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By Jonathan Parker, Jana Dammann, Steven Croley, Calum Warren, Richard Butterwick, Terry Charalambous, and Catherine Campbell

In June 2018, the UK adopted new powers to review certain technology related deals on national security grounds, extending the scope and breadth of its control regime to those that concern computing hardware, or quantum technology for supply in the UK (see Latham Client Alert: 12 June 2018). In July, the UK government went a step further and published a White Paper on a potential new and significantly extended foreign investment notification regime, which will likely lead to wider and closer scrutiny of many transactions, including strategic M&A deals. These potential new UK rules are part of a wider global trend, with heightened scrutiny of foreign investment control increasing in a number of other jurisdictions.

The government’s White Paper proposes expanding the jurisdiction over transactions subject to potential national security review, with most areas of the economy within the proposed enlarged scope, supported by new information-gathering powers, longer review periods, and stricter penalties for non-compliance. Although the recommendations in the White Paper have not been enacted into law, changes could come into effect as early as next year, and we expect that deal teams will be assessing the implications for M&A deals in 2019 and beyond.

By Jonathan Parker, Calum Warren, and Catherine Campbell

The UK government has assumed an increasingly interventionist approach to foreign takeovers in recent years. In June 2018, the UK adopted new powers to review deals on national security grounds, extending the scope and breadth of its control regime. In July, the UK went a step further and published a White Paper on a new and significantly extended foreign investment notification regime, which likely will lead to wider and closer scrutiny of many transactions, including private equity deals.

The government’s jurisdiction over transactions is expanding with most areas of the economy within scope, new information-gathering powers, longer review periods, and stricter penalties for noncompliance. Changes could come into effect as early as next year, and deal teams must assess the implications for private equity deals.

National security review anticipated to catch more deals than current merger control regime

The new regime is intentionally broad and has the potential to catch almost all deals. Indeed, the government has made it clear that no sector is off limits. Energy, communications, transport, and nuclear likely will receive the most focus; however, national security concerns can arise in any deal.

By Jana K. Dammann de Chapto and Joachim Grittmann

The German government has tightened the rules for its review proceedings for M&A involving non-EU investors, with changes to its German Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung) that significantly increase foreign investment oversight.

The new rules, which came into force on 18 July 2017, introduce a new notification requirement for non-EU investment in critical infrastructure and security-related technologies, and extend the review periods, potentially causing delays to closings.

Previously, non-EU investors were not required to notify the German government of the direct or indirect acquisition of a German company, unless the company was active in developing or manufacturing defence and encryption technology. Now, the industry sectors subject to a notification obligation have been expanded to cover critical infrastructure and security-related technologies, with the government explicitly identifying energy, water, nutrition, information technology, healthcare, financial services and insurance, and transport and traffic for closer inspection.

By John ColahanForeign Investment Controls graphic

As part of UK Prime Minister Theresa May’s new industrial strategy, private equity deal teams should expect a more interventionist approach to the acquisition of strategically important UK businesses by foreign buyers. The UK government has signaled its intention of creating a “proper industrial strategy”, making it capable of stepping in when British companies receive foreign takeover bids, and has announced a revamp of the current public interest regime to guarantee government review of foreign ownership and control of “critical infrastructure” projects. Exactly what that framework might look like is to be confirmed and determining which businesses are strategically important to the UK will be challenging. Recent commentary has focused on nuclear and energy projects, but previous public concern over a range of other businesses (such as food, technology and pharmaceuticals) means that wider sectors could be affected.

The newly restructured Department for Business, Energy and Industrial Strategy (BEIS) has already taken positions on potentially strategically sensitive mergers, for example, by giving its seal of approval to the acquisition by Japan’s Softbank of FTSE 100 technology company Arm. The buyer took the unusual step of publicly pledging to maintain British jobs and technology after talks with the Prime Minister. Further, the UK government announced, along with the approval of the new Hinkley Point C project, a “special share requirement” or similar condition be included in all future UK nuclear projects, with the result that a significant stake cannot be sold without government consent. Deal making in Britain has typically been free from political interference, but the government has said that it is currently reviewing foreign takeovers on a “case by case” basis.