On 16 June 2022, the Department for Business, Energy and Industrial Strategy (BEIS) published its first annual report on the National Security and Investment Act 2021 (NSI Act). The report only covers the period from 4 January 2022 (ie the date the NSI Act came into force) to 31 March 2022. However, the report offers a range of useful statistics on the notifications that parties have made under the Act for the NSI, and the timing and manner in which BEIS dealt with such submissions. Having provided a high-level overview of the NSI Act framework, we highlight the report’s key takeaways.
1. Review of the NSI Law
The NSI Act establishes a stand-alone regime that empowers the UK Government to consider and address the national security implications of a wide variety of acquisitions, investments and other transactions. Under the NSI Act, the government has the power to review so-called “trigger events” in relation to an eligible entity or eligible asset that occur when a party acquires “control” (as defined in the NSI Act) of an eligible qualifying subject entity or eligible asset. The NSI Act defines “triggering events” broadly to cover transactions in which a party:
- acquires or increases its stake in an eligible entity so as to pass any of the 25 percent, 50 percent or 75 percent equity or voting thresholds;
- acquires voting rights in an Eligible Entity enabling it to secure or prevent the passage of any class of decisions governing the affairs of an Eligible Entity;
- obtains “substantial influence” over a qualified entity; or
- acquires certain control rights over an eligible asset.
For a subset of trigger events involving qualifying entities operating in any of the 17 high-risk sectors (ie so-called ‘notifiable acquisitions’), acquirers must i) notify BEIS of the trigger event and ii) obtain permission before the triggering event to end. Completing a notifiable acquisition without taking these steps renders the transaction legally void. In addition, the acquirer in such transactions may face civil fines or even criminal penalties.
2. Key conclusions of the report
a. The number of acts filed in NSI is in line with BEIS forecasts
Before the NSI Act came into force, BEIS estimated that parties would submit between 1,000 and 1,830 notifications each year. In the first three months of 2022, parties submitted 222 notifications. If the first quarter is representative of future applications, then the total number of applications submitted each year may be slightly below the minimum number of applications expected by the government. However, given the general slowdown in M&A activity since the start of the year, it seems possible – and perhaps even likely – that the total number of filings will end up between 1,000 and 1,830 by the end of the year.
b. BEIS accepted and adjudicated applications quickly
BEIS took an average of four working days to accept mandatory submissions and five working days to accept voluntary submissions. BEIS also moved relatively quickly when deciding whether to call a trigger event for a review. On average, BEIS took just 24 working days to issue call notices for mandatory notifications and 22 working days to issue call notices for voluntary notifications. BEIS has not published statistics on the average time taken to clear notices that are not subject to call notices.
Prior to the effective date of the NSI Act, many parties were concerned that BEIS would not have the resources to review and adjudicate submissions in a timely manner. These first quarter statistics suggest that this fear was unfounded as BEIS dealt with submissions promptly.
° С. The parties have chosen to file voluntary and retrospective submissions sparingly
Parties submitted 222 notifications between 4 January 2022 and 31 March 2022. Of this total, 196 were mandatory notifications. In contrast, parties submitted only 25 voluntary notifications and one notification requesting retrospective validation of a completed trigger event. The low number of voluntary notifications may suggest that parties believe that BEIS is unlikely to identify and/or trigger non-notifiable non-acquisition events.
e. BEIS has called relatively few trigger events and has not yet imposed mitigation measures or blocked a trigger event
Since the NSI Act came into force, BEIS has called 17 trigger events for a full national security assessment. The majority of call notifications related to mandatory notifications and the remainder resulted from voluntary notifications.
For three of the calling trigger events, BEIS issued final notices which concluded the review of the calling without imposing any conditions on the parties. BEIS took an average of 24 working days between invoking a trigger event and issuing a final notice for this subset of transactions.
The remaining 14 recall notices remain under review as at 31 March 2022. To date, BEIS has not yet issued a final order blocking the completion of a triggering event or requiring the parties to undertake mitigation measures prior to closure.
The number of triggers called is in line with BEIS’s expectations: BEIS has estimated that it will call between 70 and 95 triggers each year, which will make up between approximately five per cent and 10 per cent of BEIS’ estimated amount of all notifications submitted. BEIS recalled 7.6 per cent of all notified transactions in the first quarter.
e. BEIS will release further guidance this year
BEIS is expected to publish “Market Guidance Notes” later this year. Unlike the report, which primarily provides statistics on NSI Act notifications and BEIS’s responses to such notifications, the Market Guidance Notes are expected to address and clarify various substantive issues relating to the NSI Act.
For more information on the NSI Act, please contact Wilson Sonsini partners Mike Casey, Stephen Heifetz, Joshua Gruenspecht, Daniel Glaser or A beautiful buffer.