The government will be able to scrutinise and intervene in certain acquisitions made by anyone, including businesses and investors, that could harm the UK’s national security. The government will be able to impose certain conditions on an acquisition. In rare instances, the government may unwind or block an acquisition completely.
These new rules fall under the National Security and Investment (NSI) Act which will come into force on 4 January 2022. The Act is administered by the Investment Security Unit within the Department for Business, Energy and Industrial Strategy (BEIS) and the decision maker will be the Secretary of State for BEIS.
The new rules cover qualifying acquisitions of certain entities and assets, known as qualifying entities and assets, which are explained in this guidance.
The government can call in an acquisition for assessment if it reasonably suspects that it is a qualifying acquisition (this guidance explains what these are) that has given rise to, or may give rise to, a risk to national security. This applies whether the acquisition has been completed or is still in progress or contemplation. However, it will not be possible to call in and scrutinise acquisitions completed before 12 November 2020.
If you are planning an acquisition of a qualifying entity in one of the defined sensitive areas of the UK economy, you may need to get approval from the government before you can complete it. This is called a notifiable acquisition. Completing a notifiable acquisition without approval will mean the acquisition is void and may mean that the acquirer is subject to civil or criminal penalties.
This guidance tells you how to prepare for the new rules. It covers:
- what types of acquisitions are covered by the new rules
- whether you need to tell the government about an acquisition
- how the government will scrutinise the acquisition
How the new rules will work
Check if the rules will apply to your acquisition. This will depend on what you are acquiring and how much control you have over it.
Check if you will need to tell the government about your acquisition. You will be legally required to inform the government about certain acquisitions of entities if your acquisition is in a sensitive area of the UK economy.
Tell the government about your acquisition. You can do this online by submitting a notification.
The government will review your acquisition. It can either clear your acquisition, impose certain conditions, or block or unwind it.
Check if the new rules will apply to your acquisition
The new rules only apply to qualifying acquisitions. These are referred to as trigger events in the National Security and Investment Act.
Your acquisition is a qualifying acquisition if all of the following apply:
- the acquisition is of a right or interest in, or in relation to, a qualifying asset or qualifying entity (these terms are explained below)
- the entity or asset you are acquiring is from, in, or has a connection to the UK
- the level of control you acquire over the qualifying entity or qualifying asset meets or passes a certain threshold (for example, your stake or voting rights in a qualifying entity becomes higher than 25%)
If the government reasonably suspects that an acquisition meets these criteria and that it has given rise to, or may give rise to, a risk to national security, it can be scrutinised by the government. The rules do not apply to acquisitions that were completed before 12 November 2020.
If this qualifying acquisition is of an entity in one of the 17 defined sensitive areas of the economy it may need to be notified to the government. Qualifying acquisitions outside the 17 defined areas do not need to be notified to the government.
Check if you are acquiring a qualifying entity or asset
A qualifying entity is any entity other than an individual, including:
- a company
- a limited liability partnership
- any other body corporate
- a partnership
- an unincorporated association
- a trust
Qualifying assets include:
- land
- tangible moveable property
- ideas, information or techniques which have industrial, commercial or other economic value (‘intellectual property’)
Entities and assets might be qualifying entities and qualifying assets if they are outside or not from the UK but have a connection to the UK.
Acquisitions of entities or assets outside or not from the UK
If an entity is formed or recognised under the law of a country or territory outside the UK, it is a qualifying entity if it either:
- carries on activities in the UK
- supplies goods or services to people in the UK
For land or tangible moveable property situated outside the UK or its territorial sea, or for any intellectual property, it is a qualifying asset if it is either:
- used in connection with activities carried on in the UK
- used in connection with the supply of goods or services to people in the UK.
Read further on how the new rules will work for entities and assets outside or not from the UK.
Check the level of control you have acquired, or will acquire, over the qualifying entity or asset
If you are acquiring a qualifying entity or asset that is from, in, or has a connection to the UK, you will then need to check if the level of control you have acquired, or will acquire, over it could bring it in scope of the new rules.
