January 29, 2024
The National Security and Investment Act (NSIA) was introduced in early 2022. to safeguard national security interests in the context of corporate transactions.
If you are considering selling all, or some, of your company (share sale) or your business (business/asset sale), an understanding of NSIA is important. Birketts has advised on a number of notifications since the introduction of the NSIA.
The NSIA regime has fast become one of the first considerations arising in the context of the merger and acquisition (M&A) process and it is important to address it early. Something to note is that the NSIA regime can have cost and timing implications on your M&A process and, given the lengthy timescales involved, an early notification will minimise the chance of a notification delaying the deal timetable.
When does the NSIA regime apply?
At first glance, you may consider that your proposed transaction is not within the scope of the NSIA, but it can extend to transactions which do not have an obvious national security aspect.
In addition to applying to wide range of share sale and purchase transactions where all or a majority of the shares are sold, it may also apply to a sale of a minority shareholding, a group reorganisation or an asset sale transaction.
The NSIA regime is broadly divided into two parts: the mandatory regime and the voluntary regime. Under the mandatory regime, the transaction must be approved by the UK Investment Security Unit (ISU) (an agency within the Department for Business, Energy and Industrial Strategy (BEIS)), before it can be completed. Under the voluntary regime, the transaction can be notified to the ISU by the parties and such transactions can be “called-in” by the ISU if not so notified.
If the transaction in question is a share sale/purchase, the first consideration is whether the transaction constitutes a trigger event. A trigger event occurs where the shareholding stake or voting rights to be acquired cross certain thresholds – i.e. the shareholding or voting rights exceed 25%, 50% or 75%.
The second consideration is whether the target company performs a sensitive activity, which are set out in detail under 17 broad sectors. Whilst in the case of many of these sectors, it is the service or goods that the target company provides or produces that will be under consideration, in certain sectors it is the entity to whom the services/goods are provided and/or the location where such services/goods are provided that determines whether a notification is required or advisable. The target could provide seemingly innocuous services (for example, catering services), but if such services are provided to a government entity at a sensitive government defence site, a mandatory notification might be required under the “defence” sector heading. A tech company providing software services used by the NHS or the emergency services could also be caught.
If there is both a trigger event and the target performs one of the sensitive activities in question, a mandatory notification to the ISU is required.
Even where there is no trigger event in a share transaction, the voluntary regime might apply where what is being acquired is “material influence” (e.g. where you have veto rights over strategy issues like business plans/budgets and the make-up of the board) over an entity which performs one of the sensitive activities.
In addition, the regime applies to asset sales/disposals. Where a person is acquiring control of an asset which is used in the performance of one of the sensitive activities, consideration should be given as to whether a voluntary notification should be made. This involves assessment of whether the target’s or the acquiring company’s activities could result in national security concerns and the amount of control that the acquirer will assume.
Even if your company is not carrying out a sensitive activity, a voluntary notification to the ISU may be advisable where the proposed deal gives rise to national security concerns.
What is the notification process?
Mandatory: if the transaction requires a mandatory notification, the transaction cannot close until the BEIS decides not to “call” the transaction in. The proposed buyer will make the notification through the ISU online portal. Once accepted, ISU has a 30-working day screening period. After this, ISU either clears the transaction or issues a ‘call in notice’ (giving at an additional 30-working days, which can be extended by an additional 45-working days).
Voluntary: if a voluntary notification is advised, any party can make a notification through the ISU online portal. Once accepted, the same timescales as above apply.
Care should be taken with the application itself. In particular, the applicant should ensure that their notification does not inadvertently include information which is classified above OFFICIAL according to the Government’s classification. This might not always be clear on the face of things. For example, the very fact of target performing a seemingly innocuous service without obvious national security implications (e.g. lift maintenance services) for a particular government body at a sensitive government site might itself constitute information classified above OFFICIAL.
The Government application portal itself is extremely sensitive and can (for example) reject the supporting documents that do not conform to the form that is required e.g. the headings of any PDFs attached must not contain certain characters.
What are the penalties?
If a mandatory notification is required but is not made, the transaction it relates to is legally void. Civil penalties (up to 5% of group worldwide turnover or £10m, whichever is higher) and criminal penalties apply.
For voluntary notifications, a deal can be called in for up to six months after BEIS becomes aware of it and any time up to five years after the deal closes.
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If you’re interested in further information on a share sale, get in touch with us here.
“We were delighted with the services that Bluebox offered us. Bluebox’s attention to detail through their Diamond Programme ensured that we were well prepared for when the business was taken to market and that the sale process itself was managed expertly.
We challenged Bluebox with finding the right strategic buyer and thereafter negotiating a deal that met our requirements. In helping initially to identify and to secure the deal with Mountville Mills they accomplished just that. Communication throughout was excellent and professional, managing each stage of the process. I would have no hesitation in recommending Bluebox to any corporate shareholder or private business owner looking to divest their business.”
Richard Millward, Former Client
“We were delighted with the services that Bluebox offered us. Bluebox were challenged with finding us the right strategic investor and, thereafter, negotiating a deal that met our complex requirements. In identifying and securing the deal with LGC they have done exactly that. The process itself was efficient and smooth, largely due to the excellent communication from the Bluebox team, who also demonstrated excellent experience at managing a very engaging auction process. I would be delighted to recommend Bluebox to any corporate shareholder or private business owner looking to divest a business.”
Helen Dickinson, Former Client
It has been a real privilege working with the team at Bluebox over this last year or so. Bluebox’s attention to detail ensured that we were well prepared for when the business was taken to market and the sale process itself was managed expertly. Starting the process, I had no idea exactly what this would entail and the volume of work that has been produced by everyone and the result reached today is nothing short of brilliant.
Hugh Morris, Former Client
We are delighted with the services that Bluebox was able to offer. They showed an intimate knowledge of a deal cycle, managed a tight auction process and were highly communicative from the start. I would happily recommend Paul and his team to business owners contemplating a sale of their business in the next 24 months. Experience is key and this has paid off for us.
Laurence Seward, Former Client
Aligning ourselves early with Bluebox, and entrusting the team to guide us through their process proved to be a highly rewarding investment from all viewpoints. Bluebox’s support significantly enhanced both the value of our business and its ‘saleability’. I would highly recommend Bluebox to business owners contemplating an exit in the next two years. The earlier the engagement the better so far as I am concerned.
Mike Minett, Former Client
We began working with Bluebox in early 2015 through their Blue Diamond Programme, as we were contemplating an exit. We found that the process focussed our minds on the key areas of growth in the business, and prepared us well for the inevitable rigours of due diligence. During the sale process itself, the advice offered by the Bluebox team was invaluable. We found them to be helpful, straightforward and honest.
David Stokes, Former Client
When selecting our adviser, it was extremely important that they had access to international buyers and were experienced in cross-border M&A. The team at Bluebox proved to be invaluable by identifying a strategic acquirer from America who was not known to us and by negotiating an excellent deal for all parties. I was also impressed with the process management from Bluebox, which ensured that the deal was closed in a timely fashion.
Jeff Weinstein, Former Client
When I first engaged with Bluebox, I was hesitant as to the benefits of using an advisor to firstly, find a buyer for my business and secondly, to get a deal over the line. However, now that the deal has completed with KPM, I can honestly say that the finer negotiation points handled by Bluebox and their overall management of this process has been nothing short of first class. I would be delighted to recommend Bluebox’s services to any entrepreneur contemplating the sale of their business.
Bill Ballard, Former Client
Bluebox worked closely with us over the following six months and helped us to implement some key initiatives which made InferMed a more attractive acquisition target. Once we decided to sell the business, the Bluebox team were very diligent in ensuring that no stone was left unturned. They negotiated expertly on our behalf to ensure we got the best deal possible.
Alan Montgomery, Former Client
The pre-sale planning programme that we signed up for with Bluebox made us develop our strategies and focus on the bigger picture. It proved to be a very rewarding investment from all viewpoints and significantly enhanced both the value of our business and its ‘saleability’. I would highly recommend Bluebox to business owners contemplating an exit in the next two years.
