The UK National Security and Investment Act 2021: reflections one year on

• United Kingdom

• Competition, EU and Trade - Foreign investment regimes
• Mergers and acquisitions

09-01-2023

The UK’s National Security and Investment Act 2021 (“the Act”) came into force on 4 January 2022, signalling a significant shift in UK policy regarding investment into UK companies and assets. As reported in our previous briefings, the new regime introduced a mandatory notification system to the new Investment Security Unit (“ISU”) within the Department for Business, Energy and Industrial Strategy (“BEIS”) of all planned acquisitions where the target business operates in at least one of the 17 defined sensitive sectors.

The UK Government has shown it is willing to utilise its new powers under the Act where necessary, including the imposition of remedies or block deals. However, it has done so only in a small number of deals.

Having reflected on our significant experience of making filings over the last year, including engaging with the ISU on two remedies processes, we set out below six practical takeaways.

1. Sector definitions mean that a broad range of transactions are caught

Whilst some of the sector definitions set out in clear form the requirements for trigger (such as Critical Suppliers to Government), others leave more room for interpretation (e.g. Data Infrastructure, Computing Hardware and Artificial Intelligence). For example, some sectors include quirks which automatically bring some transactions out of scope (e.g. the Energy sector does not apply to assets based in Northern Ireland). We understand that further guidance on sectors may be forthcoming on a fairly regular basis.

2. A relatively straight forward process in ‘no issue’ cases

We had raised concerns as part of our interactions with Parliament during the legislative process regarding the extent of the burden exerted on most deals as a result of notification requirements under the regime, though we are pleased that on the whole this has proved not to be the case.

In ‘no-issue’ cases, where a notification is made, the process from populating the relevant form through to submission and subsequent clearance within the initial 30 working days is typically smooth. The information required by the form focuses predominantly on the business activities of the parties and the acquirer’s ultimate parent. Notifications tend to be accepted as complete quickly (within 5 working days but often sooner). There has been some variation in the time taken for clearance to be provided within the initial 30 working day period, though we have found this to sit at around the 26-28 working day mark. The ISU took on average 24 working days to call-in mandatory notifications of interest, according to their first ‘annual report’.

3. Minimal ISU contact (unless remedies are required)

Correspondence with the ISU tends to be minimal throughout the course of the notification process in straightforward cases. In reality, unless there is some ambiguity as to the application of the NSIA to a transaction or should there be some form of issue (be it technical or with the transaction itself in terms of interest), there is no real need to be in contact with the ISU. Correspondence will ordinarily be via their portal, with automated emails provided to those who gave their details as part of the form at milestone points (e.g. acceptance and clearance).

4. Limited transparency in remedies cases

Further engagement can be expected in remedies cases, albeit it is perhaps more limited than one might expect. The reality is that the ISU is not able to explain specifically its national security concerns - for national security reasons - so parties will not receive a document setting out its concerns (equivalent to a Statement of Objections or Issues Statement in a competition or merger control investigation), and so there is limited room to engage meaningfully.

5. Remedies picture taking shape

With the first Notice of Final Order under the Act published in July 2022, the trends in terms of the acquirer countries and sectors of concern are beginning to show signs of correlation. Those most notable are the interest in acquisitions by Chinese individuals or entities, as well as concerns predominantly surrounding the Energy and Military & Dual-Use sectors (though remedies have been imposed in other areas), which reflects our own experience in supporting clients on transactions which raise national security concerns (including those for which remedies have been required). Remedies have to date been of both a behavioural and structural nature, with the likes of information sharing restrictions imposed in some places and majority divestments required in others.

6. Timing of notifications

The ISU allows notification to be made by parties to a relevant transaction before signing provided there is a legitimate and realistic prospect that the transaction will proceed. Should the structure of a transaction change post notification (whether or not clearance has yet been granted), the ISU must be notified of said changes and any associated details. This can be done by emailing the ISU, though it should be borne in mind that depending on the degree of change and the status of the notification, an entirely new notification may be required. As such, there is a balance to be struck between making an early submission versus ensuring that the transaction is sufficiently concrete.

Final thoughts

The Act and the wider regime is still in its infancy. Despite our experience to date, the future will no doubt bring further revelations as to the application of the Act to transactions. A further report on progress will be published in March 2023, and we expect further guidance on the operation of specific issues during the course of the year.

The key takeaway is that businesses should continue to consider the possible application of the Act early in any transaction process, and should be aware of the breadth of the regime and its sector definitions. In the majority of cases, it will be a relatively painless process to manage, however early engagement will ensure everything runs smoothly.

For further resources on Foreign Investment and National Security regimes visit our hub, or get in touch with your usual Eversheds Sutherland contact or those listed below: