Garrigues Digital_

Far from being a fleeting factor, foreign investment screening has become a structural element with a determining effect on the design and negotiation of investments in Spanish technology companies. Incorporating a regulatory analysis from the outset and providing contractual mechanisms for managing regulatory delays and uncertainty are key for the success of these transactions.

The screening of foreign direct investment (FDI) has in recent years become a determining factor in the structuring of investment transactions in technology companies in Spain. Besides exerting a direct impact on the timelines for the execution and closing of transactions, it has prompted a redefinition of the traditional risk allocation mechanisms between the parties in the processing period for the authorization.

Applicable regime

In Spain, the screening regime for certain foreign direct investments is primarily articulated in article 7 bis of Law 19/2003, of July 4, 2003, on the legal regime governing capital movements and economic transactions with foreign countries. That article allows suspension of the liberalization regime for certain foreign direct investments in Spain, and is further implemented by secondary legislation, in relation to investments, by Royal Decree 571/2023 of July 4, 2023 on foreign investments. This regulatory framework sets out the obligation to obtain prior administrative authorization for certain foreign direct investments affecting security, public health and public order, and applies to investments made by foreign investors (residents outside the European Union and the European Free Trade Association) involving the acquisition of at least 10% of the share capital or control of a Spanish company operating in critical sectors, notably in critical infrastructure and technology. For a transitional period, prior authorization is also required for investments made by investors resident in the European Union or the European Free Trade Association in companies listed in Spain, or in unlisted companies where the investment value exceeds EUR 500 million. Lastly, the rules provide a specific regime for any investments related directly to national defense.

The figures for 2025 show a sustained rise in applications under this regime: 196 prior authorization applications were received (a 19% increase over 2024). Of the 181 applications analyzed by the Foreign Investment Board (Junta de Inversiones Exteriores  or JINVEX), 116 were authorized with no conditions, 51 were dismissed due to not being subject to the regime and 14 were authorized with voluntary commitments. No applications were denied. A 40% share of the transactions had US entities as the ultimate investors, followed by the United Kingdom and the United Arab Emirates (14% each), according to the 2005 Foreign Investment Screening Report in Spain (Informe Control de Inversiones Extranjeras en España 2025) by the Spanish Economy, Trade and Business Ministry (Ministerio de Economía, Comercio y Empresa).

The information and communications technology (ICT) sector had the highest investment scrutiny rate, accounting for 17% of all transactions. A 42% share of the authorizations were based on the possession of critical technology. This prominence, which in 2024 was held by the energy sector, reflects the growing importance of data, software, artificial intelligence and cybersecurity in the risk analysis carried out by the authorities, supported by legislation that treats the new technologies sector as critical.

The legislation defines as critical technologies, among others, “artificial intelligence, robotics, semiconductors, cybersecurity […], as well as nanotechnology and biotechnology”. This is also the case for investments in key technologies for industrial leadership and capacity, which include advanced materials and nanotechnology, photonics, microelectronics and nanoelectronics, artificial intelligence and digital security, among others. Lastly, investments in technology developed under programs and projects of particular interest to Spain are also related to technology. This broad catalog of technologies expressly covered by the rules, together with the fast pace in the use of artificial intelligence at any company with a digital business, forces foreign investors contemplating investment in technology companies in Spain to foresee the practical consequences of the obligation to seek prior authorization.

Impact on the design and structuring of M&A processes

The first structural effect for foreign investment is the need to involve teams specialized in foreign investment screening from the investment opportunity exploration phase (typically during the due diligence phase), and to integrate regulatory analysis into key decisions: the very feasibility of the investment, the submission or selection of bids in competitive processes — where the certainty of closing carries increasing weight over higher-value offers with greater regulatory risk — the contractual architecture and the transaction timetable.

The second structural effect has a bearing on the deal architecture, which is affected by the delay resulting from the authorization timelines and the uncertainty regarding the feasibility and conditions of closing.

