From a regulatory-side condition to a central-deal parameter, anyone investing cross-border today negotiates not only valuation and governance but also requirements arising from investment screening.

Investment review under the German Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung, or AWV) and the German Foreign Trade and Payments Act (Außenwirtschaftsgesetz, or AWG) has developed in recent years into a structurally determinative factor in transactional practice.

The current figures published by the German Federal Ministry for Economic Affairs and Energy for 2025 demonstrate that investment screening has become a decisive deal factor, particularly in technology-driven sectors and security-relevant sectors: 339 AWV proceedings in 2025, a -30% increase in review proceedings compared to the previous year and an increase in in-depth reviews (Phase II) to 9% of all proceedings.

Technology-driven and security-relevant sectors are a particular focus of investment screening, including such as:

• Artificial intelligence (AI) and digital technologies
• IT and cybersecurity
• Defence and dual use goods
• Critical infrastructure (energy, healthcare, communications)
• High-tech and deep-tech sectors

These areas, in particular, are subject to geopolitical and security policy considerations. Technological sovereignty, security of supply, and the resilience of critical infrastructure have long since become guiding political principles. Investment screening is therefore no longer an isolated regulatory instrument, but rather part of a strategic industrial and security policy.

For investors, targets, and their advisors, this means that transactions in these sectors are subject not only to market- and competition-driven logic, but also to governmental balancing of interests.

European harmonisation: More transparency, more coordination, and more complexity

A further intensification is imminent with the planned reform of the EU Screening Regulation. While almost all Member States have introduced or intensified investment screening regimes in recent years, this will, in the future, be the case across the board, and closer cooperation among the competent national authorities is also envisaged by the European Screening Regulation (currently under revision).

For transactions involving subsidiaries or relevant business activities in multiple EU Member States, this will mean two things:

1. Regulatory transparency will increase, as more harmonised minimum standards will apply.
2. Coordinated reviews will become more likely, as Member States and the European Commission will be more closely involved and discuss transactions with each other.

International transactions should therefore undergo a threefold review; in parallel to potential notification requirements under merger control and obligations pursuant to the Foreign Subsidies Regulation, notification requirements under investment screening must be identified and risk factors addressed. Proceedings may in some cases take several months and must be coordinated in parallel across multiple jurisdictions.

Specific implications for transaction practice

Investment screening influences deal structure, documentation, and negotiation strategy from the outset:

1. Impact on signing and closing timelines

The duration of the investment review – particularly in the case of an in-depth review – may have significant implications for the closing date. In Germany, so-called Phase II proceedings, at a rate of 9% in 2025, were no longer merely a marginal phenomenon. Even Phase I review takes up to two months in Germany.

Realistic timeline planning therefore requires:

• Early analysis of notification requirements in all relevant jurisdictions
• Involvement of specialized advisors from the outset (potentially already during the bidding process)
• Proactive coordination with the competent authority

2. Long-stop dates and closing conditions

Foreign direct investment (FDI) clearances are regularly structured as closing conditions. The drafting of long-stop dates must likewise reflect the risk of an extended review and different review periods across jurisdictions. Deadlines that are too short increase the risk of termination; deadlines that are too long may be economically disadvantageous. Differentiated provisions – for example, including extension mechanisms or staggered deadlines – are gaining in importance.

3. Cooperation and information obligations

FDI-related cooperation obligations are being regulated in increasing detail in share purchase agreements and investment agreements, and include:

• The scope of information to be submitted
• Coordination of communications with authorities
• Cooperation obligations of the parties

4. Risk allocation and hell-or-high-water clauses

Who bears the risk of a prohibition decision or the imposition of conditions?
In competitive bidding processes, hell-or-high-water clauses are increasingly being observed, under which buyers undertake far-reaching commitments to obtain clearance. For investors, this entails a deliberate assessment of risk; for sellers, it represents an important differentiating factor in the process.

5. Structuring of bidding processes

FDI risks are increasingly influencing the selection and evaluation of bidders. Investors from certain third countries or with specific ownership structures may present an increased review risk from the perspective of investment screening.

A structured FDI risk analysis can provide clarity at an early stage and avoid unwelcome surprises at an advanced phase. Potential concerns of the authorities can thus be addressed in advance and, ideally, resolved through appropriate measures at an early stage of the review.

Broad applicability: Not a question of deal size

A common misconception is that investment screening only affects large transactions. In fact, it applies regardless of deal size and notification requirements may also arise in the case of minority investments or internal restructurings. EU or European Free Trade Association (EFTA) investors may likewise be subject to notification obligations.

Particularly in the venture-capital environment – for example, in investments in AI start-ups or cybersecurity companies – FDI readiness is therefore a decisive success factor. The speed of a financing process must not be jeopardized by subsequent regulatory surprises.

Practical experience: Early FDI risk analysis as a strategic advantage

In advisory practice, it is becoming increasingly evident that early FDI risk analysis shifts the negotiating position in favour of the party that realistically assesses and transparently addresses regulatory risks.

Specific advantages include:

• Safeguarding deal timelines
• Increasing bidder certainty
• Avoidance of reputational risks
• Reduction of termination risk in later stages

Particularly for international investors, a coordinated strategy is required that equally takes into account national FDI regimes, European cooperation mechanisms, and geopolitical framework conditions.

Outlook: New German investment screening act

A new German investment screening act is expected later this year. The objective is procedural simplification and systematic reorganization. At the same time, it can be assumed that the scope of notifiable cases will continue to expand.

For companies and investors, this means that regulatory density will not decrease. Rather, investment screening will remain a permanent and integral component of transaction planning.

Conclusion: Investment screening as a strategic steering instrument

FDI readiness is an expression of strategic preparation. Anyone who considers investment screening at an early stage integrates it into the deal architecture, anticipates regulatory expectations, and consciously allocates risks. Those who disregard such regulatory requirements, by contrast, risk delays, loss of value, or, in extreme cases, the failure of the transaction.
In an increasingly geopolitically shaped investment landscape, the guiding principle therefore applies: Deal readiness begins with FDI readiness.