Second annual report on the National Security and Investment Act

The Report is novel because it is the first to cover a full year of the NSIA regime (ie from 1 April 2022 to 31 March 2023, with the first report covering from the date that the NSIA regime came into force, 4 January 2022, to 31 March 2022).  

The Report provides some interesting insights into how businesses, investors and the Government are approaching application of the regime.  In this briefing, we highlight some of the key trends and takeaways for businesses and investors in the UK and beyond. 

Fewer filings than anticipated but in some clear “top” areas of the economy

In the first full year of the NSIA regime, a total of 866 filings were made (including 671 mandatory, 180 voluntary and 15 retrospective notifications). This is significantly less than the 1000-1830 filings that the Government anticipated in its Impact Assessment on the Bill in November 2020. The five areas in which the most mandatory notifications were made were: defence and dual use, critical suppliers to Government, artificial intelligence and data infrastructure. 43 notifications were rejected on the basis that they should have been mandatory or voluntary (as the case may be), or were withdrawn, duplicated or incomplete.

Fewer deals ‘called-in’ but Government willing to ‘call-in’ outside mandatory thresholds

A total of 65 transactions were ‘called in’ (of which 37 followed a mandatory notification, 17 followed a voluntary notification, 1 followed a retrospective validation application, and 10 were non-notified transactions). This is fewer than the 70-95 ‘call-in’ notices anticipated by the Government in its Impact Assessment. The areas of the economy with the highest number of call-in notices were: military and dual-use, defence and advanced materials. 

New to the Report is information on the origin of investment and China led with 42% of all ‘call-ins’. Filings made by Chinese acquirers accounted for less than 5% of total notifications but 42% of all call-in notices and 53% of final orders imposed. Nevertheless, almost a third of all ‘call-ins’ were made in relation to acquirers associated with the UK and a fifth were made in relation to acquirers associated with the US. This shows that the Government is agnostic as to the nationality of the acquirer, and also suggests that what the target does is an important risk factor. Crucially, the Government demonstrated its willingness to ‘call-in’ transactions which do not meet the thresholds for mandatory notification (eg Altice’s acquisition of a further 6% of shares in BT).

The Government took about the same amount of time to decide to “call-in” deals subject to mandatory and voluntary notifications, ie an average of 28 working days for mandatory notifications and 27 working days for voluntary notifications.

Vast majority of deals cleared but Government willing to prohibit completed transactions

The Government cleared 92.8% of transactions within the initial 30 working day review period. In contrast to the first reporting period during which no final orders were issued, 15 final orders were imposed, of which five transactions were blocked or unwound. The blocked/unwound transactions all involved either Chinese or Russian acquirers. However, it is important to note that behavioural remedies have been imposed on both non-UK and UK acquirers. Filings made by UK acquirers accounted for 58% of notifications, 32% of call-ins and 30% of final notices.

Also noteworthy is that the Government demonstrated its willingness to prohibit transactions that had already completed. For example, in November 2022, the Government prohibited the acquisition of chip manufacturer Newport Wafer Fab by Nexperia, a Chinese-owned Dutch semiconductor manufacturer, which completed in July 2021. This case also demonstrates that Government is willing to exercise its retroactive powers. The Government’s decision in this case is subject to judicial review – we will prepare a briefing on this in due course.

The majority of remedies were imposed in relation to deals in defence, military and dual use. However, the Government has imposed remedies across a range of other areas of the economy including: advanced materials, communications, computing hardware, energy, satellite and space technology.

On average, it took 81 working days between ‘calling in’ a transaction and issuing a final order.

No penalties were imposed or criminal prosecutions concluded.

Key takeaways for businesses and investors

There is still uncertainty about what types of deals the Government is most concerned about and the substantive review process. However, the Report does provide the following valuable practical insights:

• The policy focus is (as you would expect) on the defence sector, so extra caution should be exercised in ruling out filings in this sector.
• However, technologies and infrastructure in a range of sectors (not just defence, military and dual-use) should be treated as important for national security purposes. The operation of the regime indicates that “national security” is interpreted broadly and will extend to cover deals that may have an impact on the UK’s security in a wide sense.
• The operation of the regime indicates that the Government is agnostic as to the nationality of the acquirer.
• It is therefore important to consider the potential relevance of the NSIA regime in all types of deals.
• For mandatory notifications, an average of 28 working days should be factored into the deal timeline.
• In order to minimise further disruption, it is imperative to ensure that the initial filing is correct and complete.
• Each transaction will be reviewed on a case-by-case basis on its merits, so it is always vital to seek advice from a legal specialist.