EU Merger Control and Foreign Subsidies: New Rules for Cross‑border Dealmakers

Last updated: 9 June 2026 Cross-border transactions touching the European Union now face a regulatory landscape that has shifted on two fronts simultaneously, making EU merger control foreign subsidies new obligations an unavoidable planning concern for every deal team. On 30 April 2026 the European Commission published draft revised Merger Guidelines that overhaul the substantive assessment of concentrations, replacing the separate 2004 and 2008 texts with a single, consolidated framework that foregrounds innovation, dynamic competition and strategic resilience. The Foreign Subsidies Regulation entered into force on 12 January 2023 and has applied since July 2023, allowing the Commission to launch ex officio investigations. Since October 2023, qualifying concentrations and certain large public procurement procedures have been subject to mandatory notification and a separate standstill obligation under the FSR, in addition to any EU Merger Regulation filing. For UK-based acquirers, private equity sponsors and corporate development teams, the practical consequence is clear: any acquisition of, or investment in, an EU-based target may trigger overlapping notification obligations across multiple regimes, each with its own thresholds, timelines and remedy powers. Executive Summary, What UK Dealmakers Must Know Two developments demand immediate attention. First, the Commission's draft Merger Guidelines signal a more nuanced substantive test that gives greater weight to innovation effects, resilience arguments and efficiency claims. Second, the FSR is no longer a theoretical add-on: the Commission has actively investigated foreign financial contributions in M&A contexts and has the power to impose remedies, including subsidy repayment, independently of any merger control clearance. For deal teams, this means that the traditional pre-signing checklist (turnover thresholds, competitive overlaps, CMA jurisdiction) must now be expanded. Before any letter of intent is signed, advisers should screen for FSR notification triggers and map potential national FDI filing obligations across every Member State where the target operates. The commercial consequence of missing a filing obligation can be severe: transactions may be suspended, unwound or subjected to conditions that materially alter the economics of a deal. The sections that follow provide a practical playbook: what the draft Merger Guidelines change, how the FSR notification system works, how all three regimes interact, and what steps to take from LOI through to closing. What Changed, The Commission's Draft Merger Guidelines 2026 On 30 April 2026, the European Commission published a single set of draft revised Merger Guidelines for public consultation, replacing the separate Horizontal Merger Guidelines (2004) and Non-Horizontal Merger Guidelines (2008). The draft consolidation represents the most significant restatement of the Commission's approach to substantive merger assessment in over two decades. Industry observers expect the final text, once adopted, to reshape how deal teams prepare evidence packages, frame efficiency arguments and anticipate Commission concerns. Key Substantive Changes to the Assessment Framework The draft Guidelines introduce or significantly expand several analytical themes that will affect how concentrations are evaluated:

Innovation and dynamic competition. The draft text devotes substantially more space to the assessment of innovation effects. The draft Guidelines strengthen the analysis of innovation effects and recognise that certain mergers can promote innovation by combining complementary R&D capabilities. In this article, we refer to this more articulated pro‑innovation perspective as an “innovation shield” to highlight how parties might frame their evidence in deals involving small innovative targets or R&D projects. Conversely, it sharpens the analytical tools available to challenge so-called killer acquisitions, where an incumbent acquires an innovative target primarily to eliminate a nascent competitive threat.
Resilience and strategic autonomy. The draft Guidelines give much more explicit prominence to supply‑chain resilience and strategic autonomy as factors the Commission may consider, particularly in sectors involving critical technologies, semiconductors, energy or defence‑adjacent assets.
Treatment of efficiencies. The draft lowers the evidential bar for parties seeking to demonstrate merger-specific efficiencies, provided those efficiencies are quantified, verifiable and likely to benefit EU consumers within a reasonable timeframe.
Foreclosure and entrenchment. Non-horizontal theories of harm, particularly conglomerate effects and ecosystem entrenchment, receive expanded treatment, reflecting lessons from recent digital-market cases.

