The market for acquisitions and startup investments is booming, but in light of Denmark’s new investment screening act, law firm Magnusson Law has some advice for fintech companies: Figure out your legal requirements.
The new rules for screening and approval of foreign investments can have a large impact on Danish companies who are defined as ‘critical infrastructure’. Magnusson Law urges Danish fintech companies to figure out their legal needs as early as possible. As of 1st September 2021, the new rules will begin to impact the procedure foreign investors must follow if they want to invest in Danish companies.
The new investment screening act is among the strictest in the EU. The rules state that all foreign investments in certain types of companies—including those defined as ‘critical technology’ or ‘critical infrastructure’—that give the investor 10 percent of the share capital, or equivalent control, must first be screened and approved by The Danish Business Authority (Erhvervsstyrelsen) before the transaction can go through.
The financial sector, including subsidiaries, is one of the industries considered “critical infrastructure”. While cyber security, certain forms of artificial intelligence, industrial robot technology and data handling, amongst others, are defined as ‘critical technologies’.
For fintech companies, this means that the regulatory outlook is more complex than before. Startups in particular will need to figure out much earlier when they will need to raise capital, because there is a real risk of such companies running out of money whilst The Danish Business Authority processes the proposed investment,
Nikolaj Juhl Hansen, lawyer, partner and Co-Head of Corporate & M&A at Magnusson.
It is up to the foreign investor to apply for approval but, as Juhl Hansen points out, Danish companies can speed up the process by asking The Danish Business Authority for a pre-screening.
“A pre-screening determines whether the company in question is defined as ‘critical infrastructure’ or ‘critical technology’. We therefore encourage all companies to make sure they know whether they must live up to the new rules and what their legal needs are going to be,” Juhl Hansen continues.
The pandemic has boosted M&A trading
Magnusson is an international law firm with offices in the Nordic countries, the Baltics and Russia. In Denmark, Magnusson focuses particularly on the tech industry, and the firm is involved with tech hubs such as Tech Nordic Advocates, Keystones and Copenhagen Fintech, amongst others.
With their international presence, the rapidly evolving tech industry and the COVID-19 pandemic that has greatly influenced the past year and a half, it makes sense that Magnusson are ahead of the game, when it comes to following and influencing market trends.
Sam Jalaei, lawyer, partner and Co-Head of Corporate & M&A, describes how a large number of the M&A trades over the past year have been affected by COVID-19:
Right after the pandemic hit in March 2020, the M&A market went into shock. There was a lot of uncertainty and many trades stalled because those involved didn’t dare continue. However, things soon began to shift and the fourth quarter of 2020 turned out to be the most active M&A trading period in two decades. A trend that has continued into the first half of 2021,
Sam Jalaei, lawyer, partner and Co-Head of Corporate & M&A
Another trend that has greatly impacted the work of M&A lawyers is the growing demand for faster trades, meaning that due diligence needs to be executed faster and processes made more lean and efficient.
“If the pandemic has taught us anything, it’s that the companies who were able to adapt, digitalise and rethink their business quickly were the ones who came out the other side as winners,” says Jalaei. He continues: “Digital meetings are here to stay, and they will also impact M&A trading in the near future. Before, we might have had three in-person meetings prior to a trade, but now we’d probably meet once in person and take the rest of the discussion online. It saves time, reduces costs and simplifies logistics.”