WEBVTT
00:00:09.119 --> 00:00:21.539
Welcome to Dechert's Committed Capital. This is an episode of Sidecar, a special bite-sized discussion of the latest market issues.
00:00:24.464 --> 00:01:10.814
Welcome to Committed Capital, the Dechert podcast where we cut through complexity in global investment and M&A. I'm Jarlath Pratt, a corporate partner in London, and today, we're tackling what could become one of the most consequential pieces of EU economic legislation in a generation. The European Commission has tabled its Industrial Accelerator Act, the IAA, and buried within its broad ambitions are a set of foreign direct investment provisions that stand to reshape how non-European investors access the EU's emerging technology sectors. Joining me today are Clemens York and Mike Okkonen, two regulatory partners from our Brussels and London offices who have been tracking this proposal closely. Welcome both.
00:01:11.834 --> 00:01:22.635
Thank you very much, Jarlath. It's a pleasure to be on and yes, the IAA is really a fascinating and fast moving topic. At the moment, it seems like there's something new almost every week.
00:01:23.655 --> 00:01:33.135
Great to be here. Thank you for the invitation, and I'd echo that the phones have been busy with clients ringing trying to understand what this development means for their future investments.
00:01:34.094 --> 00:01:47.340
Super, so let's set the scene. This is being positioned as part of the EU's Clean Industrial Deal. Can you give us the 30-second version of why the Commission felt it needed to act?
00:01:48.500 --> 00:02:38.629
The European Commission has been watching with growing anxiety as Europe's manufacturing base has seemed to have been hollowing out. The headline statistic that they keep returning to is that now more than 80% of certain critical manufacturing capacities, like battery cells and solar components, are concentrated outside the EU, predominantly in China. At the same time, the Commission has seen billions in EU state aid flow to non-European manufacturers, in particular to Asian battery producers. So the IAA is essentially the Commission saying, if we're going to subsidize the green transition, for example, we want to make sure European workers and European companies capture the value. The FDI provisions in the IAA are the enforcement mechanism for that ambition.
00:02:39.409 --> 00:02:44.689
Okay. Is that a departure from how the EU has traditionally approached inbound investment?
00:02:46.009 --> 00:03:09.155
Well, quite significantly. Yes, the EU has historically been one of the world's most open investment destinations. Even the FDI screening regulation that was introduced in 2019 and is currently being revised was framed pretty narrowly around security and public order. The IAA is something very different.
00:03:04.955 --> 00:03:23.240
It's openly framed as industrial policy. So the commission is not just asking whether an investment poses a security risk, it's really asking if it delivers sufficient economic value to the EU. That's definitely a very fundamental philosophical shift.
00:03:23.960 --> 00:03:32.659
Okay, let's go into the mechanics. What does the IAA's FDI proposal actually require, Mike?
00:03:32.719 --> 00:04:04.504
Look, it's a layered regime. At its core, there are three aspects the regime would apply to four investments above €100 million, and this should aggregate any prior investments in the same target. Second, the investment should give rise to control, which is defined as 30% or more of share capital, voting rights or ownership. Third, the investment must be in what the Commission calls the emerging strategic sectors. The deal then has to satisfy at least four out of six conditions before it can proceed. And I must say, these conditions are not trivial.
00:04:05.465 --> 00:04:08.944
Okay, walk us through these non-trivial conditions, Mike.
00:04:09.664 --> 00:04:44.314
Well, the headline one is an ownership gap. Specifically, foreign investors are limited to a 49% stake. That's not a minority preference, but a hard legal ceiling. The second major condition is a mandatory joint venture requirement. You can't just buy a minority stake. You have to structure the deal as a joint venture with a European partner. Then there are technology transfer obligations which extend beyond patents to operational know-how and manufacturing processes. There's also, as a fourth requirement, a local R&D spend requirement.
00:04:40.069 --> 00:04:48.995
Specifically, the target must spend 1% of gross annual revenues on R&D in the EU.
