Race to Connected, Self-Driving Cars Not Without Speed Bumps

Those racing to fill the streets with driverless and shared vehicles are weighing their competitive pursuits and market moves against the new regulations and industry standards coming down the pike.

Automotive and technology companies are forging ahead and jockeying for market position in the rapidly evolving area of connected and self-driving cars, but there remain challenges before the industry achieves widespread deployment and regulatory uncertainty fades. These are among the takeaways from Foley & Lardner LLP’s 2017 Connected Cars & Autonomous Vehicles Survey.

At their base, our findings shed light on the business and legal strategies of those racing to fill the streets with driverless and shared vehicles, including leading automakers, suppliers, startups, investment firms and technology companies. However, when you dig deeper, you start to see how they are weighing their competitive pursuits and market moves against the new regulations and industry standards coming down the pike.

Different Technologies, Different Timelines, Different Obstacles

While “connected cars” and “autonomous vehicles” often are used interchangeably under the self-driving banner, there are clear and important differences between the two technologies. We define them distinctly as:

  • Connected Cars: Vehicles equipped with any variety of sensors that enable communication with the driver, other vehicles, roadside infrastructure and the cloud in order to improve vehicle safety, efficiency and rider experience.
  • Autonomous Vehicles: Fully automated or self-driving vehicles that are capable of operating without direct driver action to control steering, acceleration and braking. Currently, vehicles may be computer-driven or computer-assisted-driven, with various levels of autonomy, as well as connected features that allow exchanges of data.

Connected-car technologies already are prevalent today, with increasing ease of access, convenience and affordability, whereas the deployment of autonomous and shared vehicles is further on the horizon. Alongside the differences in where these technologies stand in their development and implementation, our survey found they face varying obstacles to growth. Our survey respondents identify cybersecurity and privacy issues as their most pressing concern for connected cars, whereas safety and readiness to adopt autonomous vehicles emerge as the greatest barriers for them.

Despite the differing timelines for adoption, our survey also shows automotive and technology companies are only slightly more focused on developing technology for connected cars (56%) than autonomous vehicles (52%). This reinforces the fact that resources must be devoted concurrently to both types of technology to keep pace in a competitive marketplace.

Lawmakers Responding to Calls for Stronger Regulatory Framework

Given the significant financial and safety stakes, the sophisticated nature of the technology and the expected pervasive impact on society, regulatory certainty at the federal level is critical to keep this industry moving forward. It is not efficient for 50 different states to dictate the development of connected cars and autonomous vehicles.

Lawmakers in Washington are catching up and are close to setting the course for future development, as there are legislative packages working their way through Congress that would address the deployment of self-driving cars and pre-empt state laws. Additionally, the U.S. National Highway Traffic Safety Admin. recently released a report concerning “unnecessary regulatory barriers” and is seeking public comments on how to spur R&D, prioritize safety and accelerate deployment.

These are welcomed developments for an industry seeking an alternative to the patchwork of differing state requirements. Most of our survey respondents (62%) believe nationally consistent rules from the federal government are the best way to regulate connected cars and autonomous vehicles. “Developing and fielding autonomous-vehicle technology is going to become increasingly dependent on the support of the federal government to develop national regulations,” one automotive supplier told us.

Together with traditional cars on the road, clear-cut rules for such autonomous vehicles can’t come soon enough, as the first public tests of self-driving cars without backup drivers have begun.


© 2017 Foley & Lardner LLP
This post was written by Mark A. Aiello and Steven H. Hilfinger of Foley & Lardner LLP.

France’s Financial Markets Authority Considers its Options for Regulating Initial Coin Offerings

On 26 October 2017, France’s Financial Markets Authority, the “Autorité des Marchés Financiers” (“AMF”), published a discussion paper focusing on initial coin offerings (“ICOs”) that highlights the (many) dangers that arise from these unregulated transactions and discusses the regulation options that it currently foresees.[1]

The discussion paper is comprised of a short factual assessment and summary legal analysis (based on French law) of ICOs and the nature of tokens, which the AMF states may not generally be considered to be financial securities, and aims to gather and consolidate stakeholders’ views on the regulation options considered by the AMF. Even if the discussion paper focuses on France, the AMF takes into account the global and borderless nature of ICO operations.

