M&A – the new UK National Security and Investment Act 2021

The UK National Security and Investment Act 2021 has received Royal Assent and is expected to come into force later this year. However, as discussed further below, once in force it can apply to transactions being entered into now.

The Act will introduce significant legislative reforms which will overhaul the review of transactions and investments on national security grounds in the UK. The new regime represents an important new execution risk factor, with a similar risk profile to merger control rules.

We have been very closely involved in the passage of this legislation through Parliament, including giving evidence before the Bill Select Committee and Foreign Affairs Select Committee, suggesting amendments to the Bill, and successfully assisting members of the House of Lords in arguing for specific changes to the proposed regime.

The key points to note in relation to the new regime are:

• Transactions in scope – The new regime will apply to an acquisition of “material influence” in a company (which may be deemed to exist in relation to a low shareholding, potentially even below 15%), as well as an acquisition of control over assets (including land and intellectual property), where the acquisition potentially gives rise to national security concerns in the UK.
• Application to all buyers – It will apply equally to both UK and non-UK investors (although the Government has acknowledged that UK investors will be less likely to give rise to national security concerns in practice).
• Application to entities/assets outside the UK – It may capture acquisitions of non-UK entities or assets in certain circumstances.
• Mandatory notification – A mandatory notification obligation (and a corresponding prohibition on completion prior to clearance) will apply to certain transactions involving target entities which carry out specified activities in the UK in one of 17 sectors (including energy, transport, communications, defence, artificial intelligence and other tech-related sectors). Such transactions include the acquisition of a shareholding / voting rights of more than 25% (the threshold has been increased from the 15% or more proposed in the original Bill).
• Power to call in transactions – The mandatory notification obligation will be combined with an extensive call-in power, enabling the Government to call in qualifying transactions for review, regardless of sector. The call-in power is not subject to any materiality thresholds in terms of target turnover or transaction value.
• Voluntary notification – Acquirers will also have the option to voluntarily notify a qualifying transaction to obtain clearance, which may be advisable in the interests of legal certainty where potential national security concerns arise.

Formal commencement of the new regime will be delayed until later this year (exact date to be confirmed). However, the Government will have retroactive powers to call in for review at the commencement date (or potentially up to five years thereafter) any qualifying transaction completed between 12 November 2020 and the commencement date. This means that it is critical for investors to consider the potential application of the new regime for all transactions completed from 12 November 2020 onwards that could potentially raise national security concerns.

We have published an updated briefing on the regime which is available here.