national security

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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.

Buyers of businesses that produce military or dual-use goods, certain aspects of computing hardware, or quantum technology for supply in the UK should carefully assess the risk of governmental intervention if their targets fall within the scope of the new regime.

By Jonathan D. Parker and Calum M. Warren

On 11 June 2018, the UK government will gain new powers to review transactions raising potential national security issues if the target business is active in the production of military or dual-use goods, computing hardware, or quantum technology for supply in the UK. The government may intervene if the target business’ UK turnover is as low as £1 million, or if the target business has a share of supply of goods or services within the relevant areas of at least 25%. While these powers will apply to only a limited subset of transactions and do not give rise to mandatory notification requirements, the application of the new powers will require careful scrutiny during the due diligence phase of transactions that are potentially within scope. The new thresholds are the result of the government’s ongoing review of its foreign investment review powers, which may result in a further expansion of governmental powers in the longer-term.