Governments turn to protectionism in pandemic fallout

Dan Primack, author of Pro Rata

Protectionism is poised to play an elevated role in global dealmaking, particularly as countries grapple with the economic fallout of COVID-19.

Driving the news: Governments are creating new regulations and incentives to maintain local ownership of homegrown companies. 

France’s Finance Ministry on Friday formed a fund to invest in domestic tech companies if they receive unsolicited takeover offers from foreign suitors. It begins with €150 million, managed via state-backed lender Bpifrance, but could expand to €500 million next year. 

Australia has proposed a series of changes related to foreign takeover offers in all sorts of industries, regardless of deal size, including one that would let the country's treasurer force divestitures on the basis of national security. 

Poland, Hungary and the Czech Republic are in various stages of implementing new restrictions of foreign direct investments, with the goal of restricting takeovers by non-EU companies. 

Germany also strengthened its screening of foreign direct investments, initially aimed at health care, but it's expected to expand to other "sensitive" industries like artificial intelligence. 

Sweden today got into the act, with top government officials introducing a series of proposals to better screen foreign direct investments. 

India last month said that companies from its seven neighboring nations, including China, must receive government approval for takeovers of Indian businesses. It also applies to other changes to beneficial ownership. 

The U.S. doesn't appear likely to enact similar restrictions, regardless of White House saber-rattling toward China, although there was that proposal from some congressional Democrats in April to put an overall moratorium on large M&A until the pandemic subsides.

By the numbers: Global cross-border merger activity is down 40% year-to-date, compared to an overall 43% drop in total M&A, per Refintiv. Cross-border deals for European targets, however, are down 5% versus an overall 12% increase in European dealmaking.

The bottom line: The world may be flat, but political policy is marked by peaks and valleys.