UK national security regime for mergers ‘may need further reform’

Merger control specialist Giles Warrington of Pinsent Masons said that there is a perception that the number of transactions being notified to the government has been greater than expected since the National Security and Investment (NS&I) Act took effect in January. He said businesses planning mergers or acquisitions (M&A) in sectors within the scope of the Act should factor in an increased timeframe for deals to be cleared.

The NS&I Act came into force on 4 January 2022, establishing a new standalone regime for screening M&A deals and other transactions with connection to the UK on national security grounds. It is administered by the Department for Business, Energy and Industrial Strategy (BEIS).

The regime covers the entire UK economy, although ‘mandatory’ filing requirements, and associated civil and criminal sanctions for non-compliance, apply only to corporate transactions in 17 designated industry sectors. Transactions in other sectors, as well as a wider category of transactions such as property deals and intellectual property licence agreements, are subject to a ‘voluntary/call-in’ notification regime.

Speaking in the aftermath of Pinsent Masons’ annual competition conference 2022, Warrington said: “Practical application of the regime, particularly in the 17 mandatory sectors, can be complex. The definitions of the mandatory notification sectors have proven in practice to be very wide and difficult to apply. Given the serious legal and commercial risks of breaching the mandatory regime, some businesses make ‘precautionary’ filings to BEIS. This can add complexity, delay and cost to transactions. Engagement with the BEIS case team is often limited and the procedure has been, to date, entirely confidential until its final conclusion; unlike the UK merger control process. This prevents the creation of precedents to provide guidance to business as to when mandatory notification applies.”

“However, once a filing is made, the process appears to have been working well. BEIS have generally been quick to accept notifications and start the clock running on their 30-working day initial review period, and have, in most cases, been efficient in clearing deals within that period. The process is sometimes also completed before the parties have signed a share purchase agreement,” he said.

“Four months since its inception, there is a perception that the new regime may have been attracting more filings than BEIS had anticipated. There may be future need to recalibrate government guidance or consider implementing ‘safe harbour’ measures to increase certainty for business and manage BEIS’ workload. BEIS is expected to publish a progress report on the regime’s operation relatively soon. Business should routinely consider potential application of NS&I Act requirements in all corporate transactions connected with the UK; and factor this into deal timing, as well as any potential conditions or warranties in sale-purchase agreements, as appropriate,” Warrington said.