Germany: New Notification Obligation Regarding Certain Foreign Investment Transactions in Germany

September 26, 2017


  • Acquisitions of 25% or more of a Germany company by a non-EU/EFTA investor are subject to the German foreign trade law.
  • Certain industry sectors of the German economy have been identified to be of particular interest when assessing whether the acquisition poses a threat to public security and order.
  • Non-EU/EFTA investors may be required to notify the German Federal Ministry for Economic Affairs and Energy about the contemplated investment.


In July 2017 the German government amended the German Foreign Trade and Payments Ordinance (AWV) to address potential national security-related concerns raised by non-European Union (EU) or European Free Trade Association (EFTA) investments in certain sectors of the German economy. In particular, the amended AWV (i) identifies specific sectors of the German economy in which foreign investments may pose a threat to German public order or security, and (ii) introduces a notification obligation for transactions involving non-EU/EFTA investors. The amendments to the AWV, including the German government’s review process and timeframe, were detailed in our recent prior OnPoint.

The amended AWV provides additional clarity regarding: (i) the specific industry sectors where investment will in particular be scrutinized for national security-related concerns, and (ii) the circumstances in which non-EU/EFTA investors must notify the Federal Ministry for Economic Affairs and Energy (BMWi).

Specification of Threats to Public Order or Security 

Under the amended AWV, non-EU/EFTA acquisitions or investments involving certain critical industry sectors will be scrutinized by the BMWi for threats to public order or security. The amended AWV includes a non-exhaustive list of industries of particular concern: 

  1. Operation of facilities, plants or parts thereof, of critical infrastructure in the meaning of the German Act regarding the Federal Office for Information Security Technology (Gesetz über das Bundesamt für Sicherheit in der Informationstechnik (Act on the Federal Bureau of Security in the Information Technology) (BSIG); 

  2. Development or alteration of industry-specific software involved in the operation of critical infrastructure; 

  3. Execution of organizational and/or supervision measures according to the German Telecommunications Act; 

  4. Rendering of cloud computing services; and 

  5. Activities in telematics infrastructure. 

Critical infrastructure is broadly-defined by the BSIG to include (i) seven critical industry sectors (energy, information technology, telecommunications, transport and traffic, health, water, nutrition, finance and insurance), which (ii) constitute businesses of high importance to the proper functioning of society, as their outage or impairment will cause substantial supply shortfalls or jeopardize public security. 

Additional BSIG regulations regarding what constitutes “critical infrastructure” are expected pursuant to the Ordinance on the Determination of Critical Infrastructures (Verordnung zur Bestimmung Kritischer Infrastrukturen nach dem BSIG (BSI-KritisV). The BSI-KritisV identifies for each of the seven critical industry sectors the plants (or parts thereof) to be considered “critical infrastructure” by (i) listing the exact types of plants, and (ii) stipulating the minimum supply thresholds required to be considered critical. (For example, the BSI-KritisV defines a power generation plant with an installed electricity net supply of 420 megawatt per year and a hospital with 30,000 patients per year as critical infrastructure.) 

While the amended regulations provide insight into certain sectors of the economy that the German government will scrutinize, this list is not exhaustive. Non-EU/EFTA acquirers should not assume that investments in other sectors of the Germany economy will not also be viewed as a threat to German public order or security (for example, acquisitions in the defense sector also are subject to government review; they are not discussed here). The authority to determine that a potential transaction poses a threat to public order or security lies with the German government (however, any determination in this regard may be fully reviewed by German courts). Accordingly, non-EU/EFTA investors should review the foregoing criteria to assess whether potential acquisitions or investments in Germany might raise national security concerns, in which case notifying the German government and obtaining pre-clearance for the investment/acquisition may be advisable. 

Notification Obligation 

The amended AWV also includes an affirmative obligation for the acquirer to notify the BMWi regarding certain non-EU/EFTA investment transactions. In particular, a BMWi notification must be filed in connection with the execution of an agreement regarding the acquisition by any non-EU/EFTA person of a German entity or a direct or indirect holding of at least 25% of the voting shares of a German entity active in the specific industry sectors mentioned above. 

