Tom Boersma
- Senior Associate
- Corporate
Lights, camera, transaction: the NSIA takes centre stage
The Fifth Annual Report on the National Security and Investment Act 2021 (“NSIA“) demonstrates the continued growth and application of the NSIA regime, both in terms of transaction volumes and its importance in deal execution. However, the headline figures also provide reassurance for investors and acquirers, with call-in rates remaining low and the vast majority of notified transactions continuing to proceed without intervention.
Notifications continue to increase
There was a significant increase in notifications, with 1,324 notifications submitted (up c.15%), a majority of which were mandatory notifications (c.85%).
Acceptance periods have slowed down, where mandatory notifications took an average of 11 working days from receipt to acceptance (up from seven working days), while voluntary notifications took an average of 13 working days (up from eight working days). This increase has been expressly acknowledged and the Government is taking steps to reduce acceptance times.
Call-ins remain relatively rare
Only 4.4% of transactions were called in for detailed review, which remains broadly consistent with previous years.
The Government continues to use almost the entirety of the statutory review period, with call-in notices issued on average 29 to 30 working days after a notification is accepted.
The sectors most affected were defence (47%), critical suppliers to government (33%) and military and dual-use (33%). Unsurprisingly, defence remains the primary focus of scrutiny, although critical suppliers to government featured more prominently than in previous years.
UK acquirers accounted for the largest proportion of call-ins (52%), followed by China (30%) and the United States (23%). Whilst acquirer nationality remains an important consideration, domestic transactions in sensitive sectors continue to attract significant scrutiny.
Final orders
Whilst most called-in transactions continue to be cleared, the Government remains willing to intervene where national security concerns are identified.
Nine final orders were imposed during the reporting period (down from 17 in the previous year), eight of which allowed the acquisitions to proceed under certain conditions and only one blocked the acquisition from proceeding.
Final orders were most commonly associated with the advanced materials, data infrastructure and military and dual-use sectors.
Key takeaways for investors and acquirers
- NSIA remains a routine consideration in UK transactions;
- notification volumes continue to rise, reinforcing the need for early NSIA analysis and part of the early due diligence stage;
- acceptance periods have increased and should be factored into transaction timetables;
- whilst call-in rates remain relatively low (c.4.4%), transactions in sensitive sectors continue to attract significant scrutiny;
- defence remains the principal area of focus, with increased attention also being paid to critical suppliers to government;
- UK acquirers continue to account for a significant proportion of call-ins and should not assume domestic transactions fall outside the Government’s focus – this is important for acquirers to note;
- intervention remains a real possibility where national security concerns are identified; and
- investors should continue to build sufficient time into transaction timetables to accommodate NSIA analysis and any required notifications.
Newly created Department for Business, Innovation, Science and Trade (BIST)
Since the publication of the Fifth Annual Report, and as part of the wider changes to the Machinery of Government, responsibility for the NSIA regime and the ISU has moved from the Cabinet Office to the newly created Department for Business, Innovation, Science and Trade (“BIST“).
The transfer does not affect the operation of the NSIA regime. The statutory framework, notification requirements, review timelines, decision-making powers and legal tests remain unchanged. Similarly, the notification process and ISU contact details, including the investment.screening@cabinetoffice.gov.uk inbox, continue to operate as before.
This article is for general information purposes only and does not constitute legal advice or a comprehensive statement of the law. Specific legal advice should always be sought in relation to individual circumstances.
Meet the team:
Enea Aniaj
- Solicitor
- Corporate