Ireland’s first investment screening legislation is expected to commence in Q2 2024. The Act introduces a mandatory notification regime for certain transactions in critical sectors meaning parties to food and beverage transactions should carefully consider whether a notification is required to be made. The Minister has published draft guidance, which clarifies several elements of the Act. Our Competition & Antitrust team explores the impact of the new regime on the Food, Agriculture and Beverage sector.
Increasingly, parties to mergers and acquisitions not only have to worry about merger control but also foreign investment screening. The Screening of Third Country Transactions Act 2023 (STCT Act) introduces Ireland’s first investment screening regime. This is expected to commence in Q2 2024. The STCT Act will enable the Minister for Enterprise, Trade and Employment to review certain transactions that may present risks to the security or public order of the State. This includes, for example, transactions involving businesses that are active in food production, processing or distribution, or the supply of critical inputs for food security.
Parties to a transaction meeting the relevant criteria set out in the STCT Act must notify and obtain approval from the Minister prior to completing the transaction. Failure to do so is a criminal offence, punishable by fines. Therefore, parties to transactions relating to the food sector will need to carefully consider whether the deal meets the relevant criteria. Helpfully, the Minister has published detailed draft ‘Inward Investment Screening Guidance’ (the Draft Guidance), which clarifies several elements of the STCT Act.
Mandatory notification criteria
The STCT Act introduces a mandatory and suspensory notification regime, inspired by merger control. If a transaction meets the following four criteria, all parties must notify it to the Minister for approval:
1. A “third-country undertaking”, i.e. from outside the EEA and Switzerland, or a person connected with a “third-country undertaking”:
- Acquires control of an asset or undertaking in the Republic of Ireland, or
- Changes the percentage of shares or voting rights in an undertaking in the Republic of Ireland above 25% or above 50%
2. The cumulative ‘value of the transaction’ and other transactions between the parties is at least €2 million in a period of 12 months before the date of the transaction.
As expected, the Draft Guidance states that this threshold relates to the entire value of the consideration being paid by the acquirer. In other words, the threshold is linked to the total purchase price paid by the acquirer, including any international dimension such as assets or undertakings not located in the State acquired as part of the transaction.
3. The same undertaking does not, directly or indirectly, control all the parties to the transaction , i.e. the transaction is not an internal reorganisation.
4. The transaction relates to, or impacts on, one or more of the critical sectors referred to in the EU Screening Regulation:
- Critical infrastructure, whether physical or virtual
- Critical technologies and dual use items
- Critical inputs, including raw materials
- Access to sensitive information
- Freedom and pluralism of the media
In the case of critical infrastructure, the Draft Guidance clarifies that a notification will only be required where the infrastructure in question comes within one of the categories designated in Annex 1 of EU Directive 2022/2557 (the CER Directive). This includes food businesses engaged exclusively in logistics and wholesale distribution and large-scale industrial production and processing of food. The term “food” encompasses any substance or product which is intended to be, or reasonably expected to be, ingested by humans. This also includes drinks.
The Draft Guidance provides a welcome confirmation that an Irish nexus requirement applies, that is, the target must operate the “critical” element of its business, or the critical infrastructure must be located, in Ireland.
Food sector attracts FDI scrutiny
There is a trend across other European jurisdictions where transactions relating to food supply and security are being closely scrutinised by national authorities under their respective foreign direct investment (FDI) regimes. In some cases, this resulted in the transaction being prohibited.
The French Government, in 2021, blocked the proposed acquisition of Carrefour, one of France's leading grocery chains, by the Canadian convenience store chain Couche-Tard. According to the French Minister of the Economy, Carrefour was an "essential link in the food security of the French, in food sovereignty".
The Italian Government blocked a Chinese owned group from buying a vegetable seed producer Verisem in October 2021. It has been reported that Coldiretti, Italy’s largest agricultural lobbying organisation, had called on the Government to block the deal as it would have shifted the strategic balance in the control of seeds for vegetable and herb production to Asia.
The food sector in Ireland has recently been the subject of negative press in the broader context of the cost-of-living crisis and specifically high food price inflation. Against this backdrop, it is possible that the Minister may closely review transactions involving important food businesses.
Next steps?
The categories of sensitive and strategic activities under the STCT Act are defined broadly, and therefore certain food sector assets and services fall within the definition of “critical infrastructure” and/or “critical inputs”. For example, “critical infrastructure” is likely to include many food businesses engaged in logistics, wholesale distribution, large-scale industrial production and/or processing.
Parties to a transaction in the food sector involving any target asset or entity in the State should consider whether the criteria for a mandatory notification are met. If the criteria are met, the parties are required to notify, and obtain approval for, the transaction before completion.
For more information and expert advice on the impact of the new regime on any anticipated transaction in the food sector space, contact a member of our Competition & Antitrust team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.
