New national security rules hit international mergers, investments, and acquisitions

The Government has announced it will be given new powers to intervene in mergers, investments, and acquisitions where national security could be compromised.

It follows the introduction of the National Security and Investment Act – described as “the biggest shake-up of the UK’s national security regime” in more than two decades.

The legislation is a part of a global trend towards introducing foreign investment laws. Historically, the Government had limited powers within the merger control regime under the Enterprise Act to intervene in a transaction on public interest grounds.

Under the new laws, the Department for Business, Energy & Industrial Strategy will be empowered to “scrutinise and intervene” in certain acquisitions made by anyone, including businesses and investors, that could “harm the UK’s national security”.

Businesses will be required to notify the Government of certain acquisitions that fall into one of 17 protected areas. These include advanced materials, advanced robotics, artificial intelligence, civil nuclear, communications, computing hardware, critical suppliers to Government, cryptographic authentication, data infrastructure, defence, energy, military and dual-use, quantum technologies, satellite and space technology, suppliers to the emergency services, synthetic biology, and transport.

The legislation will enable the Government to impose “certain conditions” on an acquisition (such as limiting the shares an investor can acquire) or, if necessary, unwind or block it.

But the Government added that the “vast majority” of acquisitions will require no intervention and will be able to proceed quickly and with certainty. The review time is intended to last a maximum of 30 days which can be credited to the new Investment Security Unit within the Department for Business.

It means that investors must now question whether an acquisition falls within one of the 17 sensitive sectors and is within the scope of the new laws. The Act applies to acquisitions made from 12 November 2020, the day the bill was introduced to Parliament.

Additionally, notification will be required when a buyer takes its stake above three trigger points: 25 per cent, 50 per cent and 75 per cent.

Commenting on the legislation, Business Secretary Kwasi Kwarteng said the move will give investors “additional certainty and clarity” and “cement the UK’s world-leading reputation as a global champion of free trade and investment”.

“The UK is world-renowned as an attractive place to invest but we have always been clear that we will not hesitate to step in where necessary to protect our national security,” he said.

“The new investment screening process in place from today is simple and quick, giving investors and firms the certainty they need to do business, and giving everyone in the UK the peace of mind that their security remains our number one priority.”

Business groups have expressed concern that the wide scope of the criteria could result in unnecessary interference deterring investment in the UK however the Government has said that while up to roughly 1,800 deals a year would be notifiable, fewer than 100 would be called in for a full review. This is significant as there have only been 12 public interest interventions on national security ground since 2002.

Click here to learn more about the National Security and Investment Act 2021.

Although most transactions will remain unaffected by these new rules, it doesn’t hurt to seek advice beforehand to ensure you understand these requirements. We work with lots of businesses, from a wide range of sectors, to help them achieve successful investments, sales, acquisitions and mergers. To find out more, please get in touch.

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