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The UK Government recently published its third annual report on the enforcement of the National Security and Investment Act 2021 (NSIA), which covers the period from 1 April 2023 to 31 March 2024.
What does the report tell us?
- There has been a slight (4%) increase in notifications. This most probably reflects the increasing awareness of practitioners and deal principal's of the potential application of the legislation to their transactions, which is a positive development.
- The acceptance rate has increased – this may be indicative of the legislation “bedding down” and the Government taking a more holistic and pragmatic view of transactions under review and the parties (and their owners). Most of the rejections were made because they should have been notified under a different notification type. This is something for the lawyers on both the buy and sell side to be mindful of, as notifying a mandatory transaction under the voluntary regime (or vice-versa) will inevitably result in rejection of the notification and the clock resetting.
- There has been a 37% reduction in the number of acquisitions called in for review (41 this year, 65 last year), suggesting better targeting and greater experience in selecting those transactions which need further review. The call-ins followed both mandatory and voluntary notifications and also included some non-notifiable transactions. Therefore, it is not just mandatory notifications which are reviewed. Very importantly, because the Government monitors market activity, it cannot be assumed that a transaction will fall under the Government’s radar - the risk of a call in should not be underestimated.
- The majority of orders were in the defence and military sectors – this is not surprising.
- Despite the definitional breadth of the Artificial Intelligence specified sector, this does not feature in the transactions that have been called-in. This is hopefully because the Government is taking a commercial approach to this specified sector. It may also reflect the fact that a significant majority of transactions involve targets that simply use/license-in (rather than research, develop or produce) AI technologies for non-sensitive purposes.
- UK and China acquirers are still the most scrutinised as well as those from the USA. Although the NSIA is nominally nationality blind, it is clear that the UK Government is particularly concerned about the potential national security risks associated with Chinese or Chinese-controlled buyers. It is likely that many of the UK and US buyers that were reviewed had controlling or other shareholders based in hostile jurisdictions.
- No penalties were issued, but 34 offences of completing notifiable acquisitions without approval were identified and the relevant parties were contacted for a reprimand so that this does not reoccur. This may indicate that the most likely consequence of non-compliance is the risk of the transaction being unwound rather than the imposition of financial penalties or criminal sanctions.
- Most (96%) transactions were dealt with within the initial 30-day review period, but timelines for called-in transactions can be much longer as the clock is effectively stopped when a request for information is made. There is a general concern about the lack of transparency in the Government’s decision-making process. This was recognised in the Call for Evidence earlier this year but it remains to be seen if the current Government takes any steps to address this.
Our overall view is that there are no real surprises coming out of the latest annual report. This, in turn, is indicative of predictability in the Government’s decision-making processes and hence a consistent analytical framework being applied. This can only be regarded as positive for deal principals and their advisers.
Further information
If you have any questions regarding this blog, please contact Glafkos Tombolis in our Corporate, Commercial and Finance team.
About the author
Glafkos Tombolis advises a broad range of corporate and private clients on M&A, joint ventures, private equity and growth capital transactions and general company law matters.
We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.
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