The VIFO Act is now an established part of the Dutch M&A landscape. Yet in practice, the impact on deal structure is still too often recognised late in the process. This leads to unnecessary loss of time, renegotiation of agreements and sometimes fundamental questions about the feasibility of a transaction. Those who include the law in their structuring from the outset have a significant advantage.
Does the target company fall within the scope?
The starting point is whether the target company falls within the scope of the law. This is not always clear at first glance. The Act covers vital providers, corporate campus operators and companies active in sensitive technology. The latter category will increase sharply with a proposed extension of the Sensitive Technology Scope Decree. Biotechnology, certain AI applications, advanced materials, nanotechnology, sensor and navigation technology and nuclear technology for medical use are likely to be added. And all these technologies are expected to qualify as highly sensitive. This has a direct impact on the notification threshold: in the case of highly sensitive technology, the notification requirement already applies when acquiring or increasing significant influence, starting at 10% of the votes in the general meeting.
Governance and structure: where it often goes wrong
It is precisely this low threshold that makes the structuring of governance arrangements a critical concern. Protection rights that investors stipulate by default, such as veto rights over strategic decisions, nomination rights for directors or information rights beyond what an ordinary shareholder is entitled to, can already qualify as significant influence. The same applies to contractual agreements in a shareholders' agreement whereby a shareholder undertakes to promote the appointment of a director nominated by a third party. Those who fail to test such agreements against the law's thresholds in a timely manner risk the transaction being notifiable without the parties having foreseen it.
Of particular concern is the group structure. The law looks not only at the direct acquirer, but also at the entity controlling the acquirer and the ultimate ownership structure. A foreign holding company investing through a Dutch intermediate holding company will not escape the reporting obligation if the activities of the target company fall within the scope of the law. The same applies to a transaction where the acquirer itself controls another company active in the field of sensitive technology: that relationship may also affect the assessment.
Structuring and documentation: knobs to turn
For the deal structure itself, there are a number of concrete choices that limit or manage the VIFO impact. An equity transaction and an asset transaction are not automatically treated equally: in an asset transaction, the law only applies if the assets to be transferred are essential to the target company's functioning as a sensitive technology company. This sometimes provides scope to structure a transaction so that only the non-sensitive activities are transferred, provided it is commercially viable and the structure cannot be classified as circumvention. The law contains an explicit provision that addresses circumvention structures, and the BTI actively uses it.
In transaction documentation, four issues deserve special attention. First, the notification requirement itself: who makes the notification, what information does which party provide and who bears the costs? Second, the standstill obligation: closing may not take place before the minister has taken a decision or the deadline has expired unused. This requires clear agreements on what parties may and may not do in the interim period. Third, the risk allocation in case of a negative decision or the imposition of conditions: who bears the risk if the minister blocks the transaction or imposes far-reaching conditions? And fourthly, timing: legal deadlines can extend to more than a year in complex cases, and financing agreements, escrow mechanisms and closing conditions must be tailored accordingly.
The role of both buyer and seller
An element that still receives too little attention in practice is the position of the seller. Sellers and target companies have an interest in assessing the ownership structure and profile of potential buyers early in the sales process. A buyer with an opaque ownership chain, ties to a state known for offensive technology programmes or a history of non-compliance with export control regulations increases the likelihood of a lengthy or negative review process. By already assessing the VIFO risk profile of bidders at the selection stage, sellers can shorten the lead time of the process and avoid unpleasant surprises at the final stage.
Pre-consultation with the BTI: speed through preparation
The BTI allows for informal consultations prior to a formal notification. This is a tool that parties should use more often. An early discussion with the BTI on whether a transaction falls within the scope, or on the information to be provided with the notification, can significantly speed up the formal procedure. Providing complete and accurate information at the time of the initial notification is crucial here: the BTI may ask for additional information, and each additional round of information extends the processing time.
More information?
Want to know how the VIFO Act affects your specific transaction and how you can set up the structure to keep risks and delays manageable? Contact Jan Willem or one of our other specialists from the Corporate/M&A team.
