In recent years, jurisdictions worldwide have introduced new foreign investment screening regimes or expanded existing regimes to enable governmental control of inbound investments into certain sectors. In some jurisdictions, this has been driven by an increased desire to protect domestic assets from what has been seen as opportunistic foreign acquisitions.
These foreign investment regimes no longer focus on the military and defence sectors. Rather these regimes are wide-ranging and capture a number of aspects of the TMT sector including AI, communications, key computing, data infrastructure, and quantum technologies.
Typically under these regimes, a transaction can be subject to foreign investment screening regardless of the level of the parties’ turnover or the deal value.
In the UK there has been a profound policy shift in this area. Historically, there has been limited intervention by the UK Government on national security grounds. However, this has now fundamentally changed. In recent years the UK Government has investigated more deals on national security grounds, for example, Nvidia’s acquisition of ARM Holdings. Most significantly, on 4 January 2022, a new standalone national security and investment regime will become operational. This will require mandatory notification for deals (including certain minority investments) across 17 ‘sectors’, a number of which are relevant to TMT. The UK Government will also have powers to intervene in transactions outside of these 17 sectors. The regime is broad and catches both UK and overseas investors. It can also apply to transactions completed since 12 November 2020 meaning that it can impact current transactions.
Similarly, the EU also has introduced a new EU-wide regime that encourages cooperation between EU countries and the European Commission in relation to foreign investment screening. 24 of the 27 EU countries have or are in the process of implementing such regimes.
There has been some speculation as to whether the introduction and enforcement of foreign investment regimes will curb M&A interest. It is early days yet in a number of jurisdictions to assess the impact. Clearly, there is potential for greater impact on the TMT sector due to the overlap between sectors of interest under various foreign investment regimes and the TMT sector as a whole.
For any M&A transaction in the TMT sector, early consideration of foreign investment is prudent, as a filing could delay the timeline for the transaction, and failure to notify or completing prior to clearance could result in significant penalties. Where a foreign investment regime is relevant, consideration of the identity of the buyer should be a factor in competitive processes as buyer selection will impact deal certainty.
Looking ahead, foreign investment screening is not only set to remain a common feature of deal-making, but is likely to expand significantly to cover an ever-increasing range of transactions of all sizes and become increasingly sector-agnostic.
