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The UK’s National Security & Investment Act 2021 (“NSI Act”) continues to be a ‘trip hazard’ for UK corporate transactions.
We have previously described the key features of the regime. In short, investments leading to 25%+, 50%+ or 75% shareholdings or levels of control in specified sectors must be notified for clearance to the Cabinet Office prior to completion.
There have recently been two developments that investors should be aware of:
- there are proposals to change the sector definitions where mandatory notifications are required and remove the need for notifications for some internal reorganisations and the appointment of liquidators; and
- the Cabinet Office has published the third set of annual statistics on the regime, further clarifying the sectors of the economy and nationalities of investors which raise the most concerns.
Proposed changes
The Government is currently consulting on the following changes:
- removing the mandatory notification requirements for:
- certain internal reorganisations; and
- appointing liquidators, special administrators and official receivers;
- adding the Water Sector to the list of sectors requiring mandatory notifications;
- amending the existing sector definitions to create standalone definitions for Semiconductors and Critical Materials (which currently fall within the Advanced Materials sector), and including the existing Computing Hardware definition within Semiconductor sector.
Annual report
The latest statistics reveal that the number of notifications has increased from 906 to 1,143, suggesting that the number of relevant transactions increased between 2023/24 and 2024/25.
We see the same patterns we noted in our summary of last year’s annual report:
- the largest proportion of notifications involved acquisitions in the Defence, Critical Suppliers to Government and Military & Dual Use sectors;
- the vast majority of notified acquisitions are cleared without a ‘call-in notice’ (i.e. detailed investigation), only about 5% are ‘called-in’;
- while about half of ‘call-in notices’ related to UK acquirers (from 65% of notifications), 32% related to Chinese acquirers (from perhaps 3% of notifications) and 20% acquirers from the US (from about 25% of notifications). The only other significant origins of investment leading to ‘call-in notices’ were the UAE and Singapore; and
- only about half of ‘call-in notices’ were in relation to mandatory notifications (the others related to a mix of voluntary notifications, retrospective notifications and not notified acquisitions).
As we observed last year, while most notifications relate to defence, in the widest sense, only half of the transactions that raise issues are defence related and many of the others relate to non-mandatory notification sectors.
Similarly, while many issues relate to Chinese investors, issues can arise with investors from any country, including the UK.
Conclusion
While there may be some minor changes coming, despite the fact that reasons for decisions are very slim, clear patterns are emerging in terms of the industry sectors that are most likely to raise potential concerns (Defence and related) and the nationalities of investors that the Cabinet Office is most concerned about (China).
For the vast majority of investments, provided notifications are made where required, the NSI Act regime and the timing implications for transactions are simply a potential ‘trip hazard’ that can be managed with good project management. However, there is the potential for issues to arise outside of these areas, so investors need consider these early and plan for them.
Please contact Noel Beale or your usual Michelmores contact if it would be helpful to discuss any of the issues raised in this article.