Forward planning with cross-border transactions: a German perspective

VSCross-border transactions by Chinese companies, although accounting for only about 3% of global cross-border transactions, have attracted worldwide attention amid increasingly complex international political situation, the impact of pandemic on the economy and strategic adjustments of various countries to the development of science and technology. Under the new circumstances, these transactions will be subject to greater investment scrutiny by foreign governments than before.

This article focuses on the key points of FDI’s review of a German equity acquisition deal and examines the preparations companies need to make before embarking on investment and M&A projects cross-border.

The client intends to acquire 51% of the shares (voting rights) of the target company, which belongs to one of the industries listed in Section 55a of the Foreign Trade and Payments Ordinance. According to the Foreign Trade and Payments Law and the Foreign Trade and Payments Ordinance, this transaction is subject to “cross-industry review”.

Zhou Jiaolu
Dentons China

Mid-2021, the client started the filing process. According to the requirements of the Federal Ministry for Economic Affairs and Climate Action (BMWi), the parties to the transaction must separately collect and submit information concerning the transferor, the acquirer and the target company. At the end of 2021, the client was informed that this transaction would enter the second stage of its FDI review.

During this review process, the BMWi held the first online hearing, with additional participants including representatives from the Federal Office for Economics and Export Control, the Federal Office for Security of Information, the Federal Foreign Office, relevant EU departments and representatives of other Member States linked to this operation.

From now on, according to the latest BMWi notification, the review period for the second stage of the FDI review will be extended by three months – given that the transaction is “particularly complex and difficult”.


As to why the transaction is “particularly complex and difficult,” BMWi explains in its latest notification that: (1) the shareholder structure of the acquirer is complex and the acquirer is tied to the Chinese government; (2) the object of the acquirer’s transaction should be carefully considered; and (3) it is difficult to perform a technical evaluation on the target company’s products.

The conclusion of the above three assessments will therefore take considerable time.

In determining the relationship between the acquirer and the Chinese government – and the influence of the government on the transaction – the local government pays particular attention to whether there is a Chinese state-owned enterprise among the shareholders of acquirer in this transaction, and whether the state – investee, if any, exercises effective control over the acquirer.

When submitting the filing documents, BMWi requires disclosure of the direct or indirect ultimate beneficial controller holding 10% or more of the shares of the acquirer, including its shareholding proportion, Chinese and English names, and whether it is a public company.

During the first hearing, representatives of various departments learned through other channels that the acquirer had previously established an R&D joint venture with a large public company in the same sector; and that the real controller of the acquirer disclosed in the filing documents had worked in a state-owned company. The purchaser was required to explain the circumstances in detail before the court.


The client stated in the filing documents that the purpose of the transaction was to obtain investment income and return, presented its analysis report on the development of the target industry and company, and pointed out the target company’s future development plan (such as retaining management and maintaining the R&D center in Germany), to demonstrate that the transaction was normal business practice.

However, local government officials discovered through public information that the major shareholder of the acquirer was being sued by a local minority shareholder in a third country for illegal transfer of intellectual property rights; and decided, based on the findings, that the ultimate purpose of this transaction could also be technology transfer. In this regard, the client specially provided the legal note issued by the majority shareholder and the lawyer of the company invested in the above-mentioned case, respectively, explaining the background of the case, and hoped to dispel the concerns of the representatives to a certain extent.


The BMWi filing form requires the target company to explain in detail its history, product type, product category, industry status, competitors, supplier list, customer list and why it chooses the buyer as a partner. The local government uses this to determine whether the target company has an irreplaceable and important position in the industrial chain, in Germany and even in the EU. The client is still waiting for the Federal Office of Economics and Export Control in Germany to determine the characteristics of the target company’s product and its importance for the local industry.

Based on these concerns of local governments, the EU and other governments in considering FDI, the author recommends that:

  • Before a Chinese company conducts a cross-border transaction, the company’s internal counsel must direct the investment department and the external counsel to carry out a comprehensive review of the acquirer’s shareholding structure and the products of the target company;
  • Before setting up the transaction structure, the company should prepare for the possibility of being required to carry out an FDI review, thoroughly examine the shareholder structure, the effective controller, the reputation of the business, partners, pending litigation, etc., and assess whether the proposed acquirer is suitable;
  • The in-house legal counsel should communicate with the investment department and the commercial department and jointly formulate a post-investment management plan from a business and legal point of view on the purpose and method of investment, as well as the post-investment management. -investment – including management personnel arrangement, location of R&D center and production plant, and source and use of investment amount;
  • Considering that it may be impossible to travel to the region during the pandemic, the acquirer should be very careful when selecting managers to ensure that their interests and objectives are consistent with those of the acquirer and that they can play their role to the maximum extent in the examination of FDI and the integration and post-investment management of the target company; and
  • A local attorney should be hired as soon as possible to analyze and predict whether the transaction is subject to FDI review, and the possible outcome of the review. The time required for the review of the FDI should be an important consideration in arranging the closing date of the transaction agreement.

Zhou Jiaolu is a partner at Dentons China. She can be contacted at +86 139 0173 2076 or by email at [email protected] subscription announcement blue 2022

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