UK Government Extends Increased Powers For Reviewing Mergers On National Security Grounds To Additional Key Strategic Sectors

• Published date: 13 August 2020
• Subject Matter: Corporate/Commercial Law, Government, Public Sector, Technology, M&A/Private Equity, Inward/ Foreign Investment, Terrorism, Homeland Security & Defence, New Technology
• Law Firm: Charles Russell Speechlys LLP
• Author: Mr Paul Stone

The UK Government has further extended its powers to review mergers in certain key strategic sectors on national security grounds.¹ The additional sectors are artificial intelligence, cryptographic authentication and advanced materials.

The new powers follow changes made by the Government in 2018 to increase its ability to intervene in mergers involving the acquisition of businesses active in the following sectors: dual use/military use, computing hardware and quantum technology.

Further powers to undertake national security reviews of investments in the UK are expected to be proposed shortly as part of a new National Security and Investment Bill. The Bill is likely to build on proposals set out in a 2018 Government White Paper on National Security and Investment.

What are the changes?

The Government can intervene on public interest grounds, including national security, in mergers that qualify for review under the UK merger control rules or the EU merger regulation, as well as mergers involving certain defence contractors which have been notified that they hold confidential information.

In 2018, the Government amended the jurisdictional thresholds under the UK merger control rules in relation to transactions in three areas: the dual use and military use sector, computing hardware and quantum technology.

The Government has now extended the application of these amended thresholds to mergers involving target businesses in three additional areas: artificial intelligence, cryptographic authentication and advanced materials. The amended thresholds are that a transaction involving a target active in any of these areas will be caught if:

• the UK turnover of the target exceeds '1 million (the normal threshold is '70 million); or
• the target supplies or acquires goods or services in any of these areas that account for at least 25% of those goods or services supplied or acquired in the UK or a substantial part of it (the normal threshold, which continues to apply as a separate threshold, is that the transaction must increase the share to 25% or more, meaning that both parties have to supply or acquire the same goods or services in order for the transaction to be caught).

What is the impact of the changes?

The effect of these changes is that, in the additional areas of artificial intelligence, cryptographic authentication and advanced materials, a much greater number of transactions now qualify for review under the UK merger control rules than was previously the case...