The government will today unveil legislation which will enable ministers to intervene and block firms in hostile states from taking over UK companies.
Under the National Security and Investment Bill, it will be mandatory for deals involving firms in 17 sectors deemed of strategic importance to be notified to officials.
In addition, the government will now have the power to scrutinise the acquisition of assets and intellectual property as well as companies themselves.
The new legislation will see investments screened within 30 days, rather than the current case-by-case system, which will speed up the majority of transactions.
But those deals which ministers feel will damage the UK can have conditions imposed upon them after a full security assessment, or blocked where the risk to national security is too great.
City lawyers described the Bill as the “most significant change” to the UK’s mergers and acquisition regime in several decades.
The regime will be similar to new frameworks put in place by allies such as the US, Australia, France and Italy, and will apply to investors from any country.
It comes with the UK caught between ensuring that it can still attract international firms after Brexit while protecting critical industries from potential meddling by hostile states.
Business secretary Alok Sharma, who will be the one to decide which transactions threaten the country’s security, said:
“The UK remains one of the most attractive investment destinations in the world and we want to keep it that way. But hostile actors should be in no doubt – there is no back door into the UK.
“This Bill will mean that we can continue to welcome job-creating investment to our shores, while shutting out those who could threaten the safety of the British people.”
But Cornelia Andersson, head of M&A at Refinitiv, said that the law could pile even more pressure on the UK.
“While this is being positioned as a system of ‘voluntary’ notifications, the impact is likely to be far-reaching as there is no minimum deal or asset value threshold”, she said.
“In addition, with expected review times of 21 weeks and 100 deals expected to be reviewed in detail annually according to the initial government white paper, this could spell costly delays for M&A activity in the UK and may add more pressure to a challenging post-Brexit outlook next year.”
Long-awaited Bill comes on back of China concerns
The legislation, which replaces the national security element of the 2002 Enterprise Act, has been under development since 2017.
Although announced in last December’s Queen’s Speech, it has under increased focus this year amid rising concerns about the UK’s foreign investment regime.
Back in July, security concerns led Boris Johnson to ban Chinese firm Huawei from the country’s 5G networks, while China’s role in the UK’s nuclear programme has also come under scrutiny.
Communications and civil nuclear are among the 17 sectors subject to mandatory notification, along with defence, transport, AI, computing, robotics and biological engineering.
Unlike its precedent, which is limited to mergers involving enterprises with a turnover of £70m or combined shares of more than 25 per cent, the new Bill has no minimum threshold for turnover or shares.
In addition, ministers will have the power to call in deals up to five years old from any part of the economy which raise security concerns.
Nicole Kar, head of UK competition at Linklaters, said that the retroactive scope of the law would “increase complexity and uncertainty for overseas investors”.
“We anticipate that foreign investment rules, both in the UK and internationally, will be an increasingly onerous consideration for overseas investors planning international transactions”, she added.
There will also be sanctions for non-compliance with the regime, which include fines of up to 5 per cent of worldwide turnover or £10m – whichever is the greater – and imprisonment of up to 5 years.
Transactions covered by mandatory notification which take place without clearance will be legally void.
David Harrison of law firm Mayer Brown said that if the law was passed in its proposed form, companies would require more “detailed guidance” on its operation.
A full analysis of the impact of the regime will be released alongside the legislation, but it is expected that about 1,000 deals will be flagged up a year.
Of these, 70 to 95 are expected to be subject to a national security assessment, with around 10 requiring remedy.