National Security and Investment Act 2021 Review: What You Need to Know
National Security and Investment Act 2021 Review: What You Need to Know
The National Security and Investment Act 2021 which aimed to prevent state and non-state entities who may wish to harm to the UK from acquiring businesses in the UK has been in place now for about 18 months.
12 month review of National Security and Investment act 2021
The Cabinet office recently issued a 12 month review on the level of notifications and the outcome of those notifications. It takes the view that the investment screening regime, managed by by the Investment Security Unit (ISU) is operating appropriately, providing a light-touch and proportionate regime that still protects the UK’s national security.
The NSI Act operates in three ways:
- a mandatory notification regime for some M&A or investment transactions in certain specified (significantly high risk) sectors such as defence;
- a voluntary notification regime for certain transactions not those specified sectors which may still give rise to national security concerns; and
- call-in powers under which the Government can review any transactions which should or could have been notified under the mandatory or voluntary notification regimes.
866 notifications were made – 671 were mandatory notifications and 180 were voluntary. 15 notifications were retrospective validation applications made in respect of transactions which should have been notified but which were not.
The overall level of notifications is still significantly below the number (1,000 to 1,800) originally anticipated by the ISU, prompting views that the regime may be having less of an impact than estimated or, as the number of retrospective validation applications perhaps indicates, that there are still buyers and advisers who are unaware of the regime’s reach.
The number of voluntary notifications suggests many investors/acquirers are taking a cautious approach – no doubt advised by cautious advisers(!), notifying transactions which sit outside the mandatory regime in order to avoid the risk of a post-completion call-in.
Whilst some sectors are narrowly defined the defence sector is deliberately all encompassing , catching all contractors and sub-contractors supplying goods or services to the MoD including businesses providing eg catering or cleaning services. So it is perhaps unsurprising that the sector with the greatest number of notifications was defence which accounted for 47% of all mandatory notifications.
Of the 866 transactions notified, only 7.5% were called in for review by the ISU, with five transactions being blocked and conditions imposed on the other 10.
Unsurprisingly the review suggests that deals with Chinese investment are subjected to more in-depth scrutiny with 42% of all call-in notices related to investments originating in China. China also topped the table for prohibited transactions.
Timing wise, all of the notifications made were either cleared or called-in within the required period of 30 working days after being accepted as set out in the legislation.
Although the total number of notifications remains lower than that originally predicted, it is clear that the NSI Act is having an effect on the UK deal market, even where there is no foreign investment involved. All professional advisers need to be aware of the NSI regime and the impact a notification can have on a deal timetable. The clock only starts running once the notification is accepted as complete by the ISU so getting that application right is also important.
If you would like to talk to someone about this Act please contact a member of the Corporate team.