Ireland’s Foreign Investment Screening Regime: Practical considerations for Private Equity Investments

by | Jan 20, 2025 | Publications

Ireland’s Investment Screening Regime: Practical considerations for Venture Capital and Private Equity Investments

1. Introduction

The purpose of Ireland’s Screening of Third Country Transactions Act 2023 (the “Investment Screening Act” or “ISA”), which entered into force on 6 January 2025, is “… to allow for certain transactions that may present risks to the security or public order of the State to be reviewed by the Minister.”

Part of an EU framework for coordination of foreign direct investment established in EU Regulation 2019/452, the Investment Screening Act also provides for an information sharing mechanism on certain transactions notified under the Irish screening mechanism with other EU Member States and the European Commission.

2. Overview

Much like Ireland’s merger control regime, the Investment Screening Act establishes a mandatory “file & wait” system for notifiable transactions, meaning parties must notify and suspend closing pending approval by the Minister for Enterprise, Trade & Employment (the “Minister”), backed by significant penalties both criminal and civil.

The Investment Screening Act has broad coverage and jurisdictional scope.  For a wide array of “third country” buyers (including foreign-owned or controlled buyers), the law catches any transaction, acquisition, agreement or other economic arrangement resulting in a change of control of an Irish asset (including green-field land sites and IP) or Irish business (including incremental minority share increases).

The regime is not restricted to foreign investment into Ireland, it extends also to Irish and EU investment by “third country”-owned businesses.

Following notification, the Minister has 90 calendar days from issuance of a “screening notice” – formal confirmation that the deal is within scope to issue as soon as practical after notification – to conduct a Phase 1 review.  For more complex deals, the Minister can open an in-depth Phase 2 review, extending the standstill period an additional 45 calendar days.  Both Phase 1 and Phase 2 can be unilaterally extended by the Minister where additional information is required by officials from the parties.

The substantive standard to be applied by the Minister is whether a notified transaction “affects, or would be likely to affect,” the security or public order of the State.  The Investment Screening Act does not define this further, listing instead 10 criteria the Minister must have regard to, giving the Minister a wide degree of latitude in assessing deals.

The Department has published IIS Guidance on the regime, Inward Investment Screening: IIS Guidance for Stakeholders and Investors (the “IIS Guidance”), available here and a notification form template, available here (the “Filing Form”).

3. Key Provisions

a. Notifiable transactions: Deals that meet the following five-part test are subject to mandatory notification at latest 10 days before deal completion:

i. The buyer is a “third country” business, a natural person ordinarily resident in a “third country,” or is controlled by a “third country” business or person;

ii. The transaction involves an acquisition of “control” (meaning decisive influence) or incremental share increase from: (a) 25 per cent or less to more than 25 per cent; or (b) 50 per cent or less to more than 50 per cent;

iii. Total consideration for the transaction is equal to or greater than €2 million;

iv. The target is an Irish business, meaning it is governed by Irish law or has its principal place of business here, or is an Irish asset, meaning it is located in Ireland or, in the case of IP, is “owned, controlled or otherwise in the possession of” an Irish business.

v. The transaction relates to, or impacts upon, one or more “relevant matters” (as described below);

Note that intragroup reorganisations, involving no change of control, are expressly excluded.

b. Third country: A “third country” is defined as any country that is not a member state of the EU, a member of the EEA or Switzerland.

c. Relevant matters: Reflecting Article 4(1) of EU Regulation 2019/452, the Act applies to transactions that relate to, or impact upon, one or more of the following matters:

i. Critical infrastructure, whether physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure and sensitive facilities, including the land/real estate used crucial for the use of such infrastructure;

Applicable EU law (Directive 2022/2557) defines “critical infrastructure” as “ … an asset, a facility, a network or a system, which is necessary for the provision of an essential service.”  EU Directive 2022/2557 identifies 11 categories of infrastructure.  According to the IIS Guidance, “ … when determining whether a mandatory notification is required, [parties] should consider this list” (at page 16).  Annex 1 to the IIS Guidance lists the 11 categories.

ii. Critical technologies and dual use items, as defined in point 1 of Article 2 of Council Regulation (EC) No 428/2009, including AI, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies, nanotechnologies and biotechnologies;

