The trend of growing protectionism around foreign investments in strategically important or sensitive industries has finally reached Sweden, long a bastion of free trade and open economies. Consequently, investors and sellers alike will need to consider yet another foreign direct investment (FDI) regime, which has a broad scope and captures non-controlling minority investments, as well as internal intra-group deals. The draft regime extends to a wide range of sectors and activities, such as tech, healthcare and energy.
In this post, we explore the proposed Act and discuss how we expect the review process to work in practice.
The three Ws – What, Who and When?
What: The draft includes multiple “trigger events” that will require a mandatory filing. This covers acquisitions of 10%, 20%, 30%, 50%, 65% or 90% of voting rights in a Swedish company engaged in “a protected activity”. As such, successive investments in the same entity can trigger multiple filings. The draft also captures asset acquisitions as well as deals that give the investor influence over a protected activity by other means. There are no safe harbours based on target turnover, deal value or market shares. Intra-group investments are also in scope.
The scope of protected activities is equally broad and includes the usual suspects seen in other EU Member States. Notable examples are essential services or infrastructures e.g., in energy, healthcare, transport or communications, critical raw materials, large-scale handling of sensitive personal data or location data, cloud computing, military equipment and dual-use products. Consistent with the increased global focus on tech sovereignty, the proposal covers key emerging technologies such as quantum computing, AI and semiconductor technologies.
Who: The scope of acquirers is extensive, as the notification requirement applies to all investors, regardless of nationality. As such, Swedish investors will also be required to notify. However, for EU-based (including Swedish) investors, most filings are unlikely to trigger concerns as the draft regime takes aim at risks related to investments from outside the EU. Nevertheless, EU companies with significant non-EU shareholders may face increased scrutiny.
When: The regime is intended to be applicable to deals that close as from 1 December 2023. Completion will not be permitted until the transaction has received the green light.
The authority faces a steep learning curve
In terms of timing, the proposal foresees a “two-stage” procedure:
- Phase I: The authority has 25 working days to either approve the investment or open a Phase II investigation.
- Phase II: An in-depth review gives the authority a further three months. This timeline can, in special circumstances, be extended to six months.
While that should mean that non-problematic cases are cleared without significant delays, we note that the authority is new to handling FDI notifications. This, coupled with the regime’s broad scope – which we expect will trigger a significant number of precautionary notifications – means that investors should prepare for a bumpy road as the authority gets up to speed.
Aligned with well-trodden paths across both merger control and other FDI regimes, the proposal opens the door for conditional approvals. Should the authority have concerns, one way to enable the deal to proceed could therefore be to carve out activities deemed critical to Swedish security. Should that, or offering remedies, not address the concerns, the authority ultimately has the power to block the deal.
The net may also catch non-notifiable deals
A further layer of potential uncertainty is introduced through the authority’s power to review, on its own initiative, deals where a notification is not triggered. The bar to reviewing non-reportable deals is low, and only requires the authority to suspect that a deal may harm Swedish security, public order, or safety – and the draft Act explicitly prevents parties from making voluntary filings to guard against the risk of their deals being “called in” for review.
Two sides of the Swedish FDI coin
Sweden already has a substantially narrower regime in place, focused squarely on security-sensitive businesses: the Protective Security Act. While the new FDI regime will have a far greater reach, it is important to note that the two regimes will apply in parallel. Investors may therefore need to consider two notifications for certain investments and the added risk this may entail in terms of deal certainty and timetable.
Key considerations for investors
While the final text is yet to be finalised, it is clear that the draft Act marks a major shift in Sweden’s approach to screening foreign investments. While Sweden is keen to remain an attractive investment destination, investors will need to calibrate their investment strategy and consider a further layer of regulatory oversight:
- Investments in Swedish companies active in protected sectors will inevitably become more complicated and burdensome, especially for non-EU investors.
- Consider FDI issues upfront – be aware of the need to notify in Sweden and the knock-on effect on the deal timetable and execution risk.
- Co-ordination across other FDI filings (particularly within the EU given the EU co-operation mechanism) will be particularly important.
- The profile of some deals will mean they are more likely to attract the authority’s attention. Deals where the buyer has relationships with non-EU governments are particularly likely to end up in the spotlight.
- Investors need to make sure that they get the assessment right – penalties for non-compliance can be harsh, with fines of up to SEK 100 million (approx. EUR 10 million).
For further information, please contact:
Fredrik Lowhagen, Linklaters