The annual report, published today, is the first since the wide-ranging security and investment screening system came into force on 4 January 2022 and covers the first three months of its operation up to 31 March 2022. Given the short period considered, the report cautions against drawing conclusions on long-term trends at this stage, but comments that more detail and analysis will be available in future reports.
A few statistics on notifications
The government received 222 deal notifications in the relevant period.
The government’s original Impact Assessment estimated between 1,000 and 1,830 notifications per year, so a simple extrapolation of these case numbers suggests they are slightly below that lower estimate. Of the 222 filings, 196 were mandatory and 25 voluntary. In addition, there was one retrospective validation application for an acquisition which had completed without approval and would otherwise be legally void.
The report also covers the number of notifications received and ultimately accepted. Only a tiny number of notifications (approx. 4%) were rejected – this was the case for 7 out of 178 mandatory notifications, and for 1 out of 22 voluntary notifications. Interestingly, several mandatory notifications were rejected because they should have been voluntary notifications. Some were also rejected because they covered multiple qualifying acquisitions that should have been submitted as two notifications. However, the report notes that “in rare cases the Government has pragmatically accepted a single notification to cover multiple qualifying acquisitions”. Examples include “where multiple qualifying acquisitions contribute to a single effect, for example as happens in some internal group reorganisations”.
Most of the mandatory notifications related to five key sectors – defence, military and dual use, critical suppliers to government, artificial intelligence and data infrastructure. Mandatory notifications have now been received for acquisitions taking place in each of the 17 sensitive areas of the economy. In relation to voluntary notifications, most of these related to professional, scientific and technical activities, followed by data infrastructure, other service activities (which are detailed further in the report), energy and computing hardware.
The report also provides some statistics relating to “call-in” notices following a pro-active notification, which may provide some clarity for those navigating the relative risks of notifying.
Of the 222 notifications received, 17 were called-in by the government for further assessment and three of these were ultimately cleared, with the other 14 cases still being assessed at the end of the reporting period. Again, this would fall slightly below the government’s Impact Assessment estimate of around 70-95 deals called-in for further review for the year.
The only two call-ins which are currently in the public domain are China-backed Nexperia’s acquisition of a stake in Newport Wafer Fab and the increased stake in BT by French billionaire Patrick Drahi, which we discussed in our recent blog post on lessons learnt in Five months with the NSIA.
The transactions called-in concerned mostly military and dual use, defence and critical supplier areas of the economy. Five of the call-ins related to voluntary notifications (i.e. deals which did not fall within mandatory sectors).
The report makes various other findings, including that the average time to inform parties that a notification has been accepted as complete is three working days. Where the government has called-in a deal, on average this has been decided in 24 working days. The shortest time the government took was 11 working days. All of these cases were decided within the deadline of 30 days.
For the limited time period covered by the report, the Secretary of State did not issue any penalties for breaches of offences under the NSIA (such as for completing a notifiable acquisition without approval). There were also no criminal prosecutions or judicial reviews of decisions under the Act.
MoU with CMA
A memorandum of understanding on the operation of the NSIA was also published today, setting out the parameters for cooperation, coordination and information sharing in the operation of the NSIA between the Competition and Markets Authority (as the UK’s merger authority) and the Department for Business, Energy and Industrial Strategy (and the Investment Security Unit which sits within it and is responsible for the operation of the NSIA). It covers the informal engagement between the bodies in relation to transactions which are notified to each of them.
Read our post on Five months with the NSIA for more detail on our practical experience with the NSIA since the Act took effect.
For further information, please contact:
Nicole Ka, Linklaters