The Cabinet Office recently released its Annual Report on the National Security and Investment Act (the “Act”) 2021, which covers the period from 1 April 2023 to 31 March 2024. This is the third such report that has been published since the Act came into force in January 2022.

The Report contains key statistical information regarding the notifications made to the Investment Security Unit (“ISU”) during the reporting period, call-in notices issued, final orders issued, and breakdowns of the ‘sensitive sectors’ in respect of which notifications were made and the origins of investments. 

Mandatory notifications are typically required when  a business that carries out activities in one or more of 17 ‘sensitive sectors’ of the UK economy is acquired. 

Even if there is no requirement to submit a notification, the Cabinet Office may ‘call-in’ a transaction for further investigation where it considers that the transaction may present a risk to the UK’s national security interests. On this basis, voluntary notifications are sometimes submitted in order to reduce the risk of a call-in.

We summarise some of the key facts and figures from the report below.

More notifications, fewer call-ins: 

• During the reporting period, the Government received 906 notifications, up from 866 in the previous period (2022-23). Of the 847 reviewed, 4.4% (37) were called in and 95.6% (810) were notified that there would be no further action. 
• During the previous period, 7.2% (55) of notified acquisitions were called in and 92.8% (711) were notified that there would be no further action.

Defence dominates notifications:

• The highest proportion of all accepted and rejected notifications related to the defence area of the economy (48% of notifications). This is followed by critical suppliers to government with 19% and military and dual-use with 17%.

…and call-ins were mostly defence-related:

• Of the 41 acquisitions called in, the highest proportion (34%) were associated with the defence sector and 29% with military and dual-use. In the previous reporting period, the highest called-in sector was military and dual-use (37%).
• Academic research and development in higher education, advanced materials, and communications sectors each accounted for 24% of call-in notices. 

Retrospective notifications more than doubled: 

• 33 retrospective validation applications were received compared with 15 in 2022/23. However, no call-in notices were issued in connection with a retrospective validation application.

Mostly UK and US acquirers: 

• 61% of accepted notifications related to acquirers associated with the United Kingdom and 26% with the USA. The UK was also associated with the highest proportion of accepted notifications (57%) in the previous reporting period.
• Acquirers associated with France, Germany, and Luxembourg each accounted for 4% of notifications. 

Acquisitions with China-associated acquirers are still the most likely to be called in: 

• Of the 41 acquisitions called in, 41% related to acquisitions involving acquirers associated with China (compared with 42% during the previous reporting period), 39% with acquirers associated with the United Kingdom, and 22% with the USA. 
• There were 10 instances where parties withdrew from a called-in acquisition, a decrease by 1 from the previous reporting period. Of the 10 withdrawals, 8 involved companies associated with China, 7 involved companies associated with the UK and 2 involved companies associated with the USA.

Acceptances and rejections are taking longer: 

On average it took:

• 6 calendar working days to accept a mandatory notification and 13 calendar working days to reject a mandatory notification. In the previous period, it took an average of 4 calendar working days to accept a mandatory notification and 10 calendar working days to reject a mandatory notification.
• 8 calendar working days to accept a voluntary notification and 15 calendar working days to reject a voluntary notification. In the previous period it took an average of 4 calendar working days to accept a voluntary notification and 7 calendar working days to reject a voluntary notification. 

No penalties were issued and no financial assistance was given within the reporting period: 

• There were no penalties issued nor any criminal prosecutions concluded during this period. 
• Where offences were identified a decision was made not to impose a penalty, and affected parties were asked to provide reassurance to the Government that steps had been taken to prevent recurrences of these offences. 

This year’s Annual Report clearly highlights the importance of ensuring that all acquirers carefully consider whether the Act applies to the transactions they are carrying out at an early stage, particularly given the increased number of retrospective validation applications being made and the ISU’s increased time frames for accepting and rejecting notifications.

If you would like to discuss how the Act may apply to your transactions, please contact our specialist team.

Co-written by Tom Green and Michael Higgs