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The long-awaited 2023 annual report on the control of foreign investment in France (FDI) was published on 4 June by the French Treasury, providing an interesting retrospective of the past year.
The lessons are many: a slowdown in investment operations, tighter controls, an increase in the number of authorizations, a reduction in the conditions attached to authorizations, etc. For FDI, 2023 was a year of contrasts, reflecting the global political and economic climate.
Against a backdrop of unstable geopolitical, energy and economic conditions, the number of projects filed because of their sensitivity to national strategic interests has fallen: 309[1] projects were filed in 2023, compared with 325 in 2022. The decline is still slight, but more pronounced than in the previous year (328 applications submitted in 2021).
The decline is sharper in the number of requests for advance ruling: 27 cases in 2023 compared with 42 in 2022. This mechanism, which enables an investor or a target to confirm, usually prior to a transaction, whether the target's activities fall within the scope of FDI control, has long suffered from its lack of clarity, its limited contribution and the considerable time it entails (two months to obtain a response, to which must be added, as the case may be, the time required to apply for authorization if the Ministry deems the activities to be sensitive). The use of this mechanism is therefore limited to cases - rare in practice - in which the target company wishes to eliminate any risk, however small (70% of requests for prior examination concluded that activities were ineligible, 81% in 2022) and sufficiently in advance of a transaction so as not to impact its timetable.
In terms of applications for authorization, of the 255 submitted in 2023, 135 were authorized, representing around 53% of applications. This represents a significant increase compared to 2022, when only 49% of applications were authorized. It should be noted, however, that the majority of "unauthorized" cases are not synonymous with refusal by the Ministry: these files are generally the subject of a decision of ineligibility for control (the operation and/or activities are outside the scope of IEF control) or withdrawn by the investor.
Finally, "only" 60 authorizations were subject to conditions, i.e. 44% of the authorizations issued last year. While the Treasury justifies this by paying particular attention to the "proportionality of its decisions", it is difficult not to see the pressure from other EU Member States, for whom France had become the champion of conditions imposed on investors (including European investors). By comparison, most of the other Member States that have introduced a filtering system do not use these conditions, or do so only in exceptional cases where their most strategic interests are directly affected.
As in 2022, the share of non-European investors remains largely dominant in 2023 (67.3% of investors, led by the United States, the United Kingdom and Canada), while the share of European investors (EU/EEA, in particular Germany, Luxembourg and the Netherlands) falls from 34.2% in 2022 to 32.7% in 2023.
Similarly, while the majority of investors will continue to be financial investors (43%), their proportion, like that of industrial investors, has fallen, to the benefit of...physical investors (almost 25% of investors in 2023 compared with 13.6% in 2022).
Finally, the trend that began a few years ago seems to be continuing on a sectoral perspective: the share of investments in strategic infrastructures (energy, water, health, etc.) and new technologies (AI, biotechnology, cybersecurity, semi-conductors, etc.) continues to grow (63.7% of applications submitted in 2023), to the detriment of traditional sectors (defense, security, dual-use goods, etc.).
These statistics provide an opportunity to outline the reform of the French FDI regulations, which came into force on 1er January 2024.
In addition to a few procedural changes, this reform introduces four major changes.
Introduced on a temporary basis during the Covid-19 pandemic and then renewed every year since, the lowering of the threshold for triggering control from 25% to 10% of the voting rights of a company listed on a regulated market has been made permanent, encouraged by the "assessment of the three years of implementation".
The simplified and accelerated procedure for these operations remains unchanged:
On the other hand, whereas an investor authorized to cross the 10% threshold was also deemed to be authorized to cross the 25% voting rights threshold, this exemption disappears: a non-European investor authorized to cross the 10% threshold of the voting rights of a listed company will have to obtain a new authorization, this time by means of a full application for authorization, if he intends to cross the 25% threshold of the voting rights of the said listed company.
In order to "prevent the risk of circumvention of the regulations", FDI control has been extended to cases where there is a change of control not only of a French entity, but also of a French branch of a foreign company[2].
This will therefore cover the case of a change of control of a foreign company which would automatically result in a 'change of control' of its French branch, as long as the latter carries out a sensitive activity in France.
Investors will therefore need to be particularly vigilant in their operations outside France, which may now be caught by FDI regulations even if their presence in France does not involve a legal entity.
The scope of sensitive activities has been extended once again, with the addition of four categories of activity:
The cases in which authorization may be waived have been greatly simplified to cover just one general case: "The investor is exempt from the authorization requirement provided for in this chapter where the investor of last resort in the chain of control, within the meaning of II of Article R.151-1, had, prior to the investment, already acquired control, within the meaning of Article L. 233-3 of the French Commercial Code, of the entity that is the subject of the investment".
Even if the wording remains somewhat vague, the aim is to simplify matters: by deleting the reference to a single shareholder holding more than 50% of the capital and retaining only the broader concept of “control”, this amendment aims to broaden the scope of intra-group transactions exempt from prior authorization.
However, the other cases of exemption or presumption of exemption have been removed.
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All in all, although 2023 may have been a year of contrasts, French FDI control has shown its resilience and France remains, for the fifth year running, the most attractive country in Europe for foreign investment.
The publication of updated guidelines should participate in the important work of making the French filtering system clearer and more predictable, which undoubtedly contributes to its attractiveness.
The introduction of the latest reform and the expected upturn in M&A activity should significantly increase the activity of FDI in 2024, as should the potential adoption of the new European regulation on screening, the ambitious aims of which are to continue to introduce a screening regime in all Member States (to date, 22 States have adopted a regime, and the last 5 States have initiated a legislative process), to harmonize supervision at European level and to improve coordination between the competent authorities.
While we await the Ministry's statistical data for 2024, the impact of these various projects is already strong on our activities in this area.
[1] This includes applications for authorisations (255 in 2023), applications for prior review (27 in 2023) and notifications that the threshold of 10% of the voting rights in a listed company has been crossed (also 27) (see below).
[2] These are establishments registered in the French Trade and Companies Register.