Practical Implications for Buyers and Sellers Under the draft framework, deal teams should prepare more detailed evidence packages than previously required. Innovation roadmaps, R&D pipeline comparisons and third-party assessments of dynamic competitive effects are likely to become standard components of a merger filing. Sellers of innovative targets should anticipate that buyer due diligence will increasingly request documentation relating to product pipelines, patent filings and collaboration agreements, all of which feed directly into the Commission's expanded innovation analysis. The likely practical effect will be longer pre-notification discussions and more data-intensive filings. EU Foreign Subsidies Regulation (FSR), Scope, Triggers and Process The Foreign Subsidies Regulation, Regulation (EU) 2022/2560, entered into force on 12 January 2023 and has generally applied since July 2023, empowering the European Commission to investigate and remedy distortions in the Single Market caused by financial contributions from non‑EU governments. Since October 2023, qualifying concentrations and certain large public procurement procedures have also been subject to mandatory notification and a separate standstill obligation under the FSR. Its purpose is to address distortions in the Single Market caused by financial contributions granted by non-EU governments. Before the FSR, the Commission had no dedicated tool to scrutinise foreign subsidies in M&A transactions or public procurement, a gap that the regulation was designed to fill. The FSR applies in three principal contexts: concentrations (M&A), public procurement procedures and any other market situation where foreign subsidies may distort the internal market. In each context, the Commission has distinct enforcement powers, ranging from mandatory notification requirements to ex officio investigations. Foreign financial contributions caught by the FSR include direct grants, below-market loans, tax exemptions or deferrals, equity injections on non-commercial terms, debt forgiveness and the provision of goods or services at below-market prices by a non-EU government entity. FSR Notification Thresholds and Worked Examples Mandatory notification for concentrations arises where two cumulative thresholds are met:

EU turnover threshold: the target (in acquisitions) or at least one of the merging undertakings (in mergers) generated aggregate EU turnover of at least €500 million.
Financial contribution threshold: the parties received combined aggregate financial contributions from third countries of at least €50 million in the three years preceding the transaction.

The following table illustrates how these thresholds apply to common transaction scenarios: Scenario EU turnover of target / parties Third-country financial contributions (3 years) FSR notification required? PE fund acquires German manufacturer; fund portfolio companies received US state grants €600m €55m (across fund entities) Yes, both thresholds met UK tech company acquires French SaaS start-up; no material foreign subsidies €120m €2m No, below both thresholds State-backed Asian conglomerate acquires Dutch logistics firm €900m €200m Yes, both thresholds exceeded significantly Even where mandatory thresholds are not met, the Commission retains broad ex officio powers to investigate any concentration where it suspects distortive foreign subsidies are present. This means that deal teams cannot treat sub-threshold transactions as automatically safe from scrutiny. FSR Review Process and Possible Remedies Following notification, the Commission conducts a preliminary review. If concerns are identified, it may open an in-depth investigation. Remedies available under the FSR differ from traditional merger control remedies and can include repayment of the distortive subsidy, behavioural commitments (such as licensing obligations or access undertakings) and structural remedies (divestiture of assets). Critically, the Commission can also prohibit a concentration outright if no adequate remedy is available. This independent remedy power means that a transaction may receive merger control clearance yet still face FSR-related conditions, or vice versa. How EU Merger Control, FSR and National FDI Screening Interact The most significant practical challenge for cross-border deal structuring is that merger control, the FSR and national FDI screening regimes can all apply simultaneously to the same transaction. Each regime has different objectives, different filing triggers and different decision-making bodies. A UK acquirer purchasing a target with operations across multiple EU Member States may need to notify the European Commission under both the EUMR and the FSR and file separate national FDI notifications in each Member State with an active screening mechanism. Understanding how these three regimes interact is essential for managing timelines and avoiding deal-breaking delays. Decision Tree, Sequencing Matrix for Parallel Filings The optimal sequencing depends on the specific facts of each transaction. The following decision framework reflects emerging market practice: Question If yes If no Does the deal meet EUMR turnover thresholds? Prepare EUMR notification as the primary filing track; begin pre-notification contacts with DG Competition. Assess whether any national merger control filings are required in individual Member States. Do the parties meet FSR notification thresholds (€500m EU turnover + €50m third-country contributions)? Prepare parallel FSR notification; coordinate information requests with the EUMR filing to avoid duplication. Assess ex officio risk, has the target or acquirer received visible foreign subsidies that may attract Commission attention? Does the target have operations or assets in a Member State with an active FDI screening regime? File national FDI notifications in parallel; monitor for potential coordination with Commission processes. Proceed without national FDI filing, but retain flexibility for late-triggered screenings. The critical point is that no single filing satisfies all three regimes. EUMR clearance does not exempt a transaction from FSR review; FSR clearance does not address national security concerns assessed under FDI screening; and an FDI approval does not substitute for merger control or FSR clearance. Navigating Active National FDI Restrictions Where national FDI screening is active, and the number of EU Member States operating screening mechanisms has grown substantially in recent years, deal teams should anticipate additional complexity. National authorities may impose conditions (such as governance commitments, information-sharing restrictions or limits on technology transfer) that interact with or conflict with any remedies required by the Commission under merger control or the FSR. Industry observers expect this overlap to produce occasional friction, particularly where a Member State's national security concerns differ from the Commission's competition or subsidy-distortion analysis. Practical responses include negotiating escrow structures that accommodate phased closing across jurisdictions, and drafting SPAs with multiple long-stop dates tied to the latest expected clearance. Practical Deal Playbook, Timelines, Data Room, Drafting and Remedies Managing the new EU merger control foreign subsidies landscape requires disciplined planning from letter of intent through to closing. The following step-by-step playbook covers the essential workstreams. Pre-Signing Steps

