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NSIL: UK’s new national security law poses challenges for dealmakers

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Britain this week joined the (hardly exclusive) band of countries tightening up on foreign investment. Like similar rules in the US and China, Britain’s National Security and Investment Act is broad and vague.

It renders deals in 17 sectors subject to political scrutiny; those falling short on certain criteria will be blocked or subjected to remedies. Deals already completed, as occurred in the US with dating app Grindr and its Chinese buyer, get caught in the dragnet. So too are intra-company deals and foreign-to-foreign transactions, so long as business activities impinge on the UK.

Mandarins tasked with reviewing putative deals can expect to be busy. The government expects up to 1,800 notifications a year, or 36 a week. Any investment banker obliged to deal with the Committee on Foreign Investment in the US can explain what follows: glacial delays and hurriedly drafted-in junior staff.

One might easily dismiss this ramped-up scrutiny as antithetical to the UK, a country ranked by the OECD among the least restrictive countries on foreign direct investment and hardly protectionist. But Britain feels obliged to adhere to global security trends while still seeking foreign investment. Hence the creation, just 14 months before the NSIL became law, of the Office for Investment, which has so far pulled in £18bn of investment.

Unfortunately, foreign investment does not conform to domestic industrial policy. Inevitably the areas that trigger review — robotics, artificial intelligence, data infrastructure — are precisely those in which buyers are most interested. A cynic might further cavil that China, whose prowess in the field spooks those in Washington, is unlikely to find much worth sneaking away from the UK in any case.

Past deals in sensitive areas illustrate where attractions lie. Chinese ownership of a stake in a nuclear plant, cemented in the golden era of Sino-British relations, is now due to be unwound. Nvidia’s proposed purchase of chip designer Arm has regulators across the globe crawling over the deal.

Precedent, however, shows that it is often economic concerns that cause any teeth-gnashing about foreign buyers. California-based Viasat was able to proceed with its $7.3bn takeover of UK satellite company Inmarsat alongside promises to keep on investing in the country. Cobham, controlled by Advent of the US, has guaranteed jobs as part of its £2.6bn offer for Ultra Electronics, now under scrutiny. The UK’s sweeping new powers may serve to extract similar promises, more often than blocking deals.

Lex recommends the FT’s Due Diligence newsletter, a curated briefing on the world of mergers and acquisitions. Click here to sign up.

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