The EU Commission now calls on member states to review outbound investments

While the recommendation is not legally binding for Member States, it serves as a guideline for them to systematically review and assess the risks associated with outbound investments in critical technology areas. The recommendation also seeks to address the lack of information on outbound investments by collecting data on each transaction. Although it is not legally binding, Member States are encouraged to implement it appropriately. Member States are expected to start implementing the review and risk assessment processes as soon as possible. They are required to provide an update on the progress of their work to the Commission by 15 July 2025 and submit a comprehensive report by 30 June 2026.

Overall, the recommendation aims to safeguard the economic security of the Union by ensuring that outbound investments do not lead to technology leakage or other security risks. However, it also introduces new challenges and considerations for companies involved in M&A activities in critical technology areas. From an M&A perspective, the potential new screening regime could have several implications.

The fact that outbound investments in critical technology areas will be subject to increased scrutiny could lead to longer review processes and potential delays in completing transactions. Companies involved in M&A activities will need to provide detailed information about their transactions, including the parties involved, the type and value of the investment, and any contractual arrangements related to research and development, intellectual property licensing, and key personnel movement.

Additionally, the outbound screening mechanism will be in addition to existing merger control and foreign direct investment screening regimes. Accordingly, this will introduce additional clearance requirements for third-country investments made by EU-based investors.

In terms of deal certainty, a notified transaction will undergo a qualitative risk assessment to identify potential risks to economic security, such as technology leakage and geopolitical factors. In terms of transaction security, a notified transaction will undergo a qualitative risk assessment to identify potential risks to financial security, such as technology leaks and geopolitical factors. It remains to be seen whether a future regime could even lead to a given transaction being blocked if deemed necessary.

Companies may need to take this recommendation into consideration now and reassess their investment strategies and target markets, accounting for the potential risks and regulatory hurdles associated with future outbound investments in critical technology areas.