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Foreign investment monitor

How fast-changing FDI regimes impact ‘in-flight’ deals

In the past year, jurisdictions across the world have introduced new or amended existing foreign investment laws at a faster pace than ever, making deal planning more complex for buyers and sellers alike.

Ever-changing foreign investment laws require parties to continuously evaluate their filing obligations – no longer just at the pre-signing stage, but during the entire sign-to-close period – to manage (and respond to) unforeseen delays and costs.

hong kong exchange investment

New FI laws pose complex risks while a deal is “in flight”

A particular foreign direct investment (FDI) risk area that has emerged in the past year relates to the situation where regulators introduce laws while a deal is “in flight” in a bid to capture a particular deal or protect certain newly emerging risks with retroactive effect. 

  • After the Hong Kong Exchange announced its hostile bid for the London Stock Exchange – which included the Borsa Italiana Group – the Italian government rapidly approved new measures giving it the right to use special powers to protect the Milan exchange from any unwanted foreign investment. These changes were adopted within days and with almost immediate effect.
  • In March 2020, the Spanish government approved foreign investment legislation in response to the effects of the COVID-19 pandemic, which applied retroactively to transactions with agreements dated before the amended rules had come into effect that had not yet closed.
  • In November 2020, the UK government published draft legislation which, notwithstanding the fact that it has yet to be formally adopted into law, already contains powers that apply retrospectively to any deals that signed but had not yet closed on the date (or any time after) the draft bill was announced.
  • The EU FDI regime is now being used by some member states' national agencies to effectively buy extra time and extend reviews beyond their national statutory assessment periods. This is another novel strategy by regulators that has impacted deal timetables in the past year.

While fast-evolving laws can introduce unexpected risk, continued analysis and horizon-scanning (especially of the political landscape and public perceptions of the transaction) can help anticipate and mitigate it. Parties should assess potential political concerns during early-stage deal analysis and, depending on the level of sensitivity, allow for sufficient contractual flexibility combined with proactive stakeholder outreach during the sign-to-close period.