Your acquisition will be in scope of the new rules if you acquire a right or interest in, or in relation to, a qualifying entity or asset, and the level of control you acquire meets any of the following thresholds:
- your shareholding stake or voting rights in a qualifying entity meets or crosses certain percentage thresholds (for example, it becomes higher than 25%)
- you acquire voting rights in a qualifying entity that allow you to pass or block resolutions governing the affairs of the entity
- you are able to materially influence the policy of a qualifying entity, for example acquiring the right to appoint members of the board of the entity that enables you to influence the strategic direction of the entity
- you are able to use a qualifying asset, or direct or control its use, or you are able to do so more than you could prior to the acquisition.
If your qualifying acquisition takes place over more than one day, the acquisition will be treated as having taken place on the last day of the period.
Further details of each threshold are outlined below.
If your shareholding stake or voting rights meet or cross certain percentage thresholds
Your acquisition will be in scope of the new rules if your shareholding stake or voting rights increase:
- from 25% or less to more than 25%
- from 50% or less to more than 50%
- from less than 75% to 75% or more
If the entity has a share capital, the thresholds describe holding shares comprised in the issued share capital of a nominal value (in aggregate) of that percentage of the share capital.
If the entity does not have a share capital, the thresholds describe holding a right to that percentage share of the capital or profits of the entity.
If the entity is a limited liability partnership, the thresholds describe holding a right to that percentage share of any surplus assets of the partnership on its winding up. Where this is not expressly provided for, each member will be treated as having an equal share.
Example
Investor A owns 20% of Entity B and acquires shares comprising 10% more, leaving Investor A with 30% in total. This is a qualifying acquisition because it takes Investor A’s shareholding from 25% or less to more than 25%, which is a qualifying acquisition threshold set out in the NSI Act.
Investor A then acquires an additional 10%, leaving them with 40% of the shares. This is not a qualifying acquisition because Investor A’s shareholding has not met or passed any of the three thresholds.
Investor A then acquires an additional 15%, leaving them with 55% of the shares. This is a qualifying acquisition because it takes Investor A’s shareholding from 50% or less to more than 50%, which is a qualifying acquisition threshold.
If you acquire voting rights that allow you to pass or block resolutions governing the affairs of the entity
Such an acquisition is in scope of the new rules, regardless of the percentage of voting rights you may already hold, or the percentage of your shareholding, or taking into account other voting rights you hold as well as your acquisition. Any voting rights you already held before the acquisition are taken into account when assessing whether the acquisition meets this threshold.
Voting rights means rights that are given to shareholders or members to vote at general meetings on all, or substantially all, matters.
If the entity does not have general meetings at which matters are decided by such votes, voting rights includes any rights in relation to the entity that are of the equivalent effect.
In the case of minority veto rights, the voting rights only count where they provide the holder with a right to vote on all or substantially all matters governing the affairs of the entity.
Example
Person A owns 20% of an entity’s voting rights and acquires a preferential share which provides them with the ability to pass, by themselves, ordinary resolutions. This is a qualifying acquisition because the acquisition gives Person A the ability to pass resolutions governing the affairs of the entity.
If you acquire a right or interest in, or in relation to, a qualifying entity which provides you with ‘material influence’ over the entity’s policy
The Competition and Markets Authority has produced guidance on its assessment of material influence when operating the merger control regime under the Enterprise Act 2002.
When making its assessment, the CMA focuses on the acquirer’s ability materially to influence policy relevant to the behaviour of the target entity in the marketplace. The policy of the target in this context means the management of its business, and thus includes the strategic direction of a company and its ability to define and achieve its commercial objectives. Any assessment by the government of an acquisition of material influence under the NSI Act will be considered in the light of the relevant section on material influence in the CMA guidance but applying the concept in the context of the NSI Act, so far as is appropriate.
The material influence threshold in the NSI Act does not apply if:
- you are acquiring an asset
- you already hold a right or interest enabling you to materially influence the policy of the entity.
Example
Investor A acquires a 20% shareholding in Entity B, and, in this instance, this makes Investor A the largest single shareholder of the entity. Taking into account Investor A’s status and expertise in the sector and resulting influence over the actions of other shareholders, Investor A may be judged to have acquired material influence over the entity and, in such circumstances, this would be a qualifying acquisition.
If you acquire a right or interest in, or in relation to, a qualifying asset and as a result you are able to use, or to direct or control how the asset is used, or can do so to a greater extent than before the acquisition
This could include acquiring a right or interest that gives you the ability to use, or to direct or control the use of an asset, even if you do not acquire the asset itself.
