Changes are coming to the way American companies, along with others outside the European Union (EU), engage in large M&A transactions and public tenders within the EU’s single market. From July 12, 2023, under the EU’s new Foreign Subsidies Regulation (FSR), these entities must adhere to a stringent set of provisions if they have benefited from financial contributions from non-EU governments within the preceding three years.
According to Robinson & Cole LLP, the FSR demands that these companies notify and seek approval from the European Commission prior to bringing their deals to fruition. The goal of this novel regulation is twofold: firstly, to preserve the openness of the EU market, and secondly, to ensure a level playing field for companies operating within its parameters.
The implications of these changes for U.S. and other non-European firms could be significant. The burden of seeking approval and ensuring compliance with these new regulations may pose a challenge, potentially even extending the timeframes for closing deals. It is important that such companies consider the effects of these regulations on their future M&A activities, especially for those used to a less stringent regulatory framework.
On the flip side, many EU companies may see these new regulations as a safeguard, protecting them from unfair competition from outside companies benefiting from government subsidies. Nonetheless, the full impact and effectiveness of the new regulations remain to be seen, and will surely be the subject of much discussion in legal circles for some time to come.
Given these major changes, it is imperative that companies prepare in advance, taking the time now to familiarize themselves with the specific requirements of the FSR. Legal teams, in particular, should ensure they are equipped with the most up-to-date information as they navigate this new regulatory move.
While the introduction of the FSR certainly represents a significant evolution in the European legal landscape, remembering that the ultimate goal is to ensure a fair playing field within the E.U. market may help firms better navigate the implementation period and consider this as an opportunity to refine their M&A strategies in the E.U. market moving forward.