With respect to such notification obligation

  • The notification to the BMWi must be submitted by the direct acquirer. 
  • The obligation to notify the BMWi only applies to transactions involving target entities active in the specific industry sectors identified in the AWV (listed above). Therefore, the acquirer must assess whether the notification obligation is triggered
  • The notification obligation applies upon the execution of an agreement governed by the law of obligations (schuldrechtlicher Vertrag), i.e., the agreement by which the acquirer obligates itself to acquire the entity or the voting rights, and not with respect to the execution of the agreement in rem by which the acquirer in fact acquires the entity or the voting rights at issue. Therefore, the acquirer must notify the BMWi upon the execution of final and binding agreements which provide the acquirer with a claim to obtain legal title of the entity or the shares, which may include, but are not limited to, share purchase agreements, asset purchase agreements and agreements for the subscription of shares. In this regard it is irrelevant which law governs the respective agreement (German or otherwise). The acquirer must evaluate which agreement in connection with the acquisition is considered the agreement governed by the law of obligations. Finally, non-binding arrangements, like letters of intent or memoranda of understanding, do not trigger the notification obligation. 
  • The AWV does not set a time period within which the notification has to be made. As the notification refers to the execution of the agreement, obviously the notification can only be submitted subsequent to its execution. However, the BMWi is entitled to initiate an in-depth review within three months following BMWi’s knowledge of the signing of the agreement. The amended AWV does not define what constitutes “knowledge” of a transaction by the BMWi for these purposes, but, based on German administrative law, most likely it will be interpreted narrowly in the meaning of actual, positive knowledge of the transaction. Regardless, the acquirer should be interested in submitting the notification without undue delay in order to start the three months review period. Otherwise, in the event the BMWi obtains knowledge through other means, the acquirer faces the risk that the BMWi may initiate a review of a transaction that occurred up to five years ago if BMWi just gained knowledge of the transaction within the prior three months. 
  • The notification must be submitted in writing. The AWV does not stipulate the information to be contained in the notification or whether supporting documents must be attached. It is assumed that the notification will identify the parties to the applicable agreement and the business operations in which the acquirer and the German target engage. However, the acquisition agreement itself does not need to be disclosed. 

What Do Investors Need to Know Now? 

The amended AWV puts non-EU/EFTA investors on notice that acquisitions of German businesses in certain industry sectors and/or involving so-called critical infrastructure may trigger a notification requirement and an in-depth national security review by the BMWi. 

The amended AWV also provides additional clarity regarding the nature of the required notification and related timing considerations applicable to reviews of such acquisitions. A notification must be submitted to the BMWi in the event an agreement regarding the acquisition of a German entity, or a direct or indirect holding of at least 25% of the voting shares of a German entity, by any non-EU/EFTA person has been executed. If such notification is not made, there is a risk that the BMWi could initiate a review of the transaction, and potentially prohibit it, at any time during a period of up to five years from the signing of the acquisition agreement. 

How can Dechert help? 

Dechert has a team ideally placed to help with foreign investment issues in connection with cross-border M&A transactions. With offices in Frankfurt, Munich, London, Brussels and Washington D.C. we are able to provide seamless service with respect to governmental approval proceedings on foreign investment in the U.S. and at EU level (with respect to the latter we refer to our September 2017 OnPoint) and its implications on transactions. In particular, with respect to the implications of the amended AWV on M&A transactions, Dechert lawyers in Frankfurt and Munich are able: 

  • To provide, prior to commencing an acquisition process, a detailed analysis whether the relevant acquisition regarding a German target may impose a threat to public order or security. 
  • To assist in drafting acquisition agreements including an appropriate closing condition that the BMWi has not prohibited or has explicitly cleared the transaction. 
  • To assist, after signing of the relevant acquisition agreement, in drafting and submitting any required notification to the BMWi.

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