Often described as the “Wild West” of finance, ICOs or “token sales” are an emerging, disintermediated, but unregulated means of raising capital, generally based on cryptocurrencies and the blockchain technology.

bitcoin, farming, computer

Unlike initial public offerings, or “IPOs”, which represent the traditional venture capital model and involve the issuance of financial equity securities on regulated markets in order to raise capital in fiat currency, ICOs typically involve the issuance of digital tokens[2] on a public blockchain-based platform. The price for tokens is determined at the discretion of the ICO-initiating entity, and must be paid in cryptocurrencies (e.g. Bitcoin, Ether) or, more rarely, fiat currency. Most tokens neither offer equity in the entity that initiated the ICO, nor confer corporate rights similar to that of traditional financial securities.


Because of the ever-increasing number of ICOs and the skyrocketing amounts raised therewith,[3] the heavily-regulated traditional financial sector is beginning to pay attention to ICOs. They may view ICOs as an effective and unregulated way to raise funds, but also see them as unfair competition. Similarly, the AMF and other local regulatory bodies[4], including the U.S. Securities Exchange Commission (the “SEC”)[5], are closely examining and seeking to regulate ICOs in order to protect investors. This interest from the financial sector and governmental authorities shows that ICOs might well be the most viable and efficient way to raise funds.

The AMF discussion paper is clear: the question is not “should ICOs be regulated?” but rather “how should ICOs be regulated?”. On this premise, the AMF describes ICOs as “risky transactions,” emphasizes the risks of investing in transactions that lack “specific regulation,” and calls for regulation.

The AMF cites the lack of investors’ information, the risk of fraud and money laundering, the volatile character of cryptocurrencies, and the risk of capital loss to emphasize the need for regulation of such operations.

More generally, the lack of control of investors and supervising authorities alike over the financials, business strategy, and operations of the ICO-initiating entities is also a strong argument in favor of regulation.

However, ICOs are still a fairly recent practice and involve a variety of different circumstances (e.g.,different tokens and projects, etc.). As a result, it will be difficult for governmental authorities to understand and further regulate ICOs. If stringent regulation is imposed too early or too strictly on this sector, then innovation and further potentially major developments relating to ICOs may be curbed and favor other innovation-driven jurisdictions (e.g.,Singapore).


The AMF proceeded with a legal assessment of ICOs under currently applicable French law:

On the one hand, the AMF examined the nature of tokens, which could be subject to the French Monetary and Financial Code if they were deemed to be financial securities[6]. The AMF concluded that tokens may not generally be considered financial securities and, consequently, cannot be subject to current French law. The same conclusion applies to the “crowdfunding” under French law, but ICO operations do not involve “crowdfunding” according to the AMF.

On the other hand, the AMF assessed whether ICO-initiating entities could be subject to French law. The AMF found that most ICOs are initiated by entities that are not corporate bodies or entities governed by the French Monetary and Financial Code or subject to financial markets regulation (e.g. Undertakings for Collective Investment in Transferable Securities (“UCITS”), Alternative Investment Funds (“AIFs”)). The AMF does state that some ICO-initiating entities could, under specific conditions, nevertheless qualify as “intermediaries in miscellaneous assets”, but it is not definitive about such assessment.


In light of the above factual and legal assessments, the AMF lays out three possible ways to regulate ICOs in its discussion paper.

3.1 Best Practices
The first option would be a regulatory status quoi.e. the AMF will not impose any mandatory regulation for ICOs that may not otherwise be regulated by French law and allow the marketplace to self-regulate, but will suggest that ICO-initiating entities follow certain voluntary “best practices.”

The “best practices” could include providing potential investors with a “white paper” similar to existing prospectuses that provides them with standardized information on contemplated ICOs (e.g., identity of the ICO-initiating entity, thorough description of the project, some assessment of financial risk, economic and accounting use of the funds to be collected via the ICO, etc.), a promise to act transparently and use only secure technical resources, record transactions information, and to implement control procedures. Another “best practice” could include narrowing the pool of potential investors based on the level of risk associated with the ICO.

The main issue with this option is the constantly-changing nature of the ICOs’ ecosystem. Currently, there is no established or central “marketplace” and it would be difficult to have all stakeholders establish and abide by self-regulation rules.

The AMF believes that this option might be “insufficient or improperly suited to protect investors” since it would be non-binding. Therefore, it seems uncertain whether this option is a viable one.

