German National Security Review of M&A Transactions – New Checkpoints for Acquirers from the United States, China, Japan, and Other Countries Outside of the EU

by K&L Gates LLP

K&L Gates LLP

With the 9th amendment of the German Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung) (“FTAPO”) adopted on 18 July 2017, the German Federal Government has specified and extended its powers to review and approve the acquisition of companies by investors outside of the European Union (“EU”) and, in the event of companies being active in the military sector, outside of Germany. Under the FTAPO, the German Federal Ministry for Economic and Energy (Bundesministerium für Wirtschaft und Energie) (“FMEE”) can review and veto the acquisition of a German company by a foreign investor when it poses a threat to public order or security.

By changing the FTAPO, the German Federal Government is responding to an increased number of acquisitions by foreign investors outside the EU which were involving German companies with key technologies such as the takeover of the German robot manufacturer KUKA and the attempted takeover of the German technology company AIXTRON which ultimately failed due to national security concerns of the U.S. foreign investment authority Committee on Foreign Investment in the United States.

The amendments have two significant consequences: the universe of companies whose acquisitions are subject to a national security review process has been further specified and, in the case of companies in the military sector, even expanded. In addition, the time span for the two-stage review process has been significantly extended.

Specification and extension of filing obligations

Except for companies being active in the military sector, the FTAPO used to be rather vague when it comes to determining which companies are subject to a national security review. In the past, all transactions which pose a “threat to public order or security” were subject to a review without any further specification. With the amendment of the FTAPO, it has been clarified that the acquisition of (i) operators of “critical infrastructures”, (ii) software companies that provide software to such “critical infrastructure” operators, (iii) certain cloud computing providers and (iv) companies dealing with telematics infrastructure for the healthcare industry are now explicitly subject to a review and approval by the FMEE.

“Critical infrastructure” operators include companies in the energy, IT, telecommunication, transport, health, water, food, finance and insurance sector. Only those infrastructure providers are “critical” which exceed certain thresholds laid out in an ordinance whose original purpose was to impose cybersecurity obligations on such companies (Verordnung zur Bestimmung kritischer Infrastrukturen nach dem BSI-Gesetz). For example, server farms with an average of 25,000 or more ongoing instances per year, hospitals with 30,000 or more inpatients per year, power generation plants with a net rated electrical output of 420 megawatts or more per year, operators of cash withdrawal authorization systems with 15 million or more transactions per year or operators of passenger handling systems at airports with 20 million or more passengers per year, to name a few, are now deemed to be “critical infrastructure” providers.

Foreign acquirers of such companies are now subject to a reporting requirement if the investor or a shareholder of the investor holding25 % or more of the voting rights is from outside of the EU and, following the closing of the transaction, the investor directly or indirectly holds 25% or more of such German company’s shares. The planned acquisition of such a company must be notified in writing to the FMEE. If the FMEE comes to the conclusion that there is a threat to public order or security, it can prohibit the acquisition with the consent of the German Federal Government or it can make it subject to certain conditions.

In addition, the stricter military sector-specific regulations that were already in place have been extended. Up to now, only companies that manufactured weapons of war, engines and drives for armoured vehicles or encryption software products for classified government information have been subject to an approval requirement. The scope of these approval requirements have now been extended to manufacturers of other defence equipment such as reconnaissance and fire control systems whose export already requires approval by the FMEE.

Extended review periods

In addition to the above, the review process has also been amended. In the past, the transaction was deemed to be cleared if the FMEE did not take any action within three months after the share or asset purchase agreement has been signed. Now, this three-month period only starts when the FMEE has obtained knowledge of the transaction. After receipt of the complete documents, such as the acquirer structure, annual and group financial statements and possibly the business strategy of the acquirer, the FMEE now has four months instead of two months to decide on a possible phase two review. The expiration of the four-month review period is suspended as long as the FMEE negotiates with the companies involved in the proposed acquisition.

The approval of a transaction in the military sector-specific is now deemed to have been granted if the FEMM does not decide to review within three months instead of one month after receipt of the documents. The review period is now another three months. Thus, the total time span for a military sector-specific review can now be six months after a full set of documents has been received by the FMEE. Whether the documents are complete is largely at the discretion of the FMEE which may further drag out the review period.

The possibility to request a legally binding no-objection/white wash letter prior to signing of the transaction still exists unless the transaction is part of a military sector-specific review. However, the former one-month examination period has now been increased to two months.

Impact on the M&A practice

Overall, the amendment of the FTAPO has significantly broadened the scope of German national security reviews which will not remain without consequences for future cross-border M&A transactions involving acquirers outside of the EU. The extension of reporting requirements will lead to increased transaction costs by U.S., Chinese or Japanese purchasers for the preparation and execution of the documents required for a national security review by the FMEE. Also, the extended review periods must be taken into account which may put bidders outside of the EU at a disadvantage in an auction process.

On the other hand, the amendments of the FTAPO now provide more legal certainty for international acquirers (and sellers alike) as to which deals will be subject to a review while the criteria for approving or disapproving a transaction have not been changed and remain the same.

It is now much easier to determine whether a specific acquisition will be subject to a German national security review or not. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© K&L Gates LLP | Attorney Advertising

Written by:

K&L Gates LLP

K&L Gates LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.