Summer arms race heats up as domestic and foreign buyers target UK defence suppliers

There has been a flurry of transactional activity in the UK defence sector over the last week. These deals, and the public interest considerations they raise, will test the UK's current approach to reviewing foreign investment in sensitive sectors.

• The acquisition of Rheinmetall Defence by BAE Systems: on 19 July 2019, the CMA published its decision not to refer the acquisition of Rheinmetall Defence by BAE Systems to Phase II. The Parties overlapped in the supply of armoured fighting vehicles (AFVCs) and the supply of upgrades and deep maintenance services to existing AFVs. Their only customer was the UK Ministry of Defence. The transaction had been notified to the CMA on 12 April 2019 and the CMA subsequently formally brought it to the attention of the Secretary of State of the Department for Digital, Culture, Media & Sport (the Secretary of State) on the grounds that it may raise public interest concerns. However, no public interest intervention was made by the Secretary of State and the deal was ultimately analysed and cleared unconditionally by the CMA on pure competition grounds.
• The proposed acquisition of Inmarsat by a Connect Bidco (a private equity-led Consortium): On 23 July 2019, the Secretary of State issued a public interest intervention notice, confirming that he was intervening in the proposed acquisition of Inmarsat (a UK satellite company) by a private equity-led consortium (including equity funds based in Canada) on national security grounds. This is the second time that the Secretary of State has intervened in a transaction on national security grounds since the UK Government introduced its initial measures implementing the UK Government's National Security and Infrastructure Investment Review in June 2018 – the previous case being Gardner Aerospace / Northern Aerospace (see here for our briefing on the UK Government's consultation on its new powers).

The transaction was notified to the CMA and on 16 July 2019 the CMA brought the transaction to the attention of the Secretary of State on public interest grounds. This intervention follows the announcement on 18 July 2019 by the Consortium that the UK Government had accepted a number of undertakings designed to address potential public interest concerns. In particular, the undertakings related to maintaining strategic decision making and other operations of Inmarsat within the UK. The CMA will prepare a report for the Secretary of State and submit this report on 17 September 2019. The Secretary of State will make a final decision on whether to refer the case to Phase II.

• The proposed acquisition of Cobham by Advent International: On 25 July 2019 it was announced that the board of Cobham, a UK supplier of aerial refuelling, radar and other advance electronic solutions to the defence and aviation sector, had agreed to a £4 billion takeover offer from US private equity firm Advent International. Notification to the CMA has yet to be made but, as in relation to the proposed acquisition of Inmarsat, it appears likely that public interest considerations will be at the forefront of any review.

This recent activity highlights the significant impact that national security interventions can have on deal timing and structure. While still in progress, the Inmarsat and Cobham transactions will hopefully provide a useful insight into the continued development of the UK's approach to reviewing foreign investment in sensitive sectors, pending the implementation of a new, standalone, FDI regime (in relation to which the Government is expected to introduce draft legislation later this year).

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