joint ventures

DECREASING HSR Premerger Notification Thresholds in 2021

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Takeaways

  • The new minimum HSR threshold is DECREASING from $94 million to $92 million.
  • New thresholds apply to any transaction closing on or after March 4, 2021.
  • Failure to file may result in a fine of up to $43,792 per day of non-compliance.
  • The HSR Act casts a wide net, catching mergers and acquisitions, minority stock positions (including compensation equity and financing rounds), asset acquisitions, joint venture formations, and grants of exclusive licenses, among others.

The Federal Trade Commission has announced new HSR thresholds for 2021, which are lower than the existing thresholds. The thresholds typically increase year-over-year, but are decreasing in 2021 from $94 million to $92 million, potentially requiring HSR premerger notification filings to the U.S. antitrust agencies for smaller transactions. The new threshold will begin to apply to transactions closing on March 4, 2021. The HSR Act and Rules require that parties to certain transactions submit an HSR filing and wait up to 30 days (or more, if additional information is formally requested) before closing, which gives the government time to review the transaction for potential antitrust concerns. The HSR Act applies to a wide variety of transactions, including those outside the usual M&A context. Potentially reportable transactions include mergers and acquisitions, minority stock positions (including compensation equity and financing rounds), asset acquisitions, joint venture formations, and grants of exclusive licenses, among others.

Determining reportability: Does the transaction meet the Size of Transaction test?

The potential need for an HSR filing requires determining whether the acquiring person will hold an aggregate amount of voting securities, non-corporate interests, and/or assets valued in excess of the HSR “Size of Transaction” threshold that is in place at the time of closing. Calculating the Size of Transaction may require aggregating voting securities, non-corporate interests, and assets previously acquired, with what will be acquired in the contemplated transaction. It may also include more than the purchase price, such as earnouts and liabilities. Talk to your HSR counsel to determine what must be included in determining your Size of Transaction.

If the transaction will close before March 4, 2021, the $94 million threshold still applies; closings as of March 4, 2021 will be subject to the lower $92 million threshold.

Determining reportability: Do the parties to the transaction have to meet the Size of Person test?

Transactions that satisfy the Size of Transaction threshold may also have to satisfy the “Size of Person” thresholds to be HSR-reportable. These new thresholds are also effective for all closings on or after March 4, 2021. Talk to your HSR counsel to determine which entity’s sales and assets must be evaluated.

Filing Fee

For all HSR filings, one filing fee is required per transaction. The amount of the filing fee is based on the Size of Transaction.

Failure to File Penalty

Failing to submit an HSR filing can carry a significant financial penalty for each day of non-compliance.

Always consult with HSR counsel to determine if your transaction is HSR-reportable, especially before concluding that a filing is not required. Even if the Size of Transaction and Size of Person tests are met, the transaction may be exempt from the filing requirements.

Will (almost) every U.S. VC investment in German startups require FDI approval in the future?

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The German Government is about to tighten the control of foreign direct investments (FDI) in German companies—again! The suggested changes might impede or at least delay non-EU (in reality mainly U.S.…) investments in German start-ups although such non-EU investments have in particular in the growth stage become vital for the developing German ecosystem over the last years…

 

 

 

In a nutshell:

  • What’s new?
    • German Ministry for Economics once again proposes to broaden the scope of FDI control.
    • This time, German FDI control faces a major overhaul: the latest draft covers more than 27 business areas in which an investment can trigger a mandatory notification and standstill obligation for non-EU investors.
    • Many more minority investments, including VC investments, could be subject to the proposed FDI control if an investor acquires at least 10% of the voting rights. Unlike merger control, there is no turnover threshold for the FDI regime.
  • The good
    • To be determined…
  • The ugly
    • The proposed amendment will possibly lead to significant delays for non-EU investors.
    • Investors that already hold at least 10% of the voting rights and acquire additional voting rights can also trigger such a mandatory notification and standstill obligation.
    • In the future, non-EU investors will likely face a competitive disadvantage compared to their EU competitors.
  • Action items for our clients
    • Check transactions that are currently being negotiated and determine if they can be completed before the proposed amendment becomes effective.
    • Review your plans for future acquisitions and investments to account for potential significant delays. Solid preparation will become even more critical.
    • Going forward: The Ministry has launched public consultations on the draft of the FDI amendment—keep an eye on this development! Of course, we will keep you posted.

In detail:

After the latest amendment of Foreign Trade and Payments Ordinance in October 2020, the now proposed amendment is the 4th amendment of the relevant German FDI regulation within the past 12 months. While prior amendments extended the review scope to specific business areas (e.g., companies active in the production of certain medical equipment due to the COVID pandemic), the proposed amendment specifies the requirements of the EU Screening Regulation. It will broaden the scope of German FDI control extensively, in particular with respect to critical technologies that are of (security) relevance.

Remember the good old times four amendments ago: While a year ago, the prohibition of an investment required a threat to the public order or security of the Federal Republic of Germany, it now suffices that public order or security of the Federal Republic of Germany or of another EU Member State is likely to be impaired as a result of the investment.

Investments in certain businesses in Germany that will result in the investor holding at least 10 percent of the voting rights can trigger a mandatory notification to the Ministry and a standstill obligation. This can include, among others, investments in companies that:

  • Provide cloud computing services and the infrastructures used for this purpose;
  • Develop or manufacture goods which solve specific application problems by means of artificial intelligence methods and are capable of independently optimizing their algorithm;
  • Develop or manufacture motor vehicles or unmanned aerial vehicles that have technical equipment for the control of highly automated, fully automated or autonomous driving or navigation functions, or the components essential for the control of such driving or navigation functions or software required for this purpose;
  • Develop or manufacture industrial robots, including software or technology therefor, or provides specific related IT services;
  • Develop, manufacture or refine certain types of semiconductors, optical circuits and manufacturing or processing tools for such products;
  • Develop or manufacture certain IT products or components of such products;
  • Operate, develop or manufacture certain dual-use goods;
  • Develop or manufacture goods used to produce components for industrial applications by means of additive manufacturing processes;
  • Extract, process or refine critical raw materials or their ores.

Since the Ministry launched a public consultation, interested parties have the opportunity until 26 February 2021 to provide detailed comments on the proposed amendment. In view of the technical complexity of the aspects to be regulated, the Ministry attributes particular importance to the results of this consultation. Even though this should not be regarded as an indication for the Ministry narrowing the scope, it could result in a more precise description of the relevant business areas which will facilitate a prior assessment of the notification obligations.