As the new European Commission (EC) assumes office for the 2024 – 2029 term, in-house legal counsel across industries must brace for an evolving regulatory environment that promises to influence the landscape of mergers and acquisitions (M&A). With significant shifts in priorities – from sustainability to strategic autonomy – and a new College of Commissioners, the stakes are high for dealmakers navigating the European market.
A new guard at the helm
When the EC’s president, Ursula von der Leyen unveiled the new EC structure and its nominees, the stage was set for transformative political and regulatory dynamics. Among the key members of the new College of Commissioners is Teresa Ribera Rodríguez, Executive Vice-President for a ‘Clean, Just and Competitive Transition’. With a strong background in energy and sustainability, Ribera Rodríguez’s portfolio includes merger control and foreign subsidies review. Commissioner Maroš Šefcovic, a seasoned diplomat, oversees ‘Trade and Economic Security, Interinstitutional Relations and Transparency’, influencing foreign direct investment (FDI) and export controls.
The personal profiles of these Commissioners matter. Ribera’s focus on sustainability and innovation aligns closely with the EU’s Green Deal objectives, while Šefcovic’s experience underscores a growing emphasis on economic security. As the EC seeks to harmonize competition and industrial policy, these leaders’ perspectives will shape regulatory outcomes in critical ways.
Competition policy meets industrial strategy
A central tension in European Union competition policy – balancing consumer welfare with global competitiveness – is coming to the fore. Recent reports highlight the need for ‘European champions’ to compete effectively on the global stage. To address this, the EC is revisiting its horizontal merger guidelines. While outright exemptions for European firms are unlikely, expect more nuanced evaluations of market entry and expansion potential, as well as complementary use of tools like the Foreign Subsidies Regulation (FSR) and FDI screening.
For US and other non-European firms, this means closer scrutiny of deals, particularly those involving state backing or substantial subsidies. Strategic sectors – such as technology, aerospace, energy, automotive and defense – will likely face heightened attention, reflecting their importance to Europe’s industrial competitiveness.
Addressing ‘killer acquisitions’
The EC’s commitment to tackling ‘killer acquisitions’ – where dominant firms acquire nascent competitors – remains steadfast despite setbacks, such as the recent court defeat in the Illumina/Grail case. Possible changes to the EU’s merger control rules, e.g., to expand the EC’s review powers, are on the agenda. Expect dynamic market analyses to assess innovation trajectories and future competition potential, particularly in fast-evolving sectors like technology and biotech.
Innovation as a defense?
One intriguing development is the potential for innovation-focused remedies in merger reviews. It has been suggested that by committing to investments in critical areas like green energy, artificial intelligence or healthcare, merging entities could align their deals with broader EU policy goals. Such commitments would entail a significant shift from established practice and could involve significant monitoring challenges for both the EC and businesses.
The role of sustainability in deal approvals
The integration of competition enforcement with the EU’s Green Deal objectives signals a paradigm shift. Deals in environmentally impactful sectors – from renewable energy to agriculture – will face increased scrutiny, with sustainability commitments becoming a key factor in securing approvals. However, this alignment also opens doors for foreign investments that advance the EU’s green transition, potentially receiving more favorable treatment.
The challenges of FDI harmonization
While efforts to streamline FDI reviews at the EU level face hurdles – including divergent national interests and limited EU competencies – incremental harmonization is on the horizon. Procedural alignments, such as standardized timelines and information-sharing protocols, could enhance predictability for dealmakers, but seem unlikely. National governments are likely to remain central in scrutiny and exercise of veto powers over investments deemed harmful to their strategic interests.
The expanding reach of the Foreign Subsidies Regulation
One year since it took effect, the FSR is emerging as a pivotal tool in ensuring a level playing field in the EU. Large M&A deals involving firms with significant EU turnover and foreign subsidies, as well as acquisitions by state-owned enterprises, are prime targets for scrutiny. The FSR’s impact extends to public procurement, where subsidized foreign bidders may face disqualification, particularly in critical infrastructure projects. Burdensome FSR reviews are here to stay and need to be factored in to deal planning.
Practical implications for in-house counsel
To navigate these complexities, in-house counsel should adopt proactive strategies:
- Early engagement: Initiate analysis early in the deal process to anticipate potential concerns and mitigate risks, and consider early agency engagement.
- Enhanced due diligence: Conduct comprehensive environmental, social and governance (ESG) and competition compliance checks, particularly for targets with European operations. Ensure alignment with the EU’s sustainability regulations and policy goals.
- Craft a compelling narrative: Highlight, as applicable, how the deal supports EU objectives, such as innovation, sustainability and strategic autonomy.
- Contingency planning: Prepare for extended review timelines and potential remedies or conditions. Develop strategies to manage delays and ensure post-merger compliance.
Looking ahead
The new EC’s approach underscores the evolving interplay between competition policy, sustainability and industrial strategy. For in-house counsel, this means navigating a regulatory landscape that is both more complex and more aligned with broader policy objectives. By staying informed and proactive, legal teams can position their organizations to successfully navigate this new era of M&A regulation in Europe.
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