Contractual mechanisms for managing the effects of delay

To manage the effect of delay, a ticking fee is used in practice in acquisition transactions involving net cash flow companies where the parties agree to use a locked box pricing mechanism. This fee takes the form of a daily amount paid by the buyer to the seller at closing to compensate for the value generated in the period between the reference date for pricing and the closing. In companies still at pre-cash-flow stages, the impact on structuring is even greater, because the delay could affect the very feasibility of the company if the sellers are unwilling to continue financing the business of the target company. In these cases, a reverse ticking fee may be considered, which functions as a price adjustment that benefits the buyer. This mechanism does not resolve the company’s cash position, however, and is usually followed by specific negotiations on this matter. Another common practice is to negotiate the start date for the ticking fee or reverse ticking fee. It often starts to apply from the expected closing date, so that it only compensates for unexpected delays. It is also frequent for a deadlock in the negotiation of these adjustments to result in the replacement of the locked box system with a pricing mechanism based on the completion accounts subject to review and adjustment after the closing date.

In growth investment transactions in the technology sector, also known as funding rounds, the effect of a delay is perhaps even greater. Target companies often require immediate liquidity, an urgent need that is incompatible with authorization timelines. In these scenarios, investors not subject to foreign investment screening rules have an advantage over foreign investors, although it is also common for the foreign investor’s offer to be larger than the European investor’s or for the terms of the offer to entail less dilution for existing shareholders. In such cases, although the foreign investor is not always willing to assume the potential risk of only partially completing the investment, the investment may be structured in successive rounds or in tranches: in a first phase, the investor subscribes to shares amounting to less than 10% of the share capital — the threshold that triggers the need for prior authorization — thereby providing the liquidity required by the company without the need for authorization and structuring veto rights so that they do not confer effective control. The second phase, which involves an increase in ownership through a new tranche of shares reserved for subscription by the foreign investor, remains subject to administrative authorization.

Contractual mechanisms for managing the effects of uncertainty

Furthermore, to manage the effect of the uncertainty associated with this regulatory risk, attention has turned once again to the clauses mostly widely used by the market to manage regulatory risk in transactions subject to authorization by the competition authorities. Sellers or the companies benefiting from the investment typically seek to impose on foreign investors the well-known hell or high water clause, in which the buyer undertakes to accept any and all conditions imposed by the authorities. Investors, by contrast, seek to secure the right to walk away from the transaction in the event of a condition or commitment imposed by the authorities.

In the sphere of authorizations by the competition authorities, a reasonable amount of certainty regarding the type of commitments or conditions that the authorities could impose allows compromises to be achieved that balance the parties’ positions in this connection, through the definition of materiality thresholds and other consensus mechanisms. In the case of foreign investment screening rules, however, the breadth and subjectivity of the objective of preserving security, public health and public order that underpins the authority’s power to impose commitments or conditions, together with the confidential nature of the proceedings, makes it considerably difficult for foreign investors and their advisers to be able to predict the nature and scope of potential commitments or conditions (which, sometimes, are neither quantifiable nor objectively determinable) and, consequently, to define intermediate solutions that will facilitate agreements.

Long-term consolidation of the regulatory impact

Far from easing, this environment looks set to intensify in the current geopolitical climate. On June 8, 2026, the Council of the EU adopted the new Regulation on the screening of foreign direct investments, which will apply after a transitional 18-month period. The new framework, which replaces Regulation 2019/452, raises the level of harmonization among Member States: screening will be a common requirement throughout the EU, indirect structures fall more clearly within the scope of application, and coordination in multi-jurisdictional transactions is strengthened with stricter timelines but, above all, it is a signal that the regulatory impact is here to stay as the prevailing scenario.

In conclusion, foreign investment screening rules have become, and will continue to be in the foreseeable future, a key element in the negotiation of foreign investment transactions in Spanish technology companies. Effective management of the risk arising from foreign investment screening rules by (i) incorporating the regulatory perspective from the inception of the transaction and (ii) providing contractual mechanisms that facilitate completion of the transaction, involving a balanced distribution of the risks arising from delay and uncertainty, will continue to be decisive factors for the success of investment transactions in technology companies in Spain.