3.2 Extend Existing Regulatory Framework To Encompass ICOs
The second option would involve amending the existing (and recently updated) E.U. framework pertaining to information prospectuses for public offerings of financial securities by listed companies[7] to enable the AMF to review and approve ICOs’ procedures just as it does for traditional offerings of securities. In addition, the AMF could be granted the power to adjust review procedures.

The main issue with this option is that imposing the formal and heavy procedures designed for listed companies on entities that normally do not have the financial capability, knowledge, or procedures to create prospectuses will not attract ICO-initiating entities to Europe. In addition, ICOs attract tech-savvy investors who are interested in the underlying project and may not, unlike more traditional investors, be used to long and formal prospectuses.

3.3 Ad Hoc Regulation
The third option would be the design and the implementation of an ad hoc regulation, tailored to “multi-faceted” ICOs or, at least, to the greatest possible number of ICOs. The AMF identifies two options here: either (A) a mandatory authorization regime that would apply to any ICO available to the public within the French territory and would require that the ICO-initiating entity seek prior authorization from the AMF or face “banishment” of the ICO from France, or (B) an optional authorization regime similar to an “AMF-labelled ICO” that would allow ICO-initiating entities to choose to willingly submit to the authorization process or provide a mandatory disclaimer stating that the ICO is not “AMF-approved”.

This option seems to be the AMF’s favorite, as it would, according to ICO initiators cited by the AMF, create a “quality label” that would attract ICOs to France.

The main issue with this option would be that ICOs may be presented by entities that do not have any legal identity under French law, such as projects led by decentralized communities on the blockchain, which could render any petition for approval before the AMF difficult or impossible.

In any event, any decision to impose regulation must be carefully thought out and designed by E.U. supervisory authorities in order to preserve and/or enhance the attractiveness of France and Europe to ICOs.

In this respect, the AMF discussion paper is a first and open step toward a more balanced and insight-driven regulatory framework that should receive praise from the sector’s stakeholders. Stakeholders should not pass this unique opportunity to raise their voices.

Comments on the discussion paper must be sent to the AMF by 22 December 2017 at the following address: directiondelacommunication@amf-france.org.


[1] http://www.amf-france.org/en_US/Publications/Consultations-publiques/Archives?docId=workspace%3A%2F%2FSpacesStore%2Fa2b267b3-2d94-4c24-acad-7fe3351dfc8a

[2] A token is a digital unit of account that can be traded on digital platforms, mainly using blockchain technology.

[3] During 2017 only, five out of the ten most high-profile ICOs in the world took place in the EU, for a total of nearly EUR 600 millions. Among those operations, Tezos raised EUR 232.millions in fourteen days in July 2017.

[4] The European Securities and Markets Authority, UK and Germany finance supervisory authorities.

[5] The SEC considers that tokens may be securities under the U.S. Securities Exchange Act of 1934 (the “Securities Act”)- https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_coinofferings. On July 25, 2017, the SEC issued a Report of Investigation under Section 21(a) of the Securities Act describing an SEC investigation of The DAO, a virtual organization, and its use of distributed ledger or blockchain technology to facilitate the offer and sale of DAO Tokens to raise capital. The SEC applied existing U.S. federal securities laws to this new paradigm and determined that DAO Tokens were securities.

[6] Article L.211-1 of the French Monetary and Financial Code.

[7] Regulation (EU) 2017/1129 of 14 June 2017

Copyright 2017 K & L Gates

This post was written by Claude-Étienne ArmingaudEmilie OberlisAlexandre BalducciSidney Lichtenstein, and Alban Michou-Tognelli of K&L Gates.

Check out the National Law Review Financial page for more information.

PHMSA Raises Random Drug Testing Rate to 50% for 2018

The U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration announced December 8, 2017 that during calendar year 2018, the minimum random drug testing rate will be increased to 50%.

Operators of gas, hazardous liquid, and carbon dioxide pipelines and operators of liquefied natural gas facilities must randomly select and test a percentage of all covered employees for prohibited drug use. The minimum annual random drug testing rate was 25% of all covered employees for calendar year 2017.  However, the PHMSA regulations require the Administrator to raise the minimum annual random drug testing rate from 25% to 50% of all covered employees when the data obtained from the Management Information System reports (required to be filed by covered entities under PHMSA regulations) indicate the positive test rate is equal to or greater than 1%.  In calendar year 2016, the random drug test positive test rate was greater than 1%.  Therefore, the PHMSA minimum annual random drug testing rate shall be 50% of all covered employees for calendar year 2018.

