M&A – updated guidance on National Security and Investment Act

The government has published updated guidance on the National Security and Investment Act 2021 (NSI Act). The guidance comprises an updated “Section 3 statement“, which discusses how the power to call in transactions under the Act is exercised, and Market Guidance Notes which aim to improve understanding of how the regime works.

The NSI Act introduced a new framework for the review of transactions and investments on national security grounds in the UK with effect from 4 January 2022. The government published a Call for Evidence on the scope and implementation of the regime in November 2023 and this latest guidance follow the government’s response to that Call for Evidence (see our blog post here for more information).

Section 3 Statement

Under the NSI Act, where a party acquires “control” of a target, the Secretary of State may issue a call-in notice to investigate the transaction if it raises potential national security concerns (and for these purposes control can arise with a very low shareholding, potentially even lower than 15%). The Section 3 Statement sets out guidance on how the Secretary of State will exercise this call-in power. It has been updated to:

• include more detail and examples of the potential national security risks that the Secretary of State may consider;

• expand the guidance on how “acquirer risk” is assessed and the characteristics of the acquirer which will be taken into account; and

• make clear that outward direct investment could in some instances constitute an acquisition under the NSI regime, for example if there is a transfer of technology, intellectual property or expertise as part of the investment or when forming joint ventures overseas. This is an area which is also picked up in the updated Market Guidance.

Updated Market Guidance

The updated Market Guidance Notes include tips for completing notification forms correctly and more detailed guidance on how long the NSI review process will take in practice, as well as some (limited) guidance on how the NSI regime can apply to outward direct investment.

For further information, see our Competition Notes blog here.