Under the new legislation, BEIS may block or impose conditions on deals.

By Tom D. Evans, Jonathan Parker, David J. Walker, Stephanie Adams, and Catherine Campbell

The UK’s National Security and Investment Act (NSI Act), is now officially in force, granting powers to the Secretary of State for Business, Energy and Industrial Strategy (BEIS) to screen a broad range of transactions on national security grounds, allowing BEIS to block or impose conditions on deals. Due to its retroactive application, the NSI Act is already impacting deals.

The NSI Act arrives at a time of heightened scrutiny of foreign direct investments (FDIs) across Europe. According to the latest edition of Latham & Watkins’ Private Equity Market Study, the prevalence of FDI approval conditions in deals continues to grow, reflective of the increased number of jurisdictions with FDI approval regimes and the high value, high profile, and strategically significant nature of the deals surveyed. With the advent of the NSI Act, we anticipate that this trend will continue, bringing new considerations and challenges to deals.

Amid FDI screening regime expansion, deal teams have opportunities to capitalise on newly available exemptions, but must beware novel complexities.

By Jonathan Parker, Rachel K. Alpert, Stephanie Adams, Gillian Bourke, Zachary N. Eddington, Catherine Campbell, Tom Evans, and David Walker

US intervention in the proposed acquisition of hotel-software company StayNTouch by a Chinese investor and UK intervention in the acquisition of satellite telecommunications company Inmarsat plc by a private equity-led consortium reiterate the range of foreign direct investments (FDIs) that can draw government attention, and the disruptive impact that such attention can bring to sensitive deals.

A desire by governments to control investments by businesses from states perceived as hostile in key sectors (such as defence, critical infrastructure, and advanced technologies) has fuelled a widening of the range of investments being caught. Recent moves by governments to further tighten FDI screening rules in response to the COVID-19 crisis will only accelerate this trend.