Jackson Lewis P.C. © 2017
This post was written by Kathryn J. Russo of Jackson Lewis P.C.
Check out the National Law Review Labor and Employment page for more information.

NIST Releases Updated Draft of Cybersecurity Framework

On December 5, 2017, the National Institute of Standards and Technology (“NIST”) announced the publication of a second draft of a proposed update to the Framework for Improving Critical Infrastructure Cybersecurity (“Cybersecurity Framework”), Version 1.1, Draft 2. NIST has also published an updated draft Roadmap to the Cybersecurity Framework, which “details public and private sector efforts related to and supportive of [the] Framework.”

Updates to the Cybersecurity Framework

The second draft of Version 1.1 is largely consistent with Version 1.0. Indeed, the second draft was explicitly designed to maintain compatibility with Version 1.0 so that current users of the Cybersecurity Framework are able to implement the Version 1.1 “with minimal or no disruption.” Nevertheless, there are notable changes between the second draft of Version 1.1 and Version 1.0, which include:

Increased emphasis that the Cybersecurity Framework is intended for broad application across all industry sectors and types of organizations. Although the Cybersecurity Framework was originally developed to improve cybersecurity risk management in critical infrastructure sectors, the revisions note that the Cybersecurity Framework “can be used by organizations in any sector or community” and is intended to be useful to companies, government agencies, and nonprofits, “regardless of their focus or size.” As with Version 1.0, users of the Cybersecurity Framework Version 1.1 are “encouraged to customize the Framework to maximize individual organizational value.” This update is consistent with previous updatesto NIST’s other publications, which indicate that NIST is attempting to broaden the focus and encourage use of its cybersecurity guidelines by state, local, and tribal governments, as well as private sector organizations.

An explicit acknowledgement of a broader range of cybersecurity threats. As with Version 1.0, NIST intended the Cybersecurity Framework to be technology-neutral. This revision explicitly notes that the Cybersecurity Framework can be used by all organizations, “whether their cybersecurity focus is primarily on information technology (“IT”), cyber-physical systems (“CPS”) or connected devices more generally, including the Internet of Things (“IoT”). This change is also consistent with previous updates to NIST’s other publications, which have recently been amended to recognize that cybersecurity risk impacts many different types of systems.

Augmented focus on cybersecurity management of the supply chain. The revised draft expanded section 3.3 to emphasize the importance of assessing the cybersecurity risks up and down supply chains. NIST explains that cyber supply chain risk management (“SCRM”) should address both “the cybersecurity effect an organization has on external parties and the cybersecurity effect external parties have on an organization.” The revised draft incorporates these activities into the Cybersecurity Framework Implementation Tiers, which generally categorize organizations based on the maturity of their cybersecurity programs and awareness. For example, organizations in Tier 1, with the least mature or “partial” awareness, are “generally unaware” of the cyber supply chain risks of products and services, while organizations in Tier 4 use “real-time or near real-time information to understand and consistently act upon” cyber supply chain risks and communicate proactively “to develop and maintain strong supply chain relationships.” The revised draft emphasizes that all organizations should consider cyber SCRM when managing cybersecurity risks.

Increased emphasis on cybersecurity measures and metrics. NIST added a new section 4.0 to the Cybersecurity Framework that highlights the benefits of self-assessing cybersecurity risk based on meaningful measurement criteria, and emphasizes “the correlation of business results to cybersecurity risk management.” According to the draft, “metrics” can “facilitate decision making and improve performance and accountability.” For example, an organization can have standards for system availability and this measurement can be used at a metric for developing appropriate safeguards to evaluate delivery of services under the Framework’s Protect Function. This revision is consistent with the recently-released NIST Special Publication 800-171A, discussed in a previous blog post, which explains the types of cybersecurity assessments that can be used to evaluate compliance with the security controls of NIST Special Publication 800-171.

Future Developments to the Cybersecurity Framework

NIST is soliciting public comments on the draft Cybersecurity Framework and Roadmap no later than Friday, January 19, 2018. Comments can be emailed to cyberframework@nist.gov.

