Cross-border M&A practitioners are closely scrutinising the EU’s newly enacted Foreign Direct Investment (FDI) Screening Regulation, which came into force this month, introducing a harmonised notification obligation for certain transactions involving non-EU investors. The measure marks a decisive shift in how foreign investments into strategic sectors are scrutinised, with broad implications for deal structuring, timelines, and regulatory risk.

The updated framework introduces mandatory filings for acquisitions above €50 million involving entities active in critical infrastructure, dual-use technologies, or data-rich sectors. It replaces the previously non-binding coordination mechanism and gives the Commission a quasi-veto power in cases deemed a threat to “EU security or public order.”

Heightened Complexity and Strategic Rerouting

Legal advisors are already seeing a behavioural shift. “We’re seeing clients front-load regulatory strategy more aggressively—especially for transactions touching telecoms, AI, or biotech,” said Lisa Tran, partner at an international law firm in Frankfurt. “Some are re-routing deals to avoid triggering filing thresholds or opting for minority structures with governance limitations.”

This new environment aligns the EU more closely with regimes like CFIUS in the US, though lawyers caution that uncertainty around procedural timelines and political discretion remains higher in several member states.

UK and US Deals Still Flowing—but With New Filters

Despite the headwinds, cross-border activity remains buoyant. The first half of 2025 saw a 13% uptick in UK-EU inbound M&A, according to data from Mergermarket, driven by mid-cap energy and life sciences transactions. However, the FDI scrutiny is leading to longer deal cycles: the average time-to-close for a cross-border transaction involving a strategic asset now exceeds 140 days, up from 102 days a year ago.

Key Implications for Legal Advisors

Dual Diligence Tracks: M&A lawyers are increasingly bifurcating due diligence into commercial/legal and regulatory tracks to anticipate review timelines and conditions.

Enhanced Representations and Termination Rights: Sale and purchase agreements now routinely include detailed covenants around regulatory filings and risk allocation mechanisms tied to FDI clearances.

Increasing Role of Political Risk Insurance: Dealmakers are exploring insurance tools to hedge the risk of regulatory intervention, particularly in frontier or highly regulated sectors.

Looking Ahead

With several member states poised to update their national screening regimes in response to the EU regulation, M&A counsel anticipate a bumpy transition period. “This is no longer just about merger control,” said David Munroe, London-based head of cross-border M&A at a global law firm. “FDI risk is now board-level material, and legal teams are expected to be geopolitical strategists as much as transactional experts.”

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