00:04:49.894 --> 00:05:06.319
Fifth, a workforce requirement that at least 50% of employees are EU national. And sixth, a local content obligation that requires 30% of inputs in the final product to be manufactured in the EU.
00:05:07.819 --> 00:05:14.060
And just to be clear, if I could just jump in, satisfying the relevant conditions will not be optional.
00:05:14.060 --> 00:05:18.379
This is really a mandatory pre-closing notification regime.
00:05:18.800 --> 00:05:40.865
The investment cannot complete until you have either received clearance or formally accepted the conditions that have been imposed on you. Completion and breach of that standstill would attract a penalty of at least 5% of the investor group's average daily global revenues. And as I think we can all see, for a large multinational, that's an extremely serious number.
00:05:41.404 --> 00:05:45.245
Goodness. Okay, so which sectors are actually in scope then?
00:05:46.745 --> 00:06:18.814
Well, the proposal identifies four sectors. That's battery technologies, solar technologies, electric vehicles and their components, and the extraction and processing of critical raw materials. Under the draft IAA, the Commission also has a delegated power to expand that list, but there are several key areas, like digital technologies, AI and semiconductors, that are actually expressly carved out from the expansion power, because those areas are dealt with under different instruments.
00:06:19.954 --> 00:06:32.915
So one of the aspects that I've noticed has attracted the most attention is the geographic trigger. Not all non-EU investors are treated equally. How does that work?
00:06:33.935 --> 00:06:39.740
Well, Jarlath, that's arguably the most politically charged design choice in the entire proposal.
00:06:40.279 --> 00:07:00.019
There were earlier leaked drafts that apply the regime to all investors from countries that don't have a free trade agreement with the EU that would have had very far reaching consequences, as it would have included U.S. investors, for example, alongside Chinese ones.
00:06:55.759 --> 00:07:10.805
The current text has moved to different criterion. So the regime only applies to investors from countries that control more than 40% of global manufacturing capacity in the relevant strategic sector.
00:07:11.944 --> 00:07:15.785
And in practice, Clemens, which countries does that capture?
00:07:17.105 --> 00:07:33.829
Now that's a very good question, and the honest answer is that the threshold has been calibrated almost surgically to capture Chinese investments. China, as we know, holds a very large share of global manufacturing and batteries, solar panels and critical minerals processing.
00:07:34.189 --> 00:08:05.194
The 40% figure corresponds pretty closely to China's position in those markets, and the revision was a direct response to pretty intense lobbying by allied trading partners who understandably did not want to be treated in the same way as a geopolitical competitor. So the Commission has also included a mechanism to designate certain third countries as equivalent to EU producers for procurement purposes, which does give it some flexibility here.
00:08:06.394 --> 00:08:30.439
If I just might jump in here from a deal structure perspective, I would add this distinction matters enormously. If you're advising a U.S. fund, you still need to analyze your home country's manufacturing capacity in the specific sector. This is because the test is sector by sector and not country by country in aggregate, and that's going to require detailed market share analysis that isn't always straightforward.
00:08:31.579 --> 00:08:38.825
Okay, that's very helpful. Okay, let's talk about the governance architecture.
00:08:34.804 --> 00:08:46.144
This is a proposed EU-level regulation, but I understand it doesn't actually create a centralized EU approval body.
00:08:42.125 --> 00:08:46.144
How is this going to work?
00:08:48.065 --> 00:09:22.894
Well, it's a deliberately layered model, and it's quite different from, say, the CFIUS process in the United States. So the primary reviewing authority is the national authority of the member state where the investment is located, that national authority applies the conditionality framework that's set out in the IAA. So the substantive standard is harmonized at EU level, but the decision would be taken at a national level. So where an investment spans multiple member states, those national authorities need to coordinate and agree on conditions.
00:09:23.914 --> 00:09:26.434
OK, and where does the Commission fit in with this?
00:09:27.754 --> 00:09:52.100
Well, the Commission has a significant advisory role. First of all, it can issue opinions on whether an investment is subject to the regime, on whether conditions are satisfied, and on whether a deal should be approved. If the Commission takes a negative view, the national authority needs to conduct a more detailed assessment and explain how it has taken the Commission's opinion into account.