NIST intends to publish a final Cybersecurity Framework Version 1.1 in early calendar year 2018.


© 2017 Covington & Burling LLP
This post was written by Susan B. Cassidy and Moriah Daugherty of Covington & Burling LLP.

Exploiters of Overseas Workers Receives Record Fine of Over AUD 500,000

With the regulator actively pursuing rogue employers and the Courts willing to impose higher penalties, it is clear that a spot light has been cast on identifying and exposing non-compliance with the Fair Work Act (FW Act).

As we outlined in our recent legal insight in September 2017, penalties for serious exploitative conduct of vulnerable workers increased significantly under the recent Fair Work Amendment (Protecting Vulnerable Workers) Act 2017. Just this week we have seen the Fair Work Ombudsman (FWO) commence legal action against a Caltex franchisee in Sydney for allegedly falsifying records of the wage rates it paid to overseas workers. The FWO has now secured a record penalty of AUD510,840 against a husband and wife cleaning business for underpaying three Taiwanese domestic cleaning workers on working holiday visas. The order was made in the Federal Circuit Court by Judge Toni Lucev who reprimanded the couple for their “deliberate and repeated” exploitation of vulnerable workers.

The couple’s company, Commercial and Residential Cleaning Group Pty Ltd was fined AUD361,200 and the husband and wife were given individual fines of AUD72,240 and AUD77,400 respectively. The penalties were for 15 contraventions of the FW Act, predominately around failure to pay the employees their full and proper entitlements (and in the case of one employee, any payment at all). They also failed to keep accurate records, provide pay slips and failure to comply with a notice to produce during the FWO investigation.

Over their respective periods of employment of between three days and three months, the three employees were underpaid a combined total of AUD11,511.66. Judge Lucev said that while the underpayments were not large per se, they represented a “not insignificant amount for employees reliant on the minimum entitlement provisions of the Cleaning Award and the FW Act”. Evidence was given by the employees of financial stress, with one employee claiming she had to borrow money from a friend and only ate one meal a day to be able to pay her rent.

High Penalties for Directors

The record penalties awarded were found to be warranted due to the:

  • range of contraventions

  • vulnerability of the employees

  • prior compliance history of the directors.

Judge Lucev repeatedly referred to the 2013 case where the same couple and another cleaning company were fined $343,860 for exploiting local and overseas workers in Perth.
In the current judgement, Judge Lucev found that “it is open to infer that the [directors’] actions towards the employees formed part of a deliberate business strategy to engage vulnerable employees, refuse to pay them during their first few weeks of employment, refuse to pay them their full entitlements when they fell due […] and then refuse to pay outstanding wages owed to the employees on the termination of the employment relationship.” Due to the couple’s prior similar conduct, their behaviour was indicative of a “systemic” exploitation of vulnerable workers.

Size and Financial Circumstances of Employers Didn’t Affect the Penalty

While the court accepted the cleaning company was a small business and the directors’ indicated that they did not have any assets to pay the claims made by the employees (noting the compensation and penalties from the 2013 case remained unpaid), Judge Lucev found that in considering the size of the penalty, capacity to pay was of less relevance than consideration of objective general deterrence.

Judge Lucev was disinclined to reduce penalties available to him given the directors’ lack of cooperation during the FWO’s 14 month investigation, their lack of contrition and no evidence of corrective action by the directors’, stating the penalty “ought to be fixed at a level which ensures [it] cannot be regarded simply as [the] usual cost of doing business”.

Fair Work Amendment (Protecting Vulnerable Workers) Act 2017

The employees involved in this case were all Taiwanese nationals on working holiday visas in Australia, with limited experience in, and knowledge of, the Australian workplace relations regime. Being workers from non English speaking backgrounds, they had limited choice of employment options and limited understanding of their options when they were being underpaid.

Whilst these workers were ‘vulnerable workers’, employers of less vulnerable workers can still be exposed to significant penalties for underpayment claims and/or other non-compliance allegations, whether that be related to Award conditions or pay slip requirements.

Copyright 2017 K & L Gates
This post was written by Christa Lenard and Nyomi Gunasekera of K&L Gates
Learn more at the National Law Review‘s Global Page.

