The National Security and Investment Act 2021 became law on 29 April 2021. It introduces a major new screening regime for investment and M&A activity in relation to targets active in the UK, particularly in certain key sectors that will be subject to the Act's mandatory notification regime. This includes deals relating to the communications sector and to targets that supply critical services to government.
The Government had initially identified 17 key sectors to which that regime would apply. The public consultation on the scope of those rules has now ended and, while the sectors remain unchanged, the Government's response has proposed some adjustments to the types of entities and activities that will be caught within each sector. The responses also offer a guide to the Government's current thinking on where it sees national security risks as most likely to arise, as well as on its appetite for allowing risk (for example, by rejecting proposals that the regime should be subject to a general de minimis financial threshold).
This article covers the likely scope of the mandatory notification regime in relation to the communications sector, and in relation to targets that are "critical suppliers to government".
Communications
The initial approach to the communications sector had the potential to give the Act a very broad reach, but the revised wording is significantly more detailed and specific. In particular, the Act will now only apply to public communications networks and services, and only if that network or service has a turnover of at least £50m. Providers of associated facilities (as defined in the Communications Act 2003, such as masts and data centres) related to such a network or service will also be caught, as will submarine cables and landing stations and various digital infrastructure services.
Infrastructure and supplies related to public networks and services will still be caught by the Act, but the Government response distinguishes between "active" and "passive" infrastructure and supplies. This will exclude from the Act acquisitions of manufacturers and suppliers of goods such as ducts and poles. The response also reveals that the Government is considering an even more detailed approach to suppliers, perhaps listing specific components that should be caught and/or including a £50m target turnover threshold.
Critical Suppliers to Government
The Government has also narrowed the entities covered by the mandatory regime because they are critical suppliers to the public sector, by excluding subcontractors, raising the security clearance levels that will need to apply to a contract before the contractor will be caught, and focusing on contracts for the provision of digital and physical security.
"Government" has also been given a defined meaning, corresponding to the definition of "contracting authority" under the Public Contracts Regulations 2015. That is itself not always a straightforward question, so procurement law expertise may come in handy when considering whether a particular target will be caught by the Act. However, leaving aside any grey areas, that definition does mean that the scope will cover essentially the whole of the public sector.
The Government's consultation response significantly narrows the scope of the mandatory notification regime in these areas. This, combined with the raising of the equity threshold at which the regime will apply to deals, means the mandatory regime should not apply to quite as many deals in these sectors as it might have. However, it will still be likely to catch a large number of deals each year, while those that no longer fall within the mandatory notification regime will still be reviewable under the 'call-in' regime if necessary. The Act will therefore remain a key consideration for many firms operating in the UK communications sector or providing services to the UK public sector, whether they are looking to buy, sell or secure investment.
To hear more about the Act, and for an opportunity to ask questions, sign up to our webinar on 18 May.
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