00:09:53.000 --> 00:10:22.804
Interestingly, the current draft also provides that where national authorities and different member states disagree on conditions. So the Commission does have the final say also, and this is an evolution from earlier drafts. The Commission has the power to carry out its own assessment and require national authorities to apply conditions. The trigger for that is either a potential significant impact on EU wide value creation or an investment value exceeding €1 billion.
00:10:23.044 --> 00:10:55.894
And if we take a step back and look at this from the procedural perspective, I wanted to add that this creates a real multi-layered approval challenge for large transactions. This approval requirement would come on top of the existing national FDI screening regimes, the national and EU measure control regimes and foreign subsidies regulation. For a significant deal in one of the relevant sectors, you could be managing four parallel regulatory processes with different authorities, different timelines and different conditions. The coordination challenge alone is considerable here.
00:10:57.695 --> 00:10:59.495
And how has this been received politically?
00:10:59.914 --> 00:11:02.554
What's the realistic timetable for this becoming law now?
00:11:03.995 --> 00:11:46.024
Yeah, that's also an interesting topic, because the IAA draft has exposed some genuine fault lines within the EU. You have a coalition of Northern European and Baltic states who are expressing real skepticism, especially about the made -in-Europe requirement, which is situated in another part of the IAA, and they're warning that that risks adding regulatory complexity and undermining competitiveness. On the other hand, France has pushed very hard for stringent conditions, which is consistent with its broader industrial policy tradition and its desire to protect sectors like steel, automotive and clean technology.
00:11:46.865 --> 00:11:47.825
And externally?
00:11:49.220 --> 00:12:35.809
Well, as we mentioned earlier, several third countries were quite vocal and lobbying for a differentiated approach that distinguishes between allies and geopolitical competitors. The narrowing of the geographic trigger to the 40% manufacturing capacity threshold was a direct response to those representations. But the text is still in draft form, and we're going to need to pass through the ordinary legislative procedure. And as such, the text is really still subject to potentially significant amendments. We should expect this process to take several months at a minimum, and the final text on key parameters like ownership caps, sectoral definitions and the capacity threshold may look pretty different from what's on the table today.
00:12:35.809 --> 00:12:48.049
And this is an important point for clients. The uncertainty is not a reason to ignore this, but actually it's a reason to monitor these developments very closely and build optionality into transaction planning.
00:12:49.850 --> 00:13:01.414
Awesome. Let's end with the practical takeaways. If you're an investor with existing or planned exposure to these sectors in Europe, what should you suddenly be doing now?
00:13:02.495 --> 00:13:19.294
There are two things I'd highlight. First, transaction structuring. The 49% ownership gap and mandatory JV requirements are not conditions you can engineer around at the last minute. If the regime passes in its current form, you'll need a European partner.
00:13:16.054 --> 00:14:00.304
That means identifying JV candidates, running a parallel negotiation and designing a deal structure that works commercially within the cap constraints. You also need IP and technology sharing arrangements that will satisfy the regime's transfer obligations without giving away your competitive advantage. None of these are quick. Second, due diligence. You need to assess whether your home country's manufacturing capacity in the specific sector triggers the 40% threshold. That's not always obvious, and will require sector specific markets analysis. The Commission has indicated it will publish guidance on how the threshold is calculated, but that guidance doesn't exist yet.
00:14:01.985 --> 00:14:09.710
And third, if I can just jump in, because this is my particular preoccupation, multi-regime filing strategy.
00:14:10.009 --> 00:14:19.970
The IAA, the revised FDI screening regulation, the merger control regulation and the foreign subsidies regulation, all of these can potentially apply to the same transaction.
00:14:20.690 --> 00:14:38.254
So the timing and sequencing of filings, managing conditions across different processes, and ensuring consistency in representations to different authorities, is going to require a coordinated strategy from the outset, and that's not something that you bolt on late in a deal.
