Government gets updated powers to intervene on tech-related M&A deals on national security grounds

The Queen has given the go-ahead for the government to acquire powers to investigate and intervene in tech-related mergers and acquisitions (M&A) that pose a potential threat to the UK’s national security by granting royal assent to the National Security and Investment Bill.

Royal assent essentially means the bill has acquired the royal seal of approval needed to make it an Act of Parliament, and – in turn – means it is now statutory law.

The act is billed at the biggest shake-up of the UK’s investment screening regime in two decades by conferring on the government powers to investigate and intervene on business transactions involving firms operating in 17 different sectors on national security grounds.

The majority of these 17 sectors are tech-related and will include firms operating in the fields of artificial intelligence, communications, computing hardware, cryptographic authentication, data infrastructure (including datacentres) and quantum technologies.

Its introduction enables the government to scrutinise a range of deals involving both domestic and overseas investors, including mergers and acquisitions of companies within these 17 sectors or the purchasing of their intellectual property.

The act makes it mandatory for potential acquirers to inform the government of any deals they are planning that involve firms operating in these 17 sectors, including any that have closed since the bill was first introduced to Parliament in November 2020.  

Such deals will need to be flagged to a dedicated government organisation – known as the Investment Security Unit – through an online portal, with the government claiming that each transaction will be assessed within 30 working days.

Investors are also encouraged to voluntarily use the portal to notify this unit of any transactions that may involve firms in any sector that could have implications for national security once the regime commences towards the end of this year.

The government said the aim of the act is to “bolster the UK’s status as an attractive place” for investors and will ensure “foreign direct investment projects can continue to boost jobs and stimulate the economy”, but not at the expense of national security.

“Nothing is more important than protecting our national security and this historic act will ensure we are better equipped to protect our citizens from the small number of foreign investors that seek to do us harm,” said Kwasi Kwarteng, secretary of state at the Department for Business, Energy and Industrial Strategy, which is the sponsoring department for the act.

“The UK faces continued and broad-ranging hostile activity from those who seek to compromise our national security and that of our allies. Such behaviour left unchecked can leave Britain vulnerable to disruption, unfair leverage and espionage. It is crucial that the government has the tools at our disposal to combat these threats coming from ever more determined overseas actors,” said Kwarteng.

The act also gives Kwarteng, as secretary of state, the ability to “call-in” acquisitions taking place in the wider economy that raise national security concerns.

The government already has powers to scrutinise mergers and acquisitions that raise national security concerns through the Enterprise Act 2002, but changes to the technological, economic and geopolitical landscape over the past two decades means an update to these powers is long overdue, added Kwarteng.

“This landmark law not only significantly upgrades our decades-old investment screening powers, but gives investors additional certainty and clarity as we enshrine our status as a global champion of free trade and investment,” he continued.

“We’re sending a crystal clear message to overseas investors: the UK is open for business, but if you seek to threaten the safety of the British people we will move to protect our interests.”

Concerns have been raised ahead of the act’s introduction by technology industry stakeholders about the “chilling impact” its introduction could have on investment levels in the UK’s high-growth tech industry, particularly if the mandatory notification system slows down the pace of tech sector M&A activity.

On this point, the government said it expects the “vast majority of acquisitions” will require no intervention and will be able to proceed quickly. International trade secretary Liz Truss added: “As a nation that built itself on trade, enterprise and innovation, the UK remains one of the world’s most open, attractive and welcoming destinations for foreign investment.

“However, we will not compromise our national security, and this act is designed to make the investment screening process slicker, simpler and quicker for investors and businesses – giving them the certainty they need to invest and do business here.”