EU Foreign Subsidies Regulation – M&A Implications for PE Firms

The EU Foreign Subsidies Regulation (FSR), which became partially applicable from 12 July 2023, empowers for the first time the European Commission (Commission) to investigate “financial contributions” received by businesses operating in the EU from non-EU countries.

Among other screening tools, the FSR introduces a new mandatory notification regime for M&A deals that meet certain financial thresholds, which will sit alongside existing EU and national merger control and foreign direct investment screening.

The concept of “foreign financial contributions” is extremely broad. PE firms in particular will have to identify and quantify such contributions for all their controlled portfolio companies as well as capital injections at the fund level (including by sovereign wealth funds and state pension funds) to determine whether the notification thresholds are met.