00:14:33.995 --> 00:15:03.500
And fourth, monitor the legislative process. The text is going to involve key parameters, the precise ownership percentage, the sectoral scope, the threshold calibration, all of these are subject to negotiations. If you have significant exposure to these sectors, you should be following the parliament's position and the council's discussions very closely, and you should definitely consider if there's scope to engage in the consultation process.
00:15:04.820 --> 00:15:10.279
Okay, excellent advice, gentlemen, although I obviously would say that. But any final thoughts?
00:15:11.919 --> 00:15:17.860
Well, just that the IAA really signals a structural shift in how the EU thinks about foreign investment.
00:15:18.460 --> 00:15:33.625
It looks like the era of unconditional openness is giving way to conditional openness, and the conditions attached to the investments in strategic sectors are going to be meaningful obligations not just tick boxes.
00:15:29.320 --> 00:15:39.804
Investors who adapt their strategies early on are going to be a lot better positioned than those who try to react at the point of execution.
00:15:41.304 --> 00:15:43.585
I'd add this also creates opportunities.
00:15:43.884 --> 00:15:57.250
European JV partners are going to become increasingly valuable assets. Investors who have the foresight to build relationships with credible European industrial players now will have a significant head start when the regime goes live.
00:15:59.289 --> 00:16:05.649
Wise words, Mike, on which to close. Thank you both very, very much for a really illuminating discussion.
00:16:06.129 --> 00:16:27.774
Dechert will be publishing, no doubt, client alerts and continuing to track this as the legislative process unfolds, and links will be in the episode notes. If you'd like to speak to our team about the IAA's implications for your portfolio or transaction pipeline, then tough. No, only joking - please do reach out. Until next time, this is Committed Capital. Thank you very much.
00:16:30.115 --> 00:16:33.054
Thank you for listening to Dechert's Committed Capital.
00:16:33.654 --> 00:16:37.914
Please subscribe and for more information, visit dechert.com.
00:16:37.914 --> 00:16:38.394
Thank you.
00:00:09.119 --> 00:00:21.539
Welcome to Dechert's Committed Capital. This is an episode of Sidecar, a special bite-sized discussion of the latest market issues.
00:00:24.464 --> 00:01:10.814
Welcome to Committed Capital, the Dechert podcast where we cut through complexity in global investment and M&A. I'm Jarlath Pratt, a corporate partner in London, and today, we're tackling what could become one of the most consequential pieces of EU economic legislation in a generation. The European Commission has tabled its Industrial Accelerator Act, the IAA, and buried within its broad ambitions are a set of foreign direct investment provisions that stand to reshape how non-European investors access the EU's emerging technology sectors. Joining me today are Clemens York and Mike Okkonen, two regulatory partners from our Brussels and London offices who have been tracking this proposal closely. Welcome both.
00:01:11.834 --> 00:01:22.635
Thank you very much, Jarlath. It's a pleasure to be on and yes, the IAA is really a fascinating and fast moving topic. At the moment, it seems like there's something new almost every week.
00:01:23.655 --> 00:01:33.135
Great to be here. Thank you for the invitation, and I'd echo that the phones have been busy with clients ringing trying to understand what this development means for their future investments.
00:01:34.094 --> 00:01:47.340
Super, so let's set the scene. This is being positioned as part of the EU's Clean Industrial Deal. Can you give us the 30-second version of why the Commission felt it needed to act?
00:01:48.500 --> 00:02:38.629
The European Commission has been watching with growing anxiety as Europe's manufacturing base has seemed to have been hollowing out. The headline statistic that they keep returning to is that now more than 80% of certain critical manufacturing capacities, like battery cells and solar components, are concentrated outside the EU, predominantly in China. At the same time, the Commission has seen billions in EU state aid flow to non-European manufacturers, in particular to Asian battery producers. So the IAA is essentially the Commission saying, if we're going to subsidize the green transition, for example, we want to make sure European workers and European companies capture the value. The FDI provisions in the IAA are the enforcement mechanism for that ambition.
