantee a level playing field for all companies operating within the single market.

Competition law

To understand the background to this regulation, one must go back to 2019, the year in which Brussels vetoed the merger of the two rail giants Alstom and Siemens. At the same time, the Chinese giant CRRC was stepping up its bidding outside its borders to become the world’s leading manufacturer of rolling stock. This distortion was not lost on French officials. In the words of the former government spokesman, the Brussels veto was an “economic and political mistake” and confirmation of the need for an overhaul of European competition law. “Failure to develop a competition analysis that takes account of what is happening on a global scale is tantamount to applying twentieth-century rules to a twenty-first-century economy,” said Secretary of State Agnès Pannier-Runacher at the time.

A subsidy threshold set at €50 million

It is against this backdrop that the text giving the Commission the power to “prevent the distortion of the EU internal market that could arise with market concentrations involving subsidies” was drafted. The regulation is not only aimed at companies from outside the European Union, but also at all large European groups with subsidiaries abroad. This obligation applies in particular to large transactions: notification is required if the acquirer, alone or together with its target, has received €50 million in subsidies from third countries over the last three years and if they jointly generate a turnover of €500 million within the European Union. Subsidies will therefore be scrutinised, as will government loans and any other public support for research and development. The obligation to notify is in addition to that required under competition law.

More stringent audits

This is a further blow to the European market, where M&A transactions fell by 45% in the first nine months of 2023. The new regulation requires European economic operators to carry out audits of the financial contributions received by both the target and the acquirer.

Our experts at your side

Companies, especially those with foreign subsidiaries, must now incorporate these new regulations into their financing and risk analysis processes. AURIS Finance’s experts are specialised by industry. They can help you comply with the new regulations and introduce enhanced due diligence. From identifying the target to closing the deal, we are at your side.

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#AURIS Finance