As the UK government builds its guidance in preparation for the commencement of the UK’s new regime for screening investments and acquisitions, read our summary of the new regulations to help you better understand what you need to know!
The NSIA was passed in April this year and it allows the Secretary of State for Business Energy and Industrial Strategy (SoS for BEIS) to look at and intervene in certain investments where necessary for national security.
It comes into force on 4th January 2022 BUT any deals struck since 12th November 2020 can be “called in”. Anything completed before then is not going to be scrutinised. “Called in” can mean that conditions are imposed on the parties or that the deal is not allowed!
The discussions regarding the NSIA have focused on foreign investment in UK businesses that could be a risk to national security but it does apply to any investment that could cause a risk. Overseas investments/acquisitions in particular have been the subject of discussion.
“National security” isn’t defined. This is up to the Investment and Security Unit (“ISU”) – a new operational unit set up to look at these matters – to determine.
The ISU can call in the transactions for up to five years after the transaction.
The main impact of this new law is that investors/acquirers may have to make either a i)mandatory or ii) voluntary notification to the ISU. This is done via an online portal.
Mandatory notification – where a qualifying entity (person/organisation etc) gains control (i.e. by % of shares it takes or by having voting rights that means it can control the activities) notification must be made if the business falls within one of 17 sectors. The qualifying entity must also a) carry on activities in the UK or b) supply goods or services to people in the UK.
The 17 sectors are:
- Advanced materials
- Advanced robotics
- Artificial intelligence
- Civil nuclear
- Computing hardware
- Critical suppliers to government#
- Cryptographic authentications
- Data infrastructure
- Military and dual use
- Quantum technologies
- Satellite and space technologies
- Critical suppliers to the emergency services
- Synthetic biology – this covers many life sciences companies
An acquisition that involves any of the above by a qualifying entity that will take “control” must be notified and must get clearance before completion. It doesn’t matter what the size of the business is. Note this means that both new investors and existing investors acquiring more shares could be caught by this.
Voluntary notification – this is where the acquiring entity isn’t active in one of the 17 sectors above or where they acquire such things as the IP in the business software only (and not all of its assets) or they have other powers to control the business – this part of the law is very broadly defined.
What does this mean in practice – it is the responsibility of the acquirer to make the notification but given the ISU could unpick the transaction for up to 5 years after completion, the business would want to co-operate with the acquirer and make sure that contractual documentation covers what will happen in this event.
What if an acquirer doesn’t notify the ISU when it should? – this is a criminal offence with up to 5 years imprisonment and fine of up to 5% of worldwide turnover or £10million whichever is the higher.
How to notify – this is done on line. The ISU have to provide a decision “as soon as reasonably practicable” but can ask for further information. In total the ISU powers mean that they could take up to 105 days to approve a transaction but the aim is that they should make a decision within 30 days. The ISU does allow businesses to contact them for informal guidance.