00:02:39.409 --> 00:02:44.689
Okay. Is that a departure from how the EU has traditionally approached inbound investment?
00:02:46.009 --> 00:03:09.155
Well, quite significantly. Yes, the EU has historically been one of the world's most open investment destinations. Even the FDI screening regulation that was introduced in 2019 and is currently being revised was framed pretty narrowly around security and public order. The IAA is something very different.
00:03:04.955 --> 00:03:23.240
It's openly framed as industrial policy. So the commission is not just asking whether an investment poses a security risk, it's really asking if it delivers sufficient economic value to the EU. That's definitely a very fundamental philosophical shift.
00:03:23.960 --> 00:03:32.659
Okay, let's go into the mechanics. What does the IAA's FDI proposal actually require, Mike?
00:03:32.719 --> 00:04:04.504
Look, it's a layered regime. At its core, there are three aspects the regime would apply to four investments above €100 million, and this should aggregate any prior investments in the same target. Second, the investment should give rise to control, which is defined as 30% or more of share capital, voting rights or ownership. Third, the investment must be in what the Commission calls the emerging strategic sectors. The deal then has to satisfy at least four out of six conditions before it can proceed. And I must say, these conditions are not trivial.
00:04:05.465 --> 00:04:08.944
Okay, walk us through these non-trivial conditions, Mike.
00:04:09.664 --> 00:04:44.314
Well, the headline one is an ownership gap. Specifically, foreign investors are limited to a 49% stake. That's not a minority preference, but a hard legal ceiling. The second major condition is a mandatory joint venture requirement. You can't just buy a minority stake. You have to structure the deal as a joint venture with a European partner. Then there are technology transfer obligations which extend beyond patents to operational know-how and manufacturing processes. There's also, as a fourth requirement, a local R&D spend requirement.
00:04:40.069 --> 00:04:48.995
Specifically, the target must spend 1% of gross annual revenues on R&D in the EU.
00:04:49.894 --> 00:05:06.319
Fifth, a workforce requirement that at least 50% of employees are EU national. And sixth, a local content obligation that requires 30% of inputs in the final product to be manufactured in the EU.
00:05:07.819 --> 00:05:14.060
And just to be clear, if I could just jump in, satisfying the relevant conditions will not be optional.
00:05:14.060 --> 00:05:18.379
This is really a mandatory pre-closing notification regime.
00:05:18.800 --> 00:05:40.865
The investment cannot complete until you have either received clearance or formally accepted the conditions that have been imposed on you. Completion and breach of that standstill would attract a penalty of at least 5% of the investor group's average daily global revenues. And as I think we can all see, for a large multinational, that's an extremely serious number.
00:05:41.404 --> 00:05:45.245
Goodness. Okay, so which sectors are actually in scope then?
00:05:46.745 --> 00:06:18.814
Well, the proposal identifies four sectors. That's battery technologies, solar technologies, electric vehicles and their components, and the extraction and processing of critical raw materials. Under the draft IAA, the Commission also has a delegated power to expand that list, but there are several key areas, like digital technologies, AI and semiconductors, that are actually expressly carved out from the expansion power, because those areas are dealt with under different instruments.
00:06:19.954 --> 00:06:32.915
So one of the aspects that I've noticed has attracted the most attention is the geographic trigger. Not all non-EU investors are treated equally. How does that work?
00:06:33.935 --> 00:06:39.740
Well, Jarlath, that's arguably the most politically charged design choice in the entire proposal.
00:06:40.279 --> 00:07:00.019
There were earlier leaked drafts that apply the regime to all investors from countries that don't have a free trade agreement with the EU that would have had very far reaching consequences, as it would have included U.S. investors, for example, alongside Chinese ones.
00:06:55.759 --> 00:07:10.805
The current text has moved to different criterion. So the regime only applies to investors from countries that control more than 40% of global manufacturing capacity in the relevant strategic sector.
00:07:11.944 --> 00:07:15.785
And in practice, Clemens, which countries does that capture?
