Law passes to give UK government enhanced screening powers for M&A tech deals

The National Security and Investment (NSI) Act is in force from today (Tuesday 4 January 2022), giving the UK government enhanced powers to scrutinise and halt tech-related acquisitions that could potentially pose a risk to national security.

The Act is billed as the biggest overhaul of the UK national security screening regime for 20 years, and makes it mandatory for the Department for Business, Energy and Industrial Strategy (BEIS) to be notified of certain acquisitions in 17 tech-heavy industries before the deal completes.

Failing to do so could result in any acquisitions that proceed without prior approval being declared void, and may also lead to the acquirer being hit with civil or criminal penalties, the government warns. 

To avoid this, the onus is on investors and the businesses involved in these transactions to flag the acquisitions to BEIS, with the sectors covered by its scope including data infrastructure, artificial intelligence, communications, computing hardware and quantum computing, to name a few.

“The NSI Act will give investors additional certainty and clarity, and cement the UK’s world-leading reputation as a global champion of free trade and investment, as well as an attractive place to invest, with more transparency and more simple, efficient clearance processes for relevant acquisitions,” said the government, in a statement.

The government said it anticipates the “vast majority” of acquisitions within the Act’s scope will require no intervention and will proceed to completion without delay, and with “certainty in the knowledge the government will not revisit a transaction once cleared unless false or misleading information was provided” about it.

As reported by Computer Weekly, concerns have previously been raised by market watchers that – as a result of the Act coming into force – it could have a “chilling effect” on the pace of acquisitions in the 17 sectors it covers.

Business Secretary Kwasi Kwarteng said the Act is designed to help smooth the way for acquisitions to proceed, rather than hold them up.

“The UK is world-renowned as an attractive place to invest, but we have always been clear that we will not hesitate to step in where necessary to protect our national security,” he said.

“The new investment screening process in place from today is simple and quick, giving investors and firms the certainty they need to do business, and giving everyone in the UK peace of mind that their security remains our number one priority.”

The government has published a series of guidance documents to help investors negotiate the contents of the Act, and to assist them with ascertaining whether any acquisitions they are planning to embark upon are notifiable under its terms. 

Acquisitions are considered notifiable if they did not complete before 12 November 2020, which is the day after the NSI Bill was introduced to Parliament.

Notifiable acquisitions must also involve a UK-based “qualifying entity” that operates in one of the 17 affected sectors, and result in the investor acquiring a stake in the company that exceeds 25%.