Combined regulatory screen. Before signing, run a unified assessment covering EUMR turnover thresholds, FSR financial contribution thresholds and national FDI triggers across all relevant Member States.
Subsidy mapping. Request a detailed history of all financial contributions received from non-EU governments over the preceding three years, including grants, concessional loans, tax rulings, equity injections and in-kind support.
Standstill obligations. Under the EUMR, a mandatory standstill applies: the concentration cannot be implemented until cleared. Under the FSR, a similar suspensory obligation applies to notifiable concentrations. Parties must not close before both clearances are obtained.
Innovation evidence gathering. Where the draft Merger Guidelines' innovation assessment is relevant, collect R&D pipeline documentation, patent portfolio analyses and evidence of dynamic competitive effects at the earliest opportunity.

Filing Preparation and Timelines The following table compares the procedural timelines across the three regimes, enabling deal teams to map critical-path dependencies: Regime When triggered / who must file Typical timeline / outcome EU Merger Control (EUMR) Transactions meeting EUMR turnover thresholds, notifying parties (acquirer / merging undertakings). Phase I: 25 working days. Phase II (in-depth): up to 90 working days. Clearance, clearance with conditions or prohibition. EU Foreign Subsidies Regulation (FSR) Mandatory where both FSR concentration thresholds are met; Commission may also act ex officio below thresholds. Preliminary review period following notification. In-depth investigation extends timetable significantly. Remedies may include repayment, behavioural or structural measures. National FDI screening Member State rules, notification where investments touch national security or critical infrastructure in that Member State. Varies by Member State: from approximately 30 calendar days to longer investigations. Conditions, prohibitions or unwinding possible. Because merger control timelines EU deal teams are accustomed to can now be extended by parallel FSR and FDI processes, the critical path to closing is typically defined by whichever regime takes longest, not by any single filing. Remedies and Commitments, Comparing Approaches Remedies under the EUMR typically involve structural divestiture or behavioural commitments designed to preserve competition. FSR remedies, by contrast, are designed to eliminate the distortive effect of foreign subsidies and can include repayment of the subsidy itself, an outcome with no parallel in merger control. The likely practical effect is that deal teams may face remedy negotiations on two separate tracks simultaneously, requiring coordinated strategy to ensure that commitments offered to one authority do not conflict with conditions imposed by another. Data Room Checklist for Combined Filings Deal teams should ensure the data room contains, at minimum:

Subsidy documentation: all grant agreements, concessional loan terms, tax rulings and equity injection records for the preceding three to five years.
Board minutes and internal correspondence: documents reflecting decision-making around the receipt and use of financial contributions.
R&D and innovation materials: pipeline roadmaps, patent filings, collaboration agreements and competitive landscape analyses.
Market studies and competitive assessments: reports supporting efficiency or pro-competitive arguments.
FDI-relevant information: details of critical infrastructure, dual-use technologies or sensitive data handled by the target.