SEC Approves NYSE Proposed Rule Change Requiring a Delay in Release of End-Of-Day Material News

On December 4, 2017, the U.S. Securities and Exchange Commission (“SEC”) approved the New York Stock Exchange’s (the “NYSE”) proposed rule change to amend Section 202.06 of the NYSE Listed Company Manual to prohibit listed companies from releasing material news after the NYSE’s official closing time until the earlier of the publication of such company’s official closing price on the NYSE or five minutes after the official closing time. The new rule means that NYSE listed companies may not release end-of-day material news until 4:05 P.M. EST on most trading days or until the publication of such company’s official closing price, whichever comes first. The one exception to the new rule is that the delay does not apply when a company is publicly disclosing material information following a non-intentional disclosure in order to comply with Regulation FD. Regulation FD mandates that publicly traded companies disclose material nonpublic information to all investors at the same time.

© 2017 Jones Walker LLP
This post was written by Alexandra Clark Layfield of Jones Walker LLP.
Learn more at the National Law Review‘s Finance Page.

Cross Border M&A: The Impact of Brexit, the Trump Administration, and China’s Crackdown on Capital Flight

As noted in the previous issue of International News, globalism has been replaced with nationalism in key jurisdictions, putting the globalised world order in question.  As a result of Brexit, the Trump Administration’s protectionist policies, and China’s aggressive crackdown on capital flight, there are now greater uncertainties in the global transactions market.  In fact, H1 2017 saw 12.2 per cent fewer deals than during the same period in the previous year.

The situation, however, is not quite what it seems.  Despite this downturn, transaction value during H1 2017 actually grew by 27.8 per cent compared to the same period last year.globe world flags smaller TOP.jpg


The Trump Administration’s policies to date have mainly targeted two of the three pillars of globalisation: the free flow of 1) goods and services (trade); and  2) people (immigration).

Given the Administration’s scrapping of the Trans-Pacific Partnership, stepping back from the Transatlantic Trade and Investment Partnership, and renegotiating the North American Free Trade Agreement, one would expect the third pillar of globalisation, the free flow of capital, to be next in the crosshairs.  This is especially true given the high profile examples where this nationalist posture has held up cross-border deals, such as Ant Financial’s (China) takeover of MoneyGram (US).

Although this example suggests a negative outlook for cross-border M&A in the United States, international deal making is not doomed.

First, nationalist policies like trade protectionism and anti-immigration reform do not necessarily restrict crossborder deal flow.  In fact, the opposite may be true as a World Bank study found that when trade protectionism increases, so does international investment.

Second, having domestic companies become more prominent internationally, through cross-border acquisitions, could be complementary to the Trump Administration’s nationalism.

 The free flow of capital is likely to remain firm  in US M&A markets. 

Third, the Trump Administration’s probusiness agenda has created an optimistic outlook that is partially echoed in an alltime high stock market and the US dollar rallies, making US targets more expensive than their foreign counterparts.  US buyers are therefore finding foreign targets more appealing, driving additional cross-border M&A (see the section on Germany below).

Indeed, outbound M&A deals from the United States topped US$ 114.1 billion in Q1 2017, more than a 100 per cent increase compared with Q1 2016.

Although changes to corporate tax rates, cash repatriation, and other cross-border adjustment taxes could significantly impact cross-border deal flow, cross-border M&A is unlikely to be hampered by the Trump Administration, as the free flow of capital should remain firm in US M&A markets.


H1 2017 saw Germany become the second most targeted country for acquisitions in Europe after the United Kingdom, both in terms of deal value and count. This is reflected by Germany’s 170 per cent rise in value of inbound activity when compared with the same period in 2016: €22.2 billion to €59.8 billion, a Mergermarket record for the country.

Inbound activity in Germany was boosted by several mega deals, including the €40.5 billion merger between US- based Praxair and the Germany-based technological group Linde, which accounted for 63.1 per cent of Germany’s total deal value. Even if this mega-merger is discounted, the inbound activity from American dealmakers still improved significantly, growing from €3 billion and 43 deals last year to €7.2 billion and  51 deals, an increase of 135.6 per cent.

These gains come despite the significant loss of Chinese investment and Germany’s introduction in July 2017 of additional protectionist regulations to limit foreign companies looking to acquire businesses in key sectors and technologies. The fact that Germany, currently one of the biggest beneficiaries of the reduction in globalisation, was willing to implement measures to curb foreign investment shows the extent of the paradigm shift that has taken place. Given the importance and quality of German manufacturing and industrial sectors, however, Chinese interest is likely to return, even if investors have to be more cautious when selecting potential targets.