According to the Department’s IIS Guidance, “[m]any ICT products, both hardware and software (e.g., data storage, networking, cybersecurity), are classified as dual-use by virtue of the fact that they incorporate strong encryption for security purposes” (at page 17);

iii. Supply of critical inputs, including energy or raw materials, as well as food security. An EU list of critical raw materials, subject to annual update, is set out at Annex 2 to the IIS Guidance.

iv. Access to sensitive information, including personal data or the ability to control such information; This includes sensitive personal data that reveals: (i) racial or ethnic origin, political opinions, religious or philosophical beliefs; (ii) trade union membership; (iii)  genetic data or biometric data; (iv) health related data; (v) data concerning a person’s sex life or sexual orientation.  According to the IIS Guidance, the information should be “an essential or critical part of the business or asset (i.e., not in relation to data held on employees of the target or not essential or critical to the operation of the business)” and the amount should be “substantial; and/or the transaction should relate to a business model that depends on generating turnover from such sensitive data.”

v. The freedom and pluralism of the media, defined by reference to Ireland’s Competition and Consumer Protection Act 2014 to include newspapers and periodicals consisting substantially of news and current affairs comment, broadcasting, programme material production, and potentially including also on-line news aggregators.

d. The Minister’s “call-in” power for non-notifiable transactions

The Minister has broad discretion to “call in” a transaction involving a “third country” buyer regardless of whether it is notifiable, if the Minister has reasonable grounds for believing the transaction would affect, or would be likely to affect, the security or public order of Ireland.  The Minister cannot ‘call in’ a non-notifiable transaction more than 15 months after the transaction has completed.  According to the IIS Guidance, “[t]his is particularly aimed at new or emerging technologies or sectors that are not captured by the mandatory [notification] criteria” (at section 4.1, page 28).

4. Procedure for notifying

Parties to a notifiable transaction are required to submit a notification to the Minister at least 10 days prior to the completion of the transaction.

Failure to notify within this timeframe would result in the transaction being deemed to be the subject of a negative screening decision by the Minister (see below for more on screening decisions), made on the day before the date on which the transaction is completed.

In addition, a failure to notify a notifiable transaction within this time-frame is a criminal offence (see below for more on penalties).

Under the Investment Screening Act, a notification must include at a minimum the following information:

  • Details of the parties;
  • The ownership structure of the parties to the transaction, including information on persons participating in the capital of the undertaking, the names of the natural persons who own the parties (in the case of bodies corporate) and persons exercising control over the parties;
  • Details of the transaction, including projected date, approximate value, funding and source of funds;
  • Information on the products, services and business operations of the parties to the transaction;
  • The nature of the economic activities carried out in Ireland by the parties to the transaction and the EU Member States where the parties carry out economic activities;
  • The state or territory under whose laws the parties are constituted, registered, or otherwise organised;
  • The annual turnover and total number of employees of each party; and
  • Details of any sanctions or restrictive financial measures imposed on the parties (or connected persons) by the EU or UN, as well as details of certain convictions of the parties (or connected persons) by Irish or foreign courts, including the International Criminal Court.

5. Who is required to notify?

The obligation to notify applies to all parties to a notifiable transaction.  The Act provides for a process under which a party to a notifiable transaction can consent to another party notifying on its behalf.

6. Minister’s power to review non-notified transactions

The Minister can commence a review of a notifiable transaction that has not been notified for up to five years from the date of completion of the transaction or 6 months from when the Minister becomes aware of the transaction, whichever is later.

7. Minister’s power of retrospective review

The Act allows the Minister to review transactions that completed up to 15 months prior to the coming into operation of the relevant provision of the Act regardless of whether they are notified or notifiable.

8. Timetable for reviews

The Minister will issue a written “screening notice” to the parties “as soon as practicable” following filing, and will issue a “screening decision” within 90 days from the date on which the screening notice in relation to the transaction is issued.  The review timetable can be extended to 135 days where an in-depth Phase 2 review is commenced.  In addition, the timetable can be extended by the issuance of a formal request for information by the Department.

Where a screening notice has been issued, the transaction cannot be completed and the parties cannot take any action for the purpose of completing or furthering the transaction until the Minister makes a screening decision approving the transaction.

Where the transaction has already completed (e.g. a non-notified transaction), the Minister may direct the parties to the transaction to take such actions as the Minister may specify for the purpose of protecting the security or public order of Ireland (including divestment of the business, shares, assets, property or intellectual property in question).

