The UK government opened a consultation on 22 July regarding potential amendments to the National Security and Investment Act 2021 ("NSIA") and the National Security and Investment Act 2021 (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021 ("NARs").
These potential amendments have the potential to make life easier for some transactions that currently trigger the NSIA – but harder for others. The consultationis set to run until 14 October 2025.
The NARs and the requirement for prior notification and clearance
The NSIA provides that acquirers must notify the UK Government in advance of any acquisition of a specified kind of interest in an entity that is active in a specified "sensitive" area of the economy (a "qualifying entity"). These are referred to as "notifiable acquisitions" and a notifiable acquisition that falls within the scope of the NSIA will be void if completed without prior clearance (the acquirer will also have committed a criminal offence by doing so). The NARs set out the list of economic activities which trigger the mandatory notification requirement.
Transactions which are not subject to mandatory notification (for example because the acquirer is buying an asset rather than shares in an entity, or because the target is not active in a specified sector) may still be "called in" for further examination before or after completion, and acquisitions that involve a business that is closely connected to a designated sector are more likely to be called in than those that do not.
The consultation sets out a number of proposed changes to the designated sensitive sectors:
- Adding an 18th sector to the NARs covering acquisitions in the water sector – specifically for water and sewerage undertakers appointed under the Water Industry Act 1991. This would not, as proposed, cover water supply and sewerage licensees (that is, retailers), only the businesses that operate statutory infrastructure monopolies.
- Splitting Critical Minerals into its own schedule (currently contained within the Advanced Materials sector) and adding extraction, processing and recycling of Critical Minerals to the listed activities.
- Splitting Semiconductors into a new schedule and merging this with Computing Hardware, to also include advanced packaging techniques as a listed activity.
- Amending the Data Infrastructure schedule to remove the need to notify a transaction involving an entity solely on the basis that it has data infrastructure contracts with a public authority (some will still be caught under Critical Suppliers to Government), but also to add all third-party operated data centres alongside cloud service providers and managed service providers.
- Adding a cumulative capacity threshold to the Energy schedule at every 500MW of aggregate capacity while updating the definition of an aggregator.
- Simplifying the definitions in the Synthetic Biology schedule.
- Amending other schedules on Artificial Intelligence (to remove the use of "off the shelf" AI), Communications (to remove some current turnover thresholds), Critical Suppliers to Government (to change the scope of which suppliers and which public body customers are covered) and Suppliers to the Emergency Services (to add subcontractors with NPPV level 2 clearance).
Organisations looking to respond to the Government's consultation have until 14 October to do so.
Changes to internal transactions
The mandatory notification requirements in the NSIA apply wherever a qualifying entity, or any entity in the chain of ownership above a qualifying entity, changes ownership (in a way that crosses a 25%, 50% or 75% threshold for shares or voting rights or allows the acquirer blocking rights over resolutions). There is no carve out for situations where both the seller and the buyer of the qualifying entity are themselves under common ownership or control (that is, internal reorganisations between group companies).
This has led to a number of transactions being caught that did not involve any change in ultimate ownership, often in a way that takes parties by surprise and that can lead to lengthy delays in subsequent transactions (for example where the internal reorganisation took place in anticipation of an onward sale of a group company).
That may all be about to change. In a ministerial statement on 22 July the Chancellor of the Duchy of Lancaster (the minister with responsibility for the NSIA) confirmed that the Government intends:
"to remove the requirement for business to have to notify certain internal reorganisations and the appointment of liquidators, special administrators, and official receivers. These have proven to be very unlikely to present risk, and so removing these notification requirements will reduce burdens on businesses and free up Government time to focus more closely on higher-risk transactions. I will seek to bring secondary legislation to Parliament in due course."
However, this is not covered in the current consultation process and it is not clear how broad the carve out will go. The power to make this change by secondary legislation is the same power (in section 6 of the NSIA) as the Government's power to make changes to the NARs, so it might be expected to seek to accomplish this at the same time.
2024-2025 Annual report
The Government has also now published the fourth annual report on the operation of the NSIA covering 1 April 2024 to 31 March 2025. In that period the Investment Security Unit (''ISU'') received 1,143 notifications, an increase from 906 notifications received in 2023-2024. Of those, 954 were under the mandatory regime, compared with the 753 mandatory notifications in 2023-2024. Of the other notifications, 134 were voluntary notifications (up from 120 the previous year) and 55 sought retrospective validation of a deal that should have been notified but was not (up from 33). The Government accepted 1,110 notifications (up from 876 in 2023-2024) and rejected 37 notifications (up from 24) (the numbers do not add to the total notified since some acceptances and rejections do not take place in the same reporting period as the notification itself).
The average time for ISU to accept notifications as complete was 7 days for mandatory notifications, 8 for voluntary and 6 for retrospective validations. All notifications were either cleared or called in for further review within the 30-working day time limit, with 29 working days on average taken to issue a call-in notice. 37 notifications were rejected at the notification stage, with the main reason given for rejection being use of the wrong form.
The average time for ISU to issue a final notification clearing a deal after calling it in was 24 working days, down from 31 the previous year. The average time to issue a final order (blocking the deal or clearing it subject to conditions) was 69 working days (up from 51). During this reporting period, 17 final orders were issued.
Among the 17 sensitive sectors subject to mandatory notification, those subject to the most notifications in this reporting period were:
- Defence (57% of all notifications – up from 48%);
- Critical suppliers to Government (21% - up from 19%);
- Military and dual-use (19% - up from 17%); and
- Artificial intelligence (around 15% - which has overtaken advanced materials as the fourth most commonly notified sector).
Once again the highest percentage of call-ins were associated with the Defence sector (36%), followed by Military and Dual-Use (29%). Of the 17 transactions subject to a final order, Defence featured in nine, followed by Military and Dual-Use (six) and Energy (five). No final orders were issued in connection with the Synthetic Biology and Transport sectors.
The first annual reports suggested that the majority of transactions subject to final orders involved Chinese acquirers. However, there has been a shift regarding this over the last two reporting periods, with the majority of transactions subject to final orders now involving UK acquirers. In 2024-25 11 (of 17) final orders involved acquirers associated with the UK, seven involved China and three involved the United States (several involved acquirers associated with more than one country).
Conclusion
It remains the case that the number of transactions caught by the NSIA is not quite as high as originally anticipated, though in the Government's current drive to restrict the impact of regulatory "red tape" on business transactions, that might not be viewed as a bad thing. The overall impact of the changes currently being consulted on is likely to be fairly neutral – some new transactions will be caught, and others will no longer be. If changes to internal group transactions proceed, that has the potential to more significantly reduce the number of notifiable acquisitions, and potentially speed up dealmaking.
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