The German investment clearance process: an overview

By Dr. Nikolaus von Jacobs and Dr. Germar Enders

Download article as PDF

The German Federal Ministry for Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie or BMWi) has recently begun to step up initiation of review procedures involving the potential acquisition of German companies by foreign, often Chinese, investors. In fall 2016, for example, the international media reported that the ministry had revoked a clearance certificate originally issued with respect to Grand Chip Investment’s intended acquisition of the semiconductor firm Aixtron. The ministry revoked the clearance certificate after US authorities raised concerns that the acquisition by the Chinese investor could pose a threat to US national security. In the end, Aixtron’s potential buyer decided to not pursue the transaction.

In a separately reported case, the ministry declined to grant a clearance certificate for the potential acquisition by a Chinese investor of Ledvance, the lamp business of Osram; instead, the ministry ordered a detailed review of the potential transaction.

But how can we reconcile these restrictions with the concept of free foreign trade? According to the Foreign Trade and Payments Act (Außenwirtschaftsgesetz) and the German Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung), both as amended in 2013, the ministry is authorized to examine and, under specific circumstances, prohibit the acquisition of German companies. Given the ministry’s apparent increased scrutiny of German transactions involving foreign investors, it’s important to understand the procedures the ministry follows to evaluate whether potential acquisitions may move forward. This article provides an overview of the ministry’s examination protocol.

There are two types of examination procedures in relation to takeovers of German domestic companies by foreign investors that need to be distinguished: the cross-sectoral examination and the sector-specific examination.

Acquisition of a German company

Both types of examination procedures require an acquisition of a company or a participation in a company. The term “acquisition” is interpreted broadly. A transaction qualifies as an acquisition if, following the acquisition, the investor holds 25% or more of the voting rights in the German target, either directly or indirectly (by way of attribution). The fact that the law applies to both direct and indirect acquisitions, e.g., an acquisition of a foreign company holding more than 25% of the voting rights in a domestic company, can lead to certain transactions being examined by the ministry, even though at first glance they appear not to fall within the scope of the examination procedures. It should be noted that neither the size of the company and the type of acquisition (share deal or asset deal) nor the choice of a law other than German law to carry out the transaction are relevant to the applicability of the examination procedures.

Cross-sectoral examination

Basically, every acquisition of a German company by an investor that has its seat outside the European Union or the European Free Trade Association falls within the scope of the cross-sectoral examination irrespective of the target company’s field of activity. In general, the cross-sectoral review procedure only applies to non-EU investors. A non-EU investor is any investor that has neither its registered seat, nor administrative seat nor any permanent establishment located in the EU. Mere branch offices do not suffice to qualify as an EU investor. Should an acquisition suggest abusive structuring measures were implemented or transactions were carried out to evade the applicable rules (so as to avoid a review procedure), the ministry may even review acquisitions initiated by EU-based investors.

The parties are under no obligation to register the transaction or to obtain authorization. It is solely up to the Federal Ministry for Economic Affairs and Energy [supported by the Federal Cartel Office (Bundeskartellamt) and/or the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht or BaFin)] to uncover a relevant transaction and, where appropriate, to initiate examination procedures within three months of signing the transaction. After procedures have been initiated, the foreign investor has to provide extensive documentation. Once the documentation has been provided, a two-month period starts to run, during which the ministry has to decide on the case.

If the investment endangers public policy or the security of the Federal Republic of Germany, the ministry may prohibit the acquisition or impose orders. Under applicable European laws, the danger must constitute a genuine and sufficiently serious threat that affects the fundamental interests of society. Even with particularly sensitive sectors such as those relating to the supply of essential goods (e.g., energy) in crisis situations or strategic services (such as water supplies, transport, logistics or financial services), the examination procedures are not re-stricted to certain sectors. Any threat has to be assessed on a case-by-case basis. If, in the end, a transaction is to be prohibited, approval from the federal government must be obtained. This demonstrates the exceptional nature of a prohibition. Until the two-month review period expires or the transaction is authorized or prohibited, the contractual agreement underlying the proposed acquisition must be regarded as temporarily valid. The agreement becomes void only if the transaction is prohibited. The parties may complete the transaction at their own risk; other than under cartel law, there is no prohibition on completion until clearance.

Investors seeking transaction security at an early stage and who want to avoid a post-signing examination procedure can, pursuant to a contested but in our view correct understanding of the applicable rules and regulations, voluntarily apply for a clearance certificate prior to the execution of the transaction. This certificate confirms the proposed transaction will not cause a threat to public policy or the security of the Federal Republic of Germany. The application has to be made in writing and must be addressed to the BMWi. Filing should be deemed admissible as soon as the acquirer is in the position to describe the main features of the planned transaction, the business segment in which the acquirer is operating, and provide details about itself. In any event, after conclusion of a respective share (or asset) purchase agreement, the necessary details will be available. After receiving the application letter, the ministry has one month to initiate examination procedures or issue a clearance certificate. If no examination procedures are initiated within this period, clearance shall be deemed to have been granted.

Sector-specific examination

Any acquisition of a company operating in a particularly security-sensitive area is subject to the specific rules for sector-specific examinations. In particular, this concerns manufacturers and developers of military weapons and other armaments or products with IT security functions. The legal test is whether or not the proposed acquisition (taking into consideration applicable EU laws) substantially endangers the security interests of the Federal Republic of Germany. A prohibition or order may be imposed especially if Germany’s security-policy interests or safeguarding of military security is endangered as a result of the takeover. In contrast with the cross-sectoral examination procedure, the sector-specific examination requires the foreign investor to notify the BMWi about the proposed acquisition. Once it has received all necessary materials, the ministry has one month to decide on the case. Again, in contrast with the cross-sectoral examination, the agreement underlying the proposed acquisition is deemed temporarily invalid until the ministry has explicitly cleared the acquisition or the acquisition is deemed cleared on implied terms due to expiry of the one-month period. Any orders that may be imposed are imposed in agreement with the Federal Foreign Office (Auswärtiges Amt) and the Federal Ministry of Defence (Bundesministerium der Verteidigung or BMVg); in certain cases, also in agreement with the Federal Ministry of Interior (Bundesministerium des Innern or BMI).


Recently, it appears that the BMWi’s appetite to initiate review procedures has increased, and there are no signs this trend will stop. The ministry may examine and, where appropriate, prohibit the proposed takeover of a German company not only in a security-sensitive industry, but also related to a variety of international transactions. The investor can, of course, take legal action against any negative decision by the ministry and, where appropriate, seek damages. If possible, however, the parties should initiate a discussion at an early stage about how best to proceed, e.g., voluntarily applying for clearance if appropriate. For any sale and purchase agreement concerning the acquisition of a company, the parties should also agree on appropriate closing conditions, cooperation duties and covenants as well as on applicable remedies in the event the transaction is prohibited by the ministry. It remains to be seen if and to what extent the ministry’s recent considerations to expand the current list of reasons to prohibit transactions will materialize into something concrete.

Aktuelle Beiträge