Worked Examples, How the Rules Apply in Practice The following anonymised scenarios illustrate how the regimes interact in common transaction types: Scenario 1: PE buyout with prior non-EU state grant. A UK-based private equity fund acquires a German industrial target. The fund's portfolio companies have received government grants from a non-EU state totalling €60 million over three years. The target has EU turnover exceeding €500 million. Both FSR thresholds are met, triggering mandatory FSR notification alongside the EUMR filing. The recommended approach is to prepare parallel filings, coordinate information disclosure and anticipate that the Commission may require repayment or behavioural commitments relating to the subsidies. Scenario 2: Killer acquisition, innovation shield in action. A global pharmaceutical incumbent proposes to acquire a small EU biotech company with a promising late-stage pipeline. Under the draft Merger Guidelines 2026, the Commission will apply enhanced scrutiny to innovation effects. The acquirer must demonstrate that the transaction will not eliminate a nascent competitive threat. Evidence packages should include binding commitments to continue the target's R&D programmes and independent third-party assessments of the pipeline's competitive significance. Scenario 3: Cross-border asset sale with FDI overlay. A Middle Eastern sovereign wealth fund acquires infrastructure assets across three EU Member States. Each Member State's FDI screening mechanism is triggered. One Member State imposes a condition requiring that operational control remain with EU-resident management, a condition that intersects with the FSR's analysis of how the foreign financial contribution influences governance. Coordinating these remedies requires a unified negotiation strategy and SPA provisions that accommodate jurisdiction-specific closing conditions. Conclusion, Immediate Actions for Cross-Border Deal Teams The convergence of the draft Merger Guidelines and the fully operational FSR means that EU merger control foreign subsidies new requirements are now a permanent feature of the deal landscape. Waiting until signing to assess these obligations is no longer viable, the information demands, filing timelines and remedy risks are too significant to leave to the last stage. Deal teams should take the following steps immediately:

Run a combined regulatory screen covering EUMR, FSR and national FDI triggers at the earliest stage of transaction planning.
Instruct dedicated subsidy due diligence alongside competition and FDI workstreams.
Allocate compliance responsibilities clearly between buyer and seller in heads of terms.
Consider voluntary pre-notification or self-notification where subsidy facts are clear, to reduce timeline risk.
Ensure SPAs contain robust regulatory condition precedent provisions, multiple long-stop dates and escrow mechanisms.

For specialist guidance on structuring transactions to navigate these overlapping regimes, find a Competition lawyer through the Global Law Experts directory. Sources

Frequently Asked Questions

What is the FSR and when did it start applying?

The Foreign Subsidies Regulation, Regulation (EU) 2022/2560, entered into application on 13 July 2023. It empowers the European Commission to investigate and remedy distortions in the Single Market caused by financial contributions from non-EU governments, covering M&A transactions, public procurement and other market situations.

Which transactions must be notified under the FSR?

Mandatory notification for concentrations applies where the target has EU turnover of at least €500 million and the parties' combined third-country financial contributions reach at least €50 million over three years. Below these thresholds, the Commission can still investigate ex officio.

How do I know whether to notify under the EUMR, the FSR, or both?

Run a combined screen: the EUMR uses turnover-based thresholds to assess competitive effects, while the FSR examines foreign financial contributions and market distortion. If both sets of triggers are met, parallel filings are required. Sequencing depends on deal-specific facts, see the decision tree above.

Will FSR reviews delay my deal closing?

They can. An FSR in-depth investigation extends the timetable beyond the preliminary review period. Because the FSR imposes a suspensory obligation on notifiable concentrations, closing cannot occur until clearance is obtained. Early assessment and, where appropriate, voluntary pre-notification engagement with the Commission can reduce uncertainty.

Can remedies for foreign subsidies differ from merger remedies?

Yes. FSR remedies can include repayment of the distortive subsidy, behavioural commitments or structural measures, outcomes distinct from the divestiture or access remedies typical of merger control. The Commission can impose FSR remedies independently of any merger control clearance decision.

What evidence supports pro-competitive efficiencies under the draft Merger Guidelines?

The draft Guidelines favour detailed quantification of claimed efficiencies: how and when they materialise, their likelihood, R&D continuation plans, third-party evidence of competitive dynamics, and proof that the efficiencies will benefit EU consumers. Generic assertions without supporting data are unlikely to carry weight.

How should buyers and sellers allocate regulatory risk in the SPA?

Best practice includes conditional signing with long-stop dates tied to all required clearances, carefully drafted material adverse change provisions, pre-closing covenants preserving target assets and operations, compliance warranties covering subsidy history, and escrow structures to accommodate potential remedy costs.