Government to extend merger regime to smaller firms

The government has announced plans to tighten the regulations covering mergers between companies operating in sensitive areas that could affect national security.

The changes are targeted at firms that design or manufacture military and dual use products, and parts of the advanced technology sector.

Currently in these areas, the government can only intervene in mergers involving companies with a UK turnover of more than £70m or where the share of UK supply increases to 25% or over.

Ministers want to lower the threshold so they can scrutinise investment to businesses with a UK turnover of over £1m, and remove the 25% requirement.

The proposals, involving amendments to the Enterprise Act, will close these loopholes to enable greater scrutiny of foreign investment.

The government is also consulting on longer-term proposals that will allow for better scrutiny of transactions that may raise national security concerns – this could include increasing risks of espionage, sabotage, or the ability to exert inappropriate leverage.

In a public consultation, the government has asked for views on the changes it could make, including:

• introducing a ‘call-in’ power modelled on that in the Enterprise Act to allow Government to scrutinise a broader range of transactions for national security concerns within a voluntary notification regime; and/or
• introducing a mandatory notification regime for foreign investment in certain parts of the economy which are critical for national security, such as the civil nuclear or the defence sector. Mandatory notification could also be required for foreign investment in key new projects or specific businesses or assets.

The government says it will provide further details early next year following the public consultation.

Please contact Jon Alvarez if you would like more information about the issues raised in this article or any aspect of mergers and business regulations.