Qualifying assets include land, tangible moveable property and intellectual property, and these may be within or outside the UK. If an asset is outside the UK, or is intellectual property, it must have a sufficient connection to the UK. Read further on how the new rules will work for entities and assets outside or not from the UK.
Example
Company A’s sole business is to manufacture equipment. Party B operates in a similar area for a range of clients. Party B does not acquire Company A but does acquire its equipment.
This is a qualifying acquisition because Party B acquires the assets and as a result can use or direct or control the use of these assets. If Party B signed a contract with Party A providing it with rights to use the assets, that would also be a qualifying acquisition.
If your qualifying acquisition is part of a corporate restructure or reorganisation
Qualifying acquisitions that are part of a corporate restructure or reorganisation may be covered by the new rules. This is the case even if the acquisition takes place within the same corporate group. This means that even within corporate restructures, it may be mandatory to notify.
Example
Two parties share the same ultimate owner but are run separately from each other. One of the parties acquires part of the other which takes its control over one of the thresholds to make it a qualifying acquisition. The ultimate owner remains the same, but their ownership now goes through a different corporate chain. This means there has been a change of control under the NSI Act. This is true even though the ultimate owner remains the same.
If you are planning a qualifying acquisition but it has not yet taken place
The government can assess a potential qualifying acquisition that has not happened yet if it reasonably suspects it may cause a national security risk. The government can call in a qualifying acquisition that has already happened, or is in progress or contemplation.
Example
Entity A is negotiating an agreement for the purchase of 100% of UK Company B and has signed heads of terms. This is likely to be interpreted as a qualifying acquisition that is in contemplation. Even though the acquisition has not yet happened, the government may still be able to call it in.
Interests and rights
Interests and rights count as acquired if you begin to hold them in any of the following ways:
- hold an interest or right jointly with someone else
- have a joint arrangement with someone else that means you will exercise all, or substantially all, of the rights or interests in a way pre-determined by the arrangement. The Act has a broad definition of ‘arrangement’ which means most types of arrangement count under these rules
- hold a majority stake in an entity that holds the interest or right, or is part of a chain of entities which each hold majority stakes through the chain and the last one holds the interest or right
- a nominee holds an interest for you
- control a right that is owned by another party (unless the owner also controls the right)
- hold a right exercisable only under certain circumstances, so long as those circumstances exist or you control whether those circumstances exist. This does not apply to administrators or creditors, who are not regarded as holding those rights while an entity is in relevant insolvency proceedings
- in certain circumstances, hold a right attached to shares which are held as security by a lender. The owner, not the lender, is treated as owning or acquiring the rights where the rights are exercisable only in accordance with the owner’s instructions (apart from exercising the rights for the purpose of preserving the value of the security, or of realising the value). It is also the case where the shares are held in connection with loans as part of normal business activities and the rights are exercisable only in the owner’s interest (apart from exercising the rights for the purpose of preserving the value of the security, or of realising it)
- hold combined rights or interests with another person by virtue of being connected (for example, a spouse or relative or two or more undertakings in one group)
- hold rights or interests with another person or more people, with whom you share a common purpose (for example, coordinating influence on an entity’s activities)
Check Schedule 1 of the Act for full details. This includes some specific limitations of what is considered as acquired such as whether an acquisition has taken place when shares are given as security for a loan.
Check if you will need to tell the government about your acquisition
You will be able to let the government know about qualifying acquisitions by submitting a notification online. You will be legally required to do this for certain acquisitions of entities in sensitive areas of the economy. The government will then review your acquisition to see if it could cause a national security risk. If the government clears the acquisition, it cannot assess it again, unless false or misleading information was submitted.
When you will be legally required to tell the government about your acquisition (mandatory notification)
If you are a party acquiring a qualifying entity, you will be legally required to tell the government about certain acquisitions in 17 sensitive areas of the economy. These areas are considered more likely to give rise to national security risks.
The 17 areas of the economy are:
- Advanced Materials
- Advanced Robotics
- Artificial Intelligence
- Civil Nuclear
- Communications
- Computing Hardware
- Critical Suppliers to Government
- Cryptographic Authentication
- Data Infrastructure
- Defence
- Energy
- Military and Dual-Use
- Quantum Technologies
- Satellite and Space Technologies
- Suppliers to the Emergency Services
- Synthetic Biology
- Transport
You will need to tell the government about a notifiable acquisition by submitting a mandatory notification online.
