On Tuesday 8 October 2024, Maverick Advocaten hosted The BTI & Best Practices meeting of the Dutch Investment Screening Association. Ivo Nobel, Head of the Investment Screening Bureau (Bureau Toetsing Investeringen – “BTI”) spoke at this meeting about the first practical experiences with the Wet veiligheidstoets investeringen, fusies en overnames (Investments, Mergers and Acquisitions (Security Screening Act – “Vifo Act”), the Dutch FDI regime for M&A transactions.
In this blog we address the main practical findings after the first year of investment screening in the Netherlands.
Number of Vifo notifications is increasing: around 90 M&A transactions reported each year
The Vifo Act came into force in mid-2023. The BTI received 45 Vifo notifications in that period. This trend is expected to increase to 90 transaction notifications in 2024. In comparison, around 110-120 merger notifications are filed with the Netherlands Authority for Consumers and Markets (“ACM”) each year. The BTI took a total of 34 Vifo decisions on transactions in 2023. In 93% of these decisions, the transaction was approved without remedies.
Remedies were imposed in one case, meaning that approval for the transaction was made subject to the condition that certain undertakings be given or certain changes be made. It is not known what they are, because Vifo decisions are not made public. No transactions have been prohibited to date.
The average processing time for a Vifo notification was 40 days last year, which is well within the initial Phase I time limit of eight weeks. It should be noted, however, that ‘the clock stops’ the moment the BTI presents formal questions to the parties. That interruption is not included in the 40-day average; the average duration may therefore be longer in practice.
BTI proactively investigates possible failure to report transactions (gun jumping) and takes action
The BTI proactively investigates whether unnotified transactions – which become known through the media, for instance – should in fact have been notified under the Vifo Act. If in doubt, the BTI presents questions to the companies involved. It may then turn out that they overlooked the notification requirement. If the transaction has not yet closed, that may still be rectified, but otherwise that constitutes gun jumping (wrongful failure to notify on time), for which high fines may be imposed. The BTI is currently investigating such a possible case of gun jumping.
Fines for gun jumping may be imposed on both the acquirer and the target company, because the notification obligation rests on both parties. The target company's notification obligation is particularly relevant in a situation in which the acquirer does not know (or cannot know, due to confidentiality agreements with, for instance in the case of a Defence customer) that the target company is subject to the Vifo Act. Conversely, the target company may be unaware that a notifiable acquisition of decisive influence is taking place, such as a transaction as a result of which only 10% of the voting rights are transferred.
BTI requires transparency regarding the identity of smaller investors
In the Vifo process, the BTI is increasingly requiring information on the underlying financing structure of a transaction, including the identity of smaller investors acquiring less than 10% of the voting rights. The underlying concern is that a small investor may exert more influence over the target company than the shareholding percentage suggests in first instance. To this end, the BTI can also sometimes also ask for the identity of limited partners in an investment fund that have a stake below (or even well below) 10%.
Right to appoint Supervisory Board member may also be notifiable in certain circumstances
A notification obligation under the Vifo Act may apply if the target company undertakes towards a third party (e.g. an investor) to ensure that the duly authorised bodies of the target company (e.g. the general meeting of shareholders) appoint a director nominated by that third party. This is, in a sense, a kind of indirect right of appointment.
The BTI has clarified that, under certain circumstances, this may also relate to the ‘indirect appointment’ of supervisory board members. The key question is always whether this confers significant influence over the target company. The answer depends on the specific circumstances of the case. In principle, this will not be the case if the supervisory board member performs a purely supervisory role. That is generally the case in a two-tier board. This may be different, however, in the case of a one-tier board, in which case the exact duties of the relevant supervisory board member (non-executive director) must be taken into account.
Informal undertakings may allay BTI’s concerns at an early stage already
As we have seen in our practice, the BTI is open in certain transactions to so-called informal undertakings by parties to allay the BTI’s concerns about risks to national security. The advantage of this approach is, first, that no review decision needs to be awaited, thus avoiding a lengthy Phase II investigation: Second, informal undertakings leave more room for customisation, as the BTI is not restricted by the limitative list of measures in the Vifo Act.
Strategic autonomy: role of target company in the chain may be relevant to BTI’s review
When reviewing transactions, the BTI not only considers the impact of the transaction on possible dependence of the Netherlands that may result from the target company falling into foreign hands; it also considers the extent to which the transaction leads to a reduced dependence of other countries on Dutch know-how and expertise. From that perspective, it may be desirable for certain unique knowledge to remain in the Netherlands. To this end, the role that the Dutch target company plays in the value chain of products that are partly produced in other countries is also taken into account in reviewing M&A transactions.
Expansion of the scope: more sectors subject to notification requirement
The number of sectors in scope of the Vifo Act is expected to increase further in the near future. An internet consultation on the further expansion of the Vifo Act is likely to take place this year. The question is no longer whether the scope will be extended, but rather when. The Lower House of the Dutch parliament passed a motion earlier this year already that aims to bring companies in the Dutch vegetable and seed breeding sector in scope of the Vifo Act.
A bill introducing specific investment screening for the Defence industry is also in the pipeline, namely the Wet weerbaarheid defensie en veiligheid gerelateerde industrie (Act on the Resilience of the Defence and Security-related Industry). This bill is currently before the Lower House. The BTI will be implementing the investment screening included in this bill. More information on the Defence-specific screening can be found in our earlier blog.
More information on the Vifo Act and FDI-related questions can be found in the information portal wetvifo.nl.
Follow Maverick Advocaten on LinkedIn