00:07:17.105 --> 00:07:33.829
Now that's a very good question, and the honest answer is that the threshold has been calibrated almost surgically to capture Chinese investments. China, as we know, holds a very large share of global manufacturing and batteries, solar panels and critical minerals processing.
00:07:34.189 --> 00:08:05.194
The 40% figure corresponds pretty closely to China's position in those markets, and the revision was a direct response to pretty intense lobbying by allied trading partners who understandably did not want to be treated in the same way as a geopolitical competitor. So the Commission has also included a mechanism to designate certain third countries as equivalent to EU producers for procurement purposes, which does give it some flexibility here.
00:08:06.394 --> 00:08:30.439
If I just might jump in here from a deal structure perspective, I would add this distinction matters enormously. If you're advising a U.S. fund, you still need to analyze your home country's manufacturing capacity in the specific sector. This is because the test is sector by sector and not country by country in aggregate, and that's going to require detailed market share analysis that isn't always straightforward.
00:08:31.579 --> 00:08:38.825
Okay, that's very helpful. Okay, let's talk about the governance architecture.
00:08:34.804 --> 00:08:46.144
This is a proposed EU-level regulation, but I understand it doesn't actually create a centralized EU approval body.
00:08:42.125 --> 00:08:46.144
How is this going to work?
00:08:48.065 --> 00:09:22.894
Well, it's a deliberately layered model, and it's quite different from, say, the CFIUS process in the United States. So the primary reviewing authority is the national authority of the member state where the investment is located, that national authority applies the conditionality framework that's set out in the IAA. So the substantive standard is harmonized at EU level, but the decision would be taken at a national level. So where an investment spans multiple member states, those national authorities need to coordinate and agree on conditions.
00:09:23.914 --> 00:09:26.434
OK, and where does the Commission fit in with this?
00:09:27.754 --> 00:09:52.100
Well, the Commission has a significant advisory role. First of all, it can issue opinions on whether an investment is subject to the regime, on whether conditions are satisfied, and on whether a deal should be approved. If the Commission takes a negative view, the national authority needs to conduct a more detailed assessment and explain how it has taken the Commission's opinion into account.
00:09:53.000 --> 00:10:22.804
Interestingly, the current draft also provides that where national authorities and different member states disagree on conditions. So the Commission does have the final say also, and this is an evolution from earlier drafts. The Commission has the power to carry out its own assessment and require national authorities to apply conditions. The trigger for that is either a potential significant impact on EU wide value creation or an investment value exceeding €1 billion.
00:10:23.044 --> 00:10:55.894
And if we take a step back and look at this from the procedural perspective, I wanted to add that this creates a real multi-layered approval challenge for large transactions. This approval requirement would come on top of the existing national FDI screening regimes, the national and EU measure control regimes and foreign subsidies regulation. For a significant deal in one of the relevant sectors, you could be managing four parallel regulatory processes with different authorities, different timelines and different conditions. The coordination challenge alone is considerable here.
00:10:57.695 --> 00:10:59.495
And how has this been received politically?
00:10:59.914 --> 00:11:02.554
What's the realistic timetable for this becoming law now?
00:11:03.995 --> 00:11:46.024
Yeah, that's also an interesting topic, because the IAA draft has exposed some genuine fault lines within the EU. You have a coalition of Northern European and Baltic states who are expressing real skepticism, especially about the made -in-Europe requirement, which is situated in another part of the IAA, and they're warning that that risks adding regulatory complexity and undermining competitiveness. On the other hand, France has pushed very hard for stringent conditions, which is consistent with its broader industrial policy tradition and its desire to protect sectors like steel, automotive and clean technology.
00:11:46.865 --> 00:11:47.825
And externally?
00:11:49.220 --> 00:12:35.809
Well, as we mentioned earlier, several third countries were quite vocal and lobbying for a differentiated approach that distinguishes between allies and geopolitical competitors. The narrowing of the geographic trigger to the 40% manufacturing capacity threshold was a direct response to those representations. But the text is still in draft form, and we're going to need to pass through the ordinary legislative procedure. And as such, the text is really still subject to potentially significant amendments. We should expect this process to take several months at a minimum, and the final text on key parameters like ownership caps, sectoral definitions and the capacity threshold may look pretty different from what's on the table today.
