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Getting takeover deals over the line has never been harder

City Voices (ES)
City Voices (ES)

Striking the right balance between free market economics and protecting the UK’s national security and other public interests has never been more difficult.

In the past couple of weeks, in response to the Abu Dhabi backed takeover of the Telegraph Media Group, the Conservative Government, following pressure from its own backbenches, has introduced new media ownership rules that will prohibit foreign state influence over British newspapers and other media.

Media plurality is undoubtedly a key public interest, but the fact that the Enterprise Act 2002 needed amending in such a hasty fashion is an alarm bell for UK Plc.

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Investors and businesses crave regulatory certainty and clarity, and with the outcome of the UK Government’s review of the National Security and Investment (NSI) Act 2021 (NSI Act) still pending, the UK is at risk of damaging its reputation as a world leading jurisdiction for global investment, mergers and acquisitions, and entrepreneurism.

To some fanfare, in November 2023 the Government launched a call for evidence to consider changes to the NSI regime. The Cabinet’s office said they were particularly focused on honing the scope of the NSI Act’s mandatory notification regime, improving the notification and assessment processes and developing its guidance and communications on how the NSI Act works and where the Government tends to see risk arising.

Deputy Prime Minister, Oliver Dowden, pledged to pare back the rules to make them more business friendly. The call for evidence ran until 15 January 2024 and interested parties such as Tech UK (the UK’s technology trade association) made detailed submissions following a series of round tables with its members, including this author.

In February we learned that a sub-committee of the House of Commons’ business committee had also made a submission. But in stark contrast to the paring back agenda outlined by the Deputy Prime Minister, the sub-committee said that the NSI Act “was not keeping pace” with threats to economic security and that the UK should tighten its screening processes in response to a toughening of investment rules in the EU and the US and rising threats from China and Russia.

They added that the absence of a clear definition of “national security” in the UK was causing confusion, leading to far too many transactions being reported to the Government, creating the risk that ministers would “lose sight of the wood for the trees” and miss key transactions with security implications. In the period 1 April 2022 – 31 March 2023, the Government received 866 notifications in total.

Innovation in the UK is driven by small and medium sized entities who need investment capital to seed new ideas and scale-up. Yet the consensus amongst market professionals such as lawyers, corporate finance advisers and private equity sponsors is that getting deals “over the line”, has never been harder. Geopolitical and macro-economic headwinds continue to hinder growth and progress, with the uncertainty of upcoming elections in the US and UK adding another layer of risk.

It is therefore vital that the UK’s approach to national security and other public interests such as media plurality, as well as the threats posed by rapidly evolving technologies such as generative AI, is proportionate and provides sufficient certainty and clarity to enable informed investment and acquisition decisions.

The results of the Government’s review of the NSI regime should tell us whether it truly understands the challenges facing innovators and entrepreneurs in the UK and the importance of preserving the attractiveness of the UK as a place to invest in and do business.

Mark Howard is a corporate Partner at law firm Charles Russell Speechlys