Despite outbound activity dropping significantly in terms of value, the actual deal count stayed fairly level, indicating that German investors are still looking for opportunities abroad. This drop in value could be attributed to the weak Euro, which may have deterred German dealmakers from pursuing larger transactions outside the Eurozone.

With the return of solid economic growth, low interest rates, growing investor confidence, and a strengthening Euro, German outbound  acquisitions are likely to increase and could make up for the thus far lacklustre deal value seen in 2017. Furthermore, as a result of Trump’s threats of protectionist legislation and the growing desire for products “Made in America”, German companies could look to strategically acquire US-based operations. Doing so would allow them to shift their production for the American market across the Atlantic in order to fulfil this criterion.


The over 10 per cent decline in the value of sterling in the immediate aftermath of the Brexit vote and the unparalleled

availability of cheap acquisition finance was expected by many commentators to lead to a wave of opportunistic takeover bids for underpriced UK targets. There is, however, little evidence that the devaluation of sterling had any effect as there has been a decline across the board, most dramatically in mid-market deals. It seems that company decision makers and M&A professionals are waiting for greater clarity before making M&A investment decisions.

It is, however, worth noting that the United Kingdom still remains the most targeted country for acquisitions in Europe, even if Germany is closing in. To deter the more egregious asset stripping of key parts of the economy, Prime Minister Theresa May has made her intentions clear: “A proper industrial strategy wouldn’t automatically stop the sale of British firms to foreign ones, but it should be capable of stepping in to defend a sector that is as important as [certain industries are] to Britain”

Such statements should, however, be seen in the context of the trajectory of UK Government policy over the last 10 years. Kraft’s takeover of UK confectioner Cadbury in 2010 led to significant changes to the Takeover Code, whose rules had previously favoured the rights of acquirers over those of UK targets. Additional changes requiring heightened disclosure of a buyer’s intentions for a target company were announced by the Takeover Panel in September this year, which will further put pressure on the buy-side in UK takeovers. Undoubtedly, these changes have led a reduction in public takeover activity in the UK market, with acquirers much less likely to engage in speculative activity.

 Chinese interest is likely to return, even if investors have to be more cautious. 

In October 2017, the UK Government released proposals to further increase its powers to intervene in proposed UK investments by foreign buyers on grounds of national security, broadening the scope beyond the traditional defense industries. The shift in policy is not party political as all the  principal political parties in the United Kingdom are aligned with this evolving policy of greater state intervention and protection.

As far as Brexit is concerned, what is certain is that over the long term, regulations applying to large swathes of the UK economy will change as UK regulation gradually diverges from EU regulation. This will be most pronounced in the financial services, energy, life sciences and agricultural/ food sectors, where EU regulation is most concentrated. This flexibility away from EU regulation and the evolving regulatory environment is expected to lead to greater opportunities for cross border M&A in those sectors that benefit, and consolidation in those that will not.

Following Brexit, it is also expected that UK policy makers will develop domestic competition policy to protect or nurture sectors of strategic importance to the UK economy. This may lead to industries holding protected status, which will have both positive and negative implications for M&A activity. On a practical level, the United Kingdom is currently submerged within EU-wide merger thresholds and notifications are made to the EU Commission, with reference to the UK local competition authority voluntary.

Post-Brexit that is likely to change, with transactions involving a UK component subject to UK review. This may impact timetables, although the United Kingdom traditionally has an efficient competition review process.


The United Kingdom is fundamentally shifting away from globalisation towards a more nationalistic system.  The Trump Administration has the clear ambition of curtailing free trade and immigration.  And China is committed to limiting capital flight.  These all sound like doors slamming shut, but windows are actually opening due to the high value of cross-border deals, the Trump Administration’s overall pro-business agenda, a dramatically increased interest in Germany, and the forthcoming changes to the UK regulatory landscape.  The cross-border M&A market will continue to be strong for those who see opportunities behind the headlines.

© 2017 McDermott Will & Emery

This post was written by Nicholas AzisChristian von SydowJacob A. Kuipers of McDermott Will & Emery

Read more global legal updates.