Nigel Parsons, Former Client
I have experienced first hand the value that can be created through highly structured pre-sale planning. It amazes me that it is not something that everyone does. It is so disappointing to see around 90% of transactions collapse before they complete and pre-sale planning will not only enhance your price, but also significantly enhance your chance of a closed deal.
James Caan, Investor
We worked incredibly closely with our advisers who provided expert knowledge of the sale process with which we were not familiar. We were truly delighted with the results.
Marten Nielson, Former Client
We appointed advisers to manage the sales process after we had received a number of unsolicited approaches for the business. I was incredibly impressed by the immense value that could be created by expertly negotiating with a group of already interested parties.
Paul Duckworth, Former Client
I was delighted with the service that the team offered and their real attention to detail. The deal was not without its complexities and it was reassuring to have such experienced advisers assisting me throughout the negotiations.
Peter Bennett, Former Client
Truly delighted with the way my sale process was managed. The fact that the team I worked with achieved such a great multiple is testament to their experience and their ability to create some true competitive tension.
James Averdieck, Gü, Former Client
The team at Bluebox provided invaluable support in negotiating this complex transaction. Their access to international purchasers, and exceptional knowledge of cross border M&A ensured that the deal was concluded efficiently, achieving a highly successful outcome for us all.
Jon Parslow, Former Client
“We selected Bluebox after a fairly long round of evaluating potential advisors because of their scientific, yet challenging approach to maximising value. During our initial meetings they showed us how far short of “ready” we were and consequently we completed more preparation in the early stages which meant we were equipped for what was to come. We were delighted with our choice of Corporate Finance partner. I do not hesitate in recommending Bluebox for any SME to consider.”
Simon English, Former Client
Bluebox provided invaluable advice in managing the negotiations with incoming investors. Their skills in handling these discussions were evident from the outset and the vital interface that they provided between the incumbent team and the incoming investors was truly beneficial.
Henry Braham, Former Client
Bluebox have a professional, dynamic and experienced team that is greatly assisting me with my focus on my exit within the next 24 months. Their structured approach is very refreshing and their ‘Blue Diamond’ programme is adding immense value.
Matt Evans, Former Client
The team at Bluebox provided me with a seamless service from the start of the engagement until our deal was completed. Attention to detail was commendable and their understanding of corporate M&A very impressive. I could not recommend them highly enough.
Victor Lewis, Former client
Having tried to sell my business previously – and failed – I was only too aware of the importance of pre-sale planning. This is a talented team offering a service that most people find out about, but too late.
Simon Hulme, Former Client
Bluebox are a quality outfit. Their access to International acquirers and relationships with the highest quality domestic investors was impressive. My shareholders and I received excellent service from start to finish and it was refreshing to be dealing with a senior team throughout the sale exercise.
Michael Clapper, Former Client
I cannot recommend the team at Bluebox highly enough. Their expert guidance throughout the entire sale exercise resulted in my shareholders securing an excellent deal with which the entire team was delighted.
Mark Rodol, Former Client
I’m really pleased with the service Bluebox provided. The team demonstrated excellent knowledge of the process to follow and led negotiations for the hospital in a way that allowed us to ensure we received appropriate value whilst focusing on reputational risk. Communication and service were of a very high standard.
Steven Davies, Former Client
With Bluebox’s expert advice we were able to find the right buyer that will benefit our business strategically. We’re delighted with the outcome and look forward to starting our new chapter
Clive Hillier, Former Client
The advice offered by the Bluebox team throughout the process was invaluable to the shareholders. We strongly believe that participating in Bluebox’s pre-sale planning programme was a significant driver behind the success of the deal. Their project management and negotiation skills throughout the sale process itself resulted in an exceptional deal being delivered to all parties involved.
Harpal Singh, Former Client
I chose Bluebox because they were the only CFA we considered who were a real ‘solution sales’ organisation rather than a team of accountants and/or ex-bankers! Selling a business is a solution sell and therefore a sell-side CFA requires this skill at its core.
Jeremy Harford, Former Client
Bluebox were a full solution in every respect. As an example, I never spoke with any of the potential or actual buyers directly. This separation allowed Bluebox to do what they do best which is to sell companies for the best price and on the most favourable terms.
Jeremy Harford, Former Client