Mandatory investor screening and the expansion of the list of critical sectors are now regulated at the EU level. Previously, EU member states could decide independently whether to establish screening mechanisms; now, the procedures have been harmonized.
Investments in energy, transportation, artificial intelligence, semiconductors, robotics, and biotechnology are subject to mandatory rigorous screening. EU member states are required to share information more promptly with the European Commission and their EU neighbors regarding potential risks associated with transactions.
Attention is focused not only on the acquisition of large companies but also on investments that could create critical dependencies in supply chains. The main catalysts for these measures were the desire to protect Europe’s technology sector from aggressive asset acquisitions (particularly by China and other Asian players).
Establishing layers ofcompliance
The measures are being introduced at a time when the European economy is suffering from an unprecedented capital outflow and deindustrialization. They also stand in sharp contrast to another key Brussels initiative—the “Made in Europe” plan, or Industrial Accelerator Act (IAA), presented in March.
The scenario outlined in the IAA requires European industry to make a technological leap and ensure that at least 70% of value chains in “green” sectors and AI are localized in order to qualify for government subsidies.
However, to build these new production facilities (battery, wind turbine, and chip factories), Europe needs massive amounts of foreign capital. The EU’s own fiscal capacity is constrained by persistent debt problems and rising defense spending, while European banks are cutting back on lending.
Investors must now prove the absence of indirect state financing, undergo audits lasting several months, disclose the structure of beneficiaries up to the third generation, and agree to risk mitigation measures, which often include waiving voting rights or committing to transfer intellectual property to European partners.
For global investors, this means higher costs of capital for European projects. While in the U.S., under the IRA, an investor receives clear tax deductions with minimal red tape, in Europe they face the prospect of spending a year negotiating a deal with no guarantee of a positive outcome. Capital always takes the path of least resistance.
