On June 16, 2022, the Department for Business, Energy, and Industrial Strategy (BEIS) published its first annual report regarding the National Security and Investment Act 2021 (the NSI Act). The report solely covers the period from January 4, 2022 (i.e., the date the NSI Act came into force) to March 31, 2022. Nevertheless, the report offers a series of useful statistics regarding notifications that parties have filed pursuant to the NSI Act, and the time and manner in which BEIS has dealt with such submissions. After providing a high-level overview of the NSI Act framework, we highlight the report's key takeaways.

1. NSI Act Overview

The NSI Act establishes a stand-alone regime that authorizes the UK government to consider and address the national security implications of a wide variety of acquisitions, investments, and other transactions. Under the NSI Act, the government has the authority to review so-called "trigger events" with respect to a qualifying entity or a qualifying asset, which occur when one party acquires "control" (as defined in the NSI Act) of a qualifying entity or a qualifying asset. The NSI Act defines "trigger events" broadly to cover transactions in which one party:

• acquires or increases its interest in a qualifying entity such that it crosses any of the 25 percent, 50 percent, or 75 percent thresholds with respect to equity or voting rights;
• acquires voting rights in a qualifying entity that enables it to secure or prevent the passage of any class of resolution governing the affairs of a qualifying entity;
• obtains "material influence" over a qualifying entity; or
• acquires specified control rights over a qualifying asset.

For a subset of trigger events involving qualifying entities operating in any of 17 high-risk sectors (i.e., so-called "notifiable acquisitions"), acquirers must i) notify BEIS of the trigger event and ii) obtain clearance before the trigger event closes. The completion of a notifiable acquisition without taking these steps results in the transaction being legally void. In addition, the acquirer in such transactions could face civil fines or even criminal penalties.

2. Key Takeaways from the Report

a. The Number of NSI Act Filings Has Been Consistent with BEIS's Projections

Before the NSI Act came into force, BEIS estimated that parties would file between 1,000 and 1,830 notifications each year. During the first three months of 2022, parties filed 222 notifications. If the first quarter is representative of future filing, then the total number of filings submitted each year may be slightly below the minimum number of filings anticipated by the government. However, given the general slowdown of M&A activity since the start of the year, it seems possible—and perhaps even likely—that the total number of submissions will end up being between 1,000 and 1,830 by the end of the year.

b. BEIS Has Accepted and Adjudicated Submissions Quickly

BEIS has taken an average of four working days to accept mandatory submissions and five working days to accept voluntary submissions. BEIS also has moved relatively quickly when deciding whether to call-in a trigger event for review. On average, BEIS has needed just 24 working days to issue call-in notices for mandatory notifications and 22 working days to issue call-in notices for voluntary notifications. BEIS has not published statistics regarding the average time it has taken to clear notifications that are not subject to call-in notices.

Prior to the commencement date of the NSI Act, many parties were concerned that BEIS would not have the resources to review and adjudicate submissions in a timely manner. This statistics from the first quarter suggest that this fear was unfounded as BEIS has dealt with filings promptly.

c. Parties Have Elected to Make Voluntary Filings and Retrospective Filings Sparingly

Parties submitted 222 notifications between January 4, 2022 and March 31, 2022. Of that total, 196 were mandatory notifications. By contrast, parties only submitted 25 voluntary notifications and one notification seeking retrospective validation of a completed trigger event. The sparse number of voluntary notifications may suggest that parties believe BEIS is unlikely to identify and/or call-in trigger events that are not notifiable acquisitions.

d. BEIS Has Called-In Relatively Few Trigger Events and Has Not Yet Imposed Mitigation Measures or Blocked a Trigger Event

Since the NSI Act came into force, BEIS has called in 17 trigger events for a full national security assessment. The majority of the call-in notices related to mandatory notifications with the remainder stemming from voluntary notifications.

For three of the called-in trigger events, BEIS issued final notifications, which ended the call-in review without imposing any conditions on the parties. BEIS took an average of 24 working days between calling in a trigger event and issuing a final notification for this subset of transactions.

The remaining 14 called-in notifications remained under review as of March 31, 2022. To date, BEIS has not yet issued a final order blocking a trigger event from completing or requiring the parties to undertake mitigation measures prior to closing.

The number of called-in trigger events has been consistent with BEIS's expectations: BEIS estimated that it would call-in between 70 and 95 trigger events each year, which would comprise between approximately five percent and 10 percent of BEIS' estimated total for all notifications submitted. BEIS has called in 7.6 percent of all notified transactions during the first quarter.

e. BEIS Will Release Further Guidance This Year

BEIS is expected to publish "Market Guidance Notes" later this year. Unlike the report, which primarily provides statistics regarding NSI Act notifications and BEIS's responses to such notifications, the Market Guidance Notes are expected to address and clarify a variety of substantive issues related to the NSI Act.

For more information about the NSI Act, please contact Wilson Sonsini partners Mike Casey, Stephen Heifetz, Joshua Gruenspecht, Daniel Glazer, or Beau Buffier.