A new foreign investment regime for the UK - implications for tech acquisitions

As explained in our recent LinkingForeignInvestment post, the UK's National Security and Investment Act 2021, which has now passed into law, radically overhauls the UK’s approach to foreign investment screening. While the tech sector is squarely in focus, recent changes have been introduced with a view to minimising any chilling effect on UK investment.

A standalone FI regime for the UK

For the first time, the UK will have a standalone regime, expected to lead to 1000 – 1800 transactions being notified each year, a dramatic increase from current levels. The new regime is not just for foreign investors and will therefore need to be considered by all tech investors.

Sectors impacted

Notifications will be mandatory for investments in 17 sectors that are perceived as particularly sensitive for national security (including AI, quantum technologies, and satellite and space technologies). 

However, following concerns raised by businesses and other stakeholders about the very wide scope of the proposed mandatory sectors, the Government has now published a refined set of sector definitions, with a view to ensuring they are more targeted and proportionate. 

Importantly, this will narrow the mandatory regime’s scope for certain of these key tech sectors (read more). More detailed guidance will also be provided, with the Government expecting to publish an initial set of guidance in July.

Mandatory notifications for sensitive sectors

At the last minute, the mandatory notification of acquisitions in sensitive sectors was also increased to 25% of shares or voting rights (up from the originally proposed 15%) (read more). This reflected feedback that the it would have a chilling effect on certain types of investments (e.g. venture capital investments below 25%) which are crucial sources of capital in some industries – notably the tech sector – and which deploy rapid fundraising rounds for which a 30 working day clearance process would present major obstacles. 

Parties will still need to be mindful of the risk of being called in below this threshold in sensitive transactions.

UK open for investment

The Government has emphasised that the UK remains open for investment and the steps taken seem to align with this message for critical sectors to the UK economy, including the burgeoning tech sector.

Timing

The regime is only expected to become operational towards the end of 2021. We await with interest to see it will fulfill on the UK government's ambition to have the fastest and most proportionate foreign investment screening in the world.