9. Requests for further information

The Minister may, at any time following the commencement of a review, issue a “notice of information” where further information is considered necessary.  The issuing of a notice of information suspends the review timetable, starting from the date on which the notice is issued until the date on which the Minister confirms that the relevant party has provided all of the requested information.

10. Considerations when reviewing transactions:

In reviewing a notified transaction, the Minister will assess whether the transaction “affects, or would be likely to affect,” the security or public order of the State having regard to the following factors:

  • Whether a party to the transaction is controlled by a government of a third country and the extent to which such control is inconsistent with the policies and objectives of Ireland;
  • The extent to which a party to the transaction is already involved in activities relevant to the security or public order of Ireland;
  • Whether a party to the transaction has previously taken actions affecting the security or public order of Ireland;
  • Whether there is a serious risk of a party to the transaction engaging in illegal or criminal activities;
  • Whether the transaction presents, or is likely to present, a person with an opportunity to undertake actions that are disruptive or destructive to persons in Ireland, improve their access to sensitive undertakings, assets, people or data, or undertaking espionage affecting or relevant to the interests of Ireland;
  • Whether the transaction would likely have a negative impact in Ireland on the stability, reliability, continuity or safety of the relevant matters (as set out above);
  • Whether the transaction would result in persons acquiring access to information, data, systems, technologies or assets that are of general importance to the security or public order of Ireland;
  • Comments of EU Member States and the opinion of the European Commission;
  • The extent to which the transaction affects, or is likely to affect, the security or public order of another EU Member State or the European Union; and
  • The extent to which the transaction affects, or would be likely to affect, projects or programmes of Union interest.

The Minister is required to take into account written submissions made by the parties to the transaction and to consult with such members of the “advisory panel” (comprising civil servants drawn from a number of key government departments) as the Minister considers appropriate, as well as other government ministers.

11. Comment

a. Depending on their structure and particularly involvement of a “third-country” entity, Irish private equity and venture capital firms could potentially be “third-country.” This would mean investments, as well as exits, may be caught by the Investment Screening Act.

b. The definition of the activities that can trigger a mandatory notification obligation is broad – not just military and defence, but a range of sectors such as infrastructure, healthcare, and sensitive data. Deal-makers will need to consider if early filing can mitigate uncertainty caused by the broad and relatively unclear scope and jurisdiction of the Investment Screening Act.

c. In addition, merging parties may wish to submit a voluntary notification to address Irish screening of foreign investment regulatory risk up front rather than remain exposed to a potential post-closing review.

d. At the same time, as of January 2025, the efficiency of the system is unproven. A senior department official recently said publicly that the Department expects 300 – 400 filings expected per year. A key question is how fast no-issue filings will be dealt with.

e. Minority interest and incremental acquisitions can trigger a mandatory approval requirement or otherwise be called-in for review. Minority interest acquisitions that give the acquirer negative control (including via veto rights over key business decisions like appointment of senior management and adoption of the budget or business plan) are within scope of the mandatory notification regime, as are minority interest acquisitions that increase shareholdings, voting rights or shares in capital or profits of a relevant target business over the following thresholds: (i) from 25% or less to more than 25%; (ii) from 50% or less to more than 50%.

f. How the Investment Screening regime will interplay with Irish merger control reviews and timing is as yet unclear. Two important differences with Irish merger control rules to note in this regard are: (i) investment screening rules apply to acquisitions of land, even if no turnover is associated with it; and (ii) investment screening rules don’t apply to establishment of a JV in the same way as Ireland’s merger control rules, even if an acquisition of joint control via a JV of an existing business would be caught.

g. Against this background, PE investors should take into account the following in selecting acquisition targets:

i. Long stop dates. Sufficient time and flexibility should be factored in to allow for unforeseen delays in IIS reviews. While three months was viewed as a reasonable period for no-issues CCPC review, in the current environment a reasonable long stop date would be almost the double.

ii. Risk allocation. Dealmakers should carefully negotiate the “efforts” that the buyer must take to get the deal through, reverse break-up fees, as well as the potential “outs” a buyer might use (e.g., the definition of “material adverse change”).

iii. Pre-closing covenants. Pre-closing “ordinary course of business” covenants should be given even greater attention than before.