The requirement to notify the government about notifiable acquisitions will come into force on 4 January 2022.
Acquisitions of entities in these areas which meet certain thresholds of control and other conditions are called notifiable acquisitions and will need to be notified, and approved, before proceeding. These thresholds of control and other conditions will be set out in secondary legislation.
Acquisition of assets are not subject to mandatory notification.
You will only need to submit a mandatory notification if you are going to acquire a right or interest in, or in relation to, a qualifying entity in a sensitive area of the economy and the level of control this will give you over the entity meets either of the following thresholds:
- your shareholding stake or voting rights will become higher than 25% or 50%, or will be 75% or higher
- you will be able to pass or block resolutions governing the affairs of the entity
Further guidance for each of these areas and the thresholds for notifiable acquisitions will be made available soon.
The regulations specifying the acquisitions within the 17 areas of the economy listed above, which will be subject to mandatory notification, will be published later this year. You can read a draft of the regulations.
If you do not tell the government about a notifiable acquisition
The acquisition is void if you complete a notifiable acquisition without notifying and gaining approval from the government. You will be able to apply for retrospective validation online.
There are civil and criminal penalties for completing a notifiable acquisition without gaining the necessary approval. A civil penalty could require you to pay up to 5% of your organisation’s global turnover or £10 million, whichever is greater.
If you have an acquisition that is not covered by mandatory notification
You are not legally required to tell the government about your qualifying acquisition if it is not covered by a mandatory notification. You can submit a voluntary notification if you are a party to a completed or planned qualifying acquisition that is not covered by mandatory notification and want to find out if the government is going to call it in.
Even if you do not notify an acquisition, if the government reasonably suspects it may give rise to a national security risk it may still be called in for a national security assessment. The government can assess acquisitions up to 5 years after they have taken place and up to six months after becoming aware of them if they have not been notified.
After submitting a notification to the government about your acquisition
On receiving notification of an acquisition, the government will accept the notification if it complies with the notification requirements and includes all the necessary information. If your notification does not comply with the requirements or does not include all the necessary information the government may reject it and you may have to resubmit it.
Once your notification has been accepted, the government has up to 30 working days to review your acquisition, ask for more information if needed, and decide whether it will either:
- take no further action under the Act
- further assess (‘call in’) your acquisition for a national security risk
We will publish more information on data privacy and how we process your data soon.
How the government will review your acquisition
The Secretary of State will publish a statement under section 3 of the Act (the statement about the exercise of the call-in power or the Section 3 Statement). This will provide further information on how the government expects to use its call in power and assess qualifying acquisitions.
This will be laid before Parliament and published following a public consultation which is open until 30 August 2021.
If the government decides to assess your acquisition for a national security risk
You will be told by the government if it is assessing your acquisition for a national security risk. This is known as calling in the acquisition.
A qualifying acquisition may be called in after you have submitted a notification or because it comes to the attention of the government as a result of monitoring of the market for deals that might raise national security concerns. The government will only be able to call in an acquisition if it has a reasonable suspicion that the acquisition may pose a risk to national security. If the government has not been notified of a qualifying acquisition, it can call it in up to 5 years after it has taken place but no longer than 6 months after the government became aware of it.
Once the government has called in an acquisition, it can take up to 30 working days to complete its initial assessment. It may be extended by a further 45 working days if more time is needed. After this, any further extensions must be agreed with the acquirer.
During the assessment period
The assessment period is the time in which the government will assess your notification, which may be up to 30 working days.
You should not complete your acquisition if you have submitted a mandatory notification.
You can continue to progress your acquisition if you have submitted a voluntary notification, unless the government requires you not to do so, through an interim order. If you choose to complete your acquisition before the government has made its decision, it may be at risk of being unwound.
After the assessment period
At the end of the assessment, the government will either:
- clear your acquisition
- impose certain conditions on your acquisition
- unwind or block your acquisition partially or completely. This is expected to happen in a limited number of cases
You will have the chance to discuss any action taken by the government.
Notices of final orders made by the government will be published, but the government will remove sensitive information.
Get further advice on the new rules
Contact the Investment Security Unit at investment.screening@beis.gov.uk if you would like to discuss an acquisition and how the NSI Act may impact either the acquisition or your responsibilities.
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