00:12:35.809 --> 00:12:48.049
And this is an important point for clients. The uncertainty is not a reason to ignore this, but actually it's a reason to monitor these developments very closely and build optionality into transaction planning.
00:12:49.850 --> 00:13:01.414
Awesome. Let's end with the practical takeaways. If you're an investor with existing or planned exposure to these sectors in Europe, what should you suddenly be doing now?
00:13:02.495 --> 00:13:19.294
There are two things I'd highlight. First, transaction structuring. The 49% ownership gap and mandatory JV requirements are not conditions you can engineer around at the last minute. If the regime passes in its current form, you'll need a European partner.
00:13:16.054 --> 00:14:00.304
That means identifying JV candidates, running a parallel negotiation and designing a deal structure that works commercially within the cap constraints. You also need IP and technology sharing arrangements that will satisfy the regime's transfer obligations without giving away your competitive advantage. None of these are quick. Second, due diligence. You need to assess whether your home country's manufacturing capacity in the specific sector triggers the 40% threshold. That's not always obvious, and will require sector specific markets analysis. The Commission has indicated it will publish guidance on how the threshold is calculated, but that guidance doesn't exist yet.
00:14:01.985 --> 00:14:09.710
And third, if I can just jump in, because this is my particular preoccupation, multi-regime filing strategy.
00:14:10.009 --> 00:14:19.970
The IAA, the revised FDI screening regulation, the merger control regulation and the foreign subsidies regulation, all of these can potentially apply to the same transaction.
00:14:20.690 --> 00:14:38.254
So the timing and sequencing of filings, managing conditions across different processes, and ensuring consistency in representations to different authorities, is going to require a coordinated strategy from the outset, and that's not something that you bolt on late in a deal.
00:14:33.995 --> 00:15:03.500
And fourth, monitor the legislative process. The text is going to involve key parameters, the precise ownership percentage, the sectoral scope, the threshold calibration, all of these are subject to negotiations. If you have significant exposure to these sectors, you should be following the parliament's position and the council's discussions very closely, and you should definitely consider if there's scope to engage in the consultation process.
00:15:04.820 --> 00:15:10.279
Okay, excellent advice, gentlemen, although I obviously would say that. But any final thoughts?
00:15:11.919 --> 00:15:17.860
Well, just that the IAA really signals a structural shift in how the EU thinks about foreign investment.
00:15:18.460 --> 00:15:33.625
It looks like the era of unconditional openness is giving way to conditional openness, and the conditions attached to the investments in strategic sectors are going to be meaningful obligations not just tick boxes.
00:15:29.320 --> 00:15:39.804
Investors who adapt their strategies early on are going to be a lot better positioned than those who try to react at the point of execution.
00:15:41.304 --> 00:15:43.585
I'd add this also creates opportunities.
00:15:43.884 --> 00:15:57.250
European JV partners are going to become increasingly valuable assets. Investors who have the foresight to build relationships with credible European industrial players now will have a significant head start when the regime goes live.
00:15:59.289 --> 00:16:05.649
Wise words, Mike, on which to close. Thank you both very, very much for a really illuminating discussion.
00:16:06.129 --> 00:16:27.774
Dechert will be publishing, no doubt, client alerts and continuing to track this as the legislative process unfolds, and links will be in the episode notes. If you'd like to speak to our team about the IAA's implications for your portfolio or transaction pipeline, then tough. No, only joking - please do reach out. Until next time, this is Committed Capital. Thank you very much.
00:16:30.115 --> 00:16:33.054
Thank you for listening to Dechert's Committed Capital.
00:16:33.654 --> 00:16:37.914
Please subscribe and for more information, visit dechert.com.
00:16:37.914